Shrinkflation unpacked

As manufacturers across various industries seek to cope with rising production costs, many are turning to “shrinkflation” to survive.

Consumers may notice their favourite products seem to be shrinking, not based on a shortage, but as a response to a complex economic landscape. Shrinkflation affects consumers and the market.

Q: What is shrinkflation?

Poonpong Naiyanapakorn, director-general of the Trade Policy and Strategy Office (TPSO), said shrinkflation describes the practice of reducing the size or quantity of a product while the price remains the same or slightly increases. The phenomenon has become quite common in the food and beverage industry.

It is a strategy employed by manufacturers to maintain profit margins as production costs rise. By reducing the amount of product without changing the price, companies can avoid an obvious price hike and continue to generate revenue.

A less common usage of this term refers to a macroeconomic situation when the economy is contracting while also experiencing rising prices.

The Consumer Price Index (CPI) measures inflation by tracking the changes in prices paid by consumers for a basket of goods and services over time.

The goods and services listed in the CPI include food and beverages, housing, apparel, transport, medical care, recreation, education and communication.

The CPI is calculated using the prices of a fixed basket of consumer goods in one period and comparing them with that same basket recorded in a previous period.

The TPSO has a method to calculate inflation that assesses the changes in the price of a product based on its weight.

Therefore, if a manufacturer or distributor reduces the weight of a product but maintains the sticker price, that means the price per unit increases, reflecting an increase in inflation.

This illustrates the meaning of shrinkflation, a portmanteau that combines two distinct words, namely shrink and inflation, into a single word.

No matter the marketing gimmick used, including “buy one, get one free” to stimulate sales, the use of shrinkflation represents a hidden form of inflation. Instead of raising the price of a product, which would be immediately apparent to consumers, manufacturers opt to maintain the price, but reduce the size of the product.

Although the price of the end product is unchanged, the product’s price per unit of weight has increased.

The CPI developed by TPSO can accurately reflect changes in product prices and support effective formulation of economic policies by policymakers and economists.

Q: Which products have recently been subject to shrinkflation?

Some examples of shrinkflation include everyday products, such as bottled water, milk, laundry detergent, vegetable oil and sugar. These products are purchased often and the usage per purchase is steady. Reducing the quantity of such a product would cause stores to quickly run out of supplies, leading consumers to become immediately aware of the situation because of increased prices.

For non-essential products such as snacks and special beverages, which consumers are more selective about purchasing as they practise comparison shopping, a reduction in quantity would have a minimal impact on consumers in terms of the cost of living.

Q: What’s the long-term impact of shrinkflation?

As shrinkflation becomes more prevalent, it can have lasting effects on consumers.

The hidden inflation caused by shrinkflation can make it increasingly difficult for individuals to maintain their budgets and plan their expenses.

In addition, the reduction in product sizes can lead to more waste, as consumers may need to purchase more items to satisfy their needs. This can contribute to environmental issues, such as increased packaging waste and carbon emissions associated with the production and transport of goods.

Despite the various drawbacks for the consumer, many manufacturers say shrinkflation aligns with modern consumer behaviour. They claim there is a trend towards miniaturisation, as consumers prefer small, lightweight products that are easily stored and used.

Some manufacturers claim a smaller amount reduces the risk of overconsumption, suggesting it promotes good health and well-being. Others have claimed a smaller portion of a product caters to consumer demand for greater experimentation and diversity.

Shrinkflation is accelerating worldwide, as businesses and retailers deploy the strategy in response to rising costs such as labour, oil prices, elevated interest rates, baht depreciation, the cost of electricity amid scorching temperatures, as well as a higher level of competition because of the import of cheap products via e-commerce.

Another strategy used by manufacturers to avoid raising prices while maintaining income is known as “skimpflation”. This is when manufacturers produce a similar product in terms of appearance, but utilise cheaper ingredients in the production process to reduce costs.

The Commerce Ministry is monitoring product prices to control the rising cost of living.

If a product is on the list of controlled goods and services, the ministry will use price control mechanisms and prohibit the sale of these products for more than the specified price.

The ministry has vowed to do all it can to control rising consumer product prices, using price checks to determine whether the price actually reflects production costs.

Q: Do Thai shoppers recognise shrinkflation?

A recent survey by Ipsos (Thailand), a multinational market research and consulting firm, focused on the phenomenon of shrinkflation in the Thai market. According to the findings, 39% of Thai consumers noticed a reduction in product sizes.

Another 57% have noticed prices rising, despite product sizes remaining the same, while 29% believe the ingredients of a product have changed without a corresponding adjustment in price.

“Roughly half of Thais think it is acceptable for businesses and retailers to reduce the size of their products while keeping prices the same,” Ipsos said.

In terms of product categories, 52% of respondents reported noticing shrinkflation in the savoury snack category, while 50% recognised it in pre-prepared meals, followed by chocolates and sweets (46%), fresh vegetables and fruit (40%), frozen snacks (36%), non-carbonated drinks (34%), bread (34%), fresh or frozen meats (31%), milk (31%), coffee (30%) and carbonated drinks (30%).

The survey also explored global perceptions, reporting that 46% of respondents in 33 countries said they noticed product sizes becoming smaller with the price remaining the same.

Among countries that recognised shrinkflation the most, the UK led the way (64%), followed by France (63%), Germany (62%), Canada (60%) and the Netherlands (59%).

Of the 33 countries Ipsos surveyed, the French (67%) were the most likely to describe shrinkflation as being “unacceptable”.

The French government is requiring manufacturers to immediately inform consumers of the price per unit and any adjustments to a product’s size or quantity, effective from July 1, 2024. Retailers must provide the information for two months from the date they decide to start selling a smaller product.

Q: Are there any laws or regulations to protect consumers against shrinkflation?

There have been no recent developments in Thailand’s consumer protection against shrinkflation. However, Thailand passed a law in 2022 to establish the Thailand Consumers Council.

The council consists of several consumer protection organisations. The purpose of these organisations is to protect consumer rights, supporting and monitoring any problems relating to products or services. The council also assists other consumer protection organisations.

However, there are very few representatives from consumers, causing an imbalance in terms of bargaining power between manufacturers and consumers.

The Consumer Protection Act of 1979 is the main Thai law that seeks to protect consumers from unfair practices. However, the act imposes no requirements on sellers to disclose information about a change in the size or quantity of a product, while maintaining or increasing the price.

The government has promoted a plan to raise the daily minimum wage to 400 baht later this year, and some onlookers have noted concerns this could exacerbate shrinkflation.

“However, there is no index that can evaluate the shrinkflation,” said Saree Ongsomwang, secretary-general of the Thailand Consumers Council.

Source – Bangkok News