Grocery shoppers notice something strange. Bags of chips filled with air. Soup cans that have shrunk. Smaller packets of detergent.
Companies are downsizing their products without lowering prices, and consumer commentary from Reddit to TikTok to the New York Times comments section is filled with outrage over the trend, known as shrinkflation. English).
The practice is not new. To avoid price hikes, retailers have been quietly discounting products for centuries, and experts believe this has been an obvious corporate strategy since at least 1988, when the Chock Full o’Nuts brand reduced its coffee pot from 455 grams to 368 grams and its competitors followed suit.
But today the outrage is even more pronounced. President Joe Biden expressed the anger in a recent video. (“What makes me most angry is that the ice cream containers have become smaller, but not the price,” he lamented). The companies themselves exploit this practice with advertising tricks. A Canadian chain introduced a Growflation pizza. (“In terms of pizza,” the company’s press release joked, “a bigger slice.”)
But how does redflation work from an economic perspective? Is it more common in the United States, and if so, doesn’t the official data reflect the true extent of inflation? Below we explain the trend and what it means for your wallet.
In 2016, redflation was widespread
It may be hard to believe, but redflation seems to be less common today than it was a few years ago.
The U.S. government is adjusting official inflation data to account for shrinking product sizes, and data collectors who monitor size adjustments found fewer instances of shrinkage in household and grocery items in 2023 than several years earlier.
The decline was common in 2016 when overall inflation was low. The number became rarer after the pandemic began in 2020 and more recently returned to pre-pandemic levels, according to analysts at the Bureau of Labor Statistics. (Economists noted that the amount of products measured has changed somewhat over the years, making comparisons over time more of an approximation than an exact science.)
However, for some products the extent is now more pronounced
While size reductions may not be as common, downsizing is having a big impact on some key categories like candy, laundry detergent and toilet paper.
From 2019 to 2023, redflation increased inflation for products such as paper towels and toilet paper by about 3.6 percentage points, up from 1.2 percentage points from 2015 to 2019. In recent years, the decline has also contributed most to the price increase of candy, toilet paper and cleaning products .
For snacks, size reductions contributed 2.6 percentage points to inflation, roughly equal to their contribution from 2015 to 2019. The government has not yet published an analysis of the contribution of downsizing to overall inflation from 2019 to 2023.
Redflation is measured, but skimflation is not
The decline itself is reflected in the official inflation data, but there is another hidden force at a cost to consumers that does not show up in the statistics. Sometimes companies use cheaper materials to save costs, a practice some call “skimpflation.” It’s much harder for the government to measure.
If a roll of paper towels costs the same but the number of sheets is less (reduflation), the increase in the unit price is added to official inflation. If the paper towels are the same size but suddenly made of inferior material (skimpflation), the government doesn’t record this as inflation.
In fact, according to government statisticians, food and household products do not directly adapt to changes in quality other than size and weight. This way, if the brand of microwaveable food you buy starts using vegetable oil instead of olive oil or the resealable container comes without a seal, it won’t be noticeable.
Companies do it because it works
Companies choose to make their products smaller rather than charge more for one simple reason: consumers tend to focus more on price than size.
When the numbers go down, “people may notice, but often they don’t,” says John Gourville, a professor at Harvard Business School. “There is no impact in seeing it on the label.”
A famous example is Dannon, which used to sell yogurt in larger containers than its competitor Yoplait: 226 grams versus 170 grams (eight ounces versus six). Consumers were convinced that Dannon’s yogurt was more expensive and didn’t realize that it was simply bigger. In the end, the company gave in and reduced the packaging size.
“Dannon’s yogurt sales, which fell immediately after the downsizing, have since recovered,” the Times reported in 2003. “And Dannon now rakes in a bigger profit for every cup of yogurt sold.”
Not all resizing is created equal. Some of these can be done secretly, such as enlarging a slit in the bottom of a glass or cutting off the corners of a bar of soap. Consumers find it particularly difficult to detect size changes when they occur in three dimensions, says Nailya Ordabayeva, an associate professor at Dartmouth’s Tuck School of Business who has studied consumer responses.
“The brain is programmed to perform simpler heuristics,” he explains.
In addition, consumers may be willing to accept, or in some cases even prefer, smaller quantities, he noted. For example, junk food products have sometimes been shrunk to reduce the calorie count.
However, consumers could react negatively
If companies simply focus on their profits – rather than their consumers – pricing experts worry that continued redflation will scare off buyers.
As raw material costs rose and inflation was in the news, consumers most likely realized that companies would have to pass on some of these increases to them. According to several experts, it’s even possible that they preferred smaller products over higher prices.
But overall inflation has now calmed down: after a peak of 9.1 percent in July 2022, it fell to 3.1 percent by January. And consumers may be less willing to accept redflation because companies now face less severe cost pressures, particularly because food companies’ profits have been high and, in many cases, continue to be high.
They may simply feel betrayed.
“I see consumers becoming more and more aware of redflation,” said Jun Yao, a marketing professor at Australia’s Macquarie University who has studied the trend.
And as more chains and online retailers publish unit prices, shoppers may be more attentive to size changes, Yao said, which could counter shrinking portion sizes in the future.
This practice can be “counterproductive and damaging to the brand image,” he said.
Jeanna Smialek writes about the Federal Reserve and the economy for the Times from Washington. More from Jeanna Smialek
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2024-03-02 07:00:06
www.nytimes.com
