Consumers are getting less product in return for their money because of shrinkflation. This economic principle is utilized by companies who would prefer to cut production costs than directly raise prices for consumers. "If [firms] find a strategy, like shrinkflation that doesn't impact the amount of goods they’re selling as much, then they will take advantage of that strategy because it's more efficient," Texas A&M economics professor Paul Feldman said. Photo by Will Gaffey
By Will Gaffey
In bustling grocery store aisles, a subtle yet dangerous change is happening right under consumers' noses.
From slightly smaller chip bags to an indent in a drink, the phenomenon of shrinkflation,and its lesser-known cousin, skimpflation, are stretching dollars thinner without consumers knowing.
The traditional model of inflation states that as resource costs increase and the economy expands, producers would prefer to cut production costs, for instance through layoffs, than raise prices for consumers. However, doing this without impacting a good’s perceived value is a difficult task.
"When the quantity decreases for the same price, that becomes shrinkflation,” economics professor at Southern Methodist University Sreemukar Bhaskaran said. “Consumers never like either of those, but shrinkflation can be harder to notice.”
Shrinkflation is, in simple terms, when businesses decrease the size of a good while keeping the price constant. Skimpflation, on the other hand, is the practice of cheapening the ingredients or materials used to produce a good while maintaining static pricing.
“If you look at Oreo cookies these days, they are much thinner than they used to be. On top of that though, the cream filling doesn’t reach out as far as it used to,” Bhaskaran said. “If a consumer was to compare a new Oreo to an old Oreo, it would undoubtedly affect their perception of the brand, but the average consumer just won’t notice things like that.”
“People are basically making less money, and their dollars go a lot less further."
Because of this lack of consumer awareness, shrinkflation allows for lower consumer dissatisfaction than traditional adjustments for inflation, such as price changes, which consumers are predisposed to keep an eye out for.
“If a firm expects inflation to keep increasing, then they will need to keep increasing their prices,” Texas A&M economics professor Paul Feldman said. “But if [firms] find a strategy, like shrinkflation that doesn't impact the amount of goods they’re selling as much, then they will take advantage of that strategy because it's more efficient.”
These practices aren’t necessarily new. It has long been commonplace for firms to employ a mix of price increases, recipe adjustments and size reductions in their cost-cutting policy, but as shrinkflation and skimpflation have become more commonplace in the U.S. inflationary economy, consumers are starting to notice.
“Of course people don’t like this—they feel like they are being taken advantage of, like companies are trying to pull a fast one on them,” Bhaskaran said.
In fact, a 2023 YouGov poll showed that nearly three-quarters of American consumers are concerned about shrinkflation, with 41% claiming to be very concerned.
“It's understandable,” Feldman said. “People are basically making less money. Their dollars go a lot less further, so it's natural for consumers to have a very visceral reaction.”
This being said, the notion that shrinkflation and skimpflation are a means for firms to cheat customers out of their cash isn’t completely true, as inflation affects these corporations in the same way it does consumers.
“It seems [to consumers that] manufacturers have the flexibility to keep increasing prices, but they don't,” Bhaskaran said. “That pressure that they feel is what creates the need for new inflationary measures.”
Furthermore, consumer understanding of these trends is often misled. For example, skimpflation is usually described as the replacement of high-quality ingredients with lower-quality ones, when in reality, the phenomenon is much more complex.
“It seems [to consumers that] manufacturers have the flexibility to keep increasing prices, but they don't."
“Manufacturers look at every step of the process, from purchasing the ingredients to procurement, and make sure that they do everything they can to ensure the best prices for the longest amount of time,” president of the Texas Food Processors Association Janet Adams said. “So it's more about simplifying the ingredients as opposed to cheapening them.”
Even if there were no transparency issues, firms would still employ these techniques as a means of formulating a balanced budget. As a result, government action has been proposed as a way to mitigate consumer-producer conflicts.
“In South Korea, for example, they came to the conclusion that shrinkflation wasn’t fair to consumers, so they made it a requirement that manufacturers actually tell consumers when they reduce the quantity of a product,” Bhaskaran said. “If it turns out that there’s 20% less of a good, that would need to be displayed.”
Ultimately, both shrinkflation and skimpflation represent a broader economic shift in the country, a result of increasing inflation and a signal of a possible recession.
“Always just step back and ask yourself ‘why’,” Adams said. “A lot of the time the underlying trends are more complex, and sometimes it's important to frame that within the context of the alternatives.”