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What is the News?
Companies are resorting to the strategy of Shrinkflation to reduce the impact of rising input costs.
What is Shrinkflation?
Shrinkflation is a combination of two words, “shrink” and “inflation”.
It is the practice of reducing the size of a product while maintaining its sticker price.
Shrinkflation is basically a form of hidden inflation.
Examples of Shrinkflation: Shrinkflation is done most commonly in the food and beverage sector, though it may occur in any industry:
– The size of a chocolate bar is reduced from 60 grams to 55 grams, with no resultant decrease in price.
– The pages of a notebook are changed from 1000 to 800 and the price remains unaltered.
– The size of the cold drink bottle is dropped to 750ml from 800ml and no change in price is done.
What are the causes of Shrinkflation?
The main reasons for shrinkflation are:
Increase Production Costs: Due to the increase in the various elements of production costs such as raw materials, labour, power cost, and so on, the manufacturers are compelled to follow shrinkflation as the increasing costs eat up their profit margins.
Strong level of Competition: Another main reason that leads to shrinkflation is high competition in the industry. To attract customers by maintaining the prices, the producers can maintain their profit margins by adopting this strategy.
What are the implications of Shrinkflation?
Shrinkflation runs the risk of turning customers away from a product or brand if they notice they are getting less for the same price.
Shrinkflation makes it harder to accurately measure price changes or inflation. The price point becomes misleading since the product size cannot always be considered in terms of measuring the basket of goods.
Source: This post is based on an article “Shrinkflation: How inflation is downsizing some of your favourite foods” published in WEF on 31st March 2022.