If you've noticed that your favorite snacks, beverages, or household products seem to be getting smaller these days, you're not imagining things. "Shrinkflation" is the practice of downsizing product sizes while keeping prices the same. For cost-conscious companies, it's an sneaky alternative to simply raising prices.
Rather than transparently increasing the per-unit price, companies are able to discreetly pass along higher costs to consumers by selling them less product for the same money. With shrinking package sizes, from candy bars to toilet paper rolls, shoppers often don't notice they are getting less for their dollar until the products are side-by-side.
How Companies Are Discreetly Downsizing Products
A prime recent example is Gatorade, which reduced the size of its standard 32oz sports drink bottle to 28oz while keeping the $1.59 price point. That's a 12.5% reduction in product size with no change to the sticker price. Essentially a hidden 14% price hike for consumers. In many cases, the shrinkflation tricks can be difficult for shoppers to detect on standard grocery shelves or online. Unless they are carefully scrutinizing labels or weights, most assume the packaging and pricing is consistent over time. For companies, the benefits of shrinkflation are obvious. They can pass along rising costs for ingredients, labor, transportation and other inputs without spooking customers with sticker shock over higher prices. It also helps them hit desirable per-unit price points or psychological pricing levels (like $1.99). The drawbacks for shoppers are getting less bang for their buck, and ultimately paying more per ounce or pound than they expected for a given item. Since the serving sizes listed on Nutrition Facts often don't change, people may also be unknowingly consuming more calories or nutrients than they intend.
Investor Perspective
Monitoring shrinkflation can provide insights into the financial pressures facing consumer brands and retailers. If companies are feeling the need to obscure price increases through downsizing, it can signal they are being squeezed by rising costs that they cannot or will not pass through transparently to shoppers. Rampant shrinkflation could also portend more visible price hikes down the line if cost pressures persist. So while shrinking sizes may help profitability in the short run, it's not a sustainable long-term solution if input prices continue climbing.
Given how easily shrinkflation can fly under the radar, vigilantly watching package sizes and weights could uncover cost pressures before they hit companies' earnings reports. Paying keen attention to this sneaky trend can give investors an informational edge over those who don't scrutinize the fine print.
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