🔥 Shrinkflation

Do you want to know what's causing you to spend the same but consume less?

🏷️ First things first...

Before starting with what Shrinkflation is, let’s clarify what Inflation is.

The simplest definition is - Inflation means rising prices. This makes sense right? Petrol prices go up. Wheat prices go up. But what causes inflation? Inflation happens when there is more money in the economy than stuff to spend it on. If you wanna understand inflation super fast, check out one of my favourite YouTubers Johnny Harris's video where he explains Inflation under 6 mins.

So what does inflation has to do with Shrinkfaltion?

For that, we need to understand how products are being priced. For instance, one gram of gold is 4,500 INR and one stock price of Apple shares is 150 USD. How items are given a particular price?

This comes from general economics. Prices are determined by the market forces of demand and supply. At a particular price, supply meets demand. At this equilibrium price, there is exactly enough supply in the market to meet the demand of the buyers.

🤑 Back to Shrinkflation

Have you ever felt there are fewer chips in the Lays packet or the size of the 5 INR Dairy Milk has been decreasing over the years? Have you wondered why the Dairy Milk from your childhood is being sold for 5 INR even now in spite of prices of raw materials such as sugar, and cocoa going up and even the running costs? But the company has to make a profit right? At the same time, they can’t rise the prices of the Diary milk which can reduce their sales.

Apparently, the companies reduce the quality or the quantity of the goods or sometimes even both without increasing the prices. This strategy is called Shrinkfaltion.

Not just the public face inflation, companies do face them. And companies adopt this strategy to beat the inflation that they face.

So in the case of Dairy Milk, Cadbury has reduced the quantity of the 5 INR diary milk from 12 grams in 2010 to just 6.6 grams in 2021. That's roughly a 45% reduction in size over 10 years.

⚠️ Shrinkflation is dangerous

Shirnkflation in all forms is easy for companies to pass on to customers rather than increasing prices. This is because research shows people shop by price than shop by weight or quality in a few cases.

In fact, Shrinkflation is even more dangerous than Inflation. Why?

• Inflation = Higher prices. Same consumption. (Tangible and controllable if you spend wisely)

• Shrinkflation = Same prices. Less consumption. (Intangible and uncontrollable)

Companies really don’t want their customers to feel the shrinkflation. So what do they do? They change their way of existing packaging so that customers won’t feel a reduction in weight or sometimes they launch special editions with funky packaging attracting customers.

🧐 Where is Shrinkfaltion?

TBH, it is everywhere. Probably we haven’t noticed deeply.

• Fewer chips in the Doritos.

• Lesser cleaner rooms in hotels (quality shrinkflation).

• Change in the shape of the bottle of a drink.

• Smaller portions of food on the plate at your favourite go-to restaurant, and much more.

But they still charge the same amount or even sometimes even for more money.

Adopting shrinkflation isn’t easy for companies. So when they undergo downsizing, they need to change their product packaging and market their new products again, and it takes time to reflect on their supply chain. So companies are gonna do it when their hands are very tight and they are in a desperate search for profits and when they think Inflation is really gonna last.

So the key takeaway is we consumers should expect shrinkflation to last. Since prices are not gonna go back, sizes aren’t gonna go back and once a company has trained their consumers on what to expect they are never gonna change the size or price of the product.