Is shrinkflation becoming the new inflation?
For nearly three years, consumers have struggled against high inflation. In December, according to the Consumer Price Index, inflation was reported at 3.4%, still well above the Federal Reserve’s target rate of 2%. The last time inflation was at or below 2% was back in February 2021 (1.7%).
With inflation at 3.4%, this means that, on average, consumer prices have risen 3.4% over the past 12 months. However, since February 2021, consumer prices have risen a cumulative 17.1%. For many consumer items, the increase has been even greater. Since February 2021, food prices have risen 20.3%, prices on housekeeping supplies have increased 18.4%, the cost of shelter has risen 18.4% while energy prices have risen 26.3%. In total, the average American household is now spending about $12,000 per year more to buy the same goods and services they bought three years ago.
Manufacturers and retailers are well aware the pressures that rising prices have placed on consumer households. At some point, either out of financial necessity or choice, consumers will inherently reduce their spending. Rather than continually raising their prices, manufacturers and retailers have been gradually – and quietly – reducing the size, weight and quantity of their products. Known as shrinkflation, the industry practice is not new but is a trend consumers have been noticing with greater frequency.
A stroll down your local grocery aisle yields some interesting examples of shrinkflation. A bottle of Gatorade, which once held 32 ounces, now holds just 28 ounces, a decline of 12.5%. A family-sized box of Nabisco Wheat Thins has shrunk from 16 ounces to 14 ounces (-12.5%). A box of Quaker Oatmeal now contains eight 1.05 ounce single-serving packets instead of 10 (-20%). A bottle of Pantene Pro-V Curl Protection conditioner has been reduced from 12 ounces to 10.4 ounces (-13.3%). A roll of Bounty paper towels has shrunk from 165 sheets to just 147 (-10.9%). Even toilet paper – the fiends! – can’t escape the grasp of shrinkflation. The number of sheets in a roll of Charmin Ultra-Strong Mega Roll has been reduced from 264 to 242 (-8.3%). All these are just a few of the many examples where consumers are receiving less product for their money.
In a survey by Morning Pro Consult, the majority (65%) of U.S. consumers say they are either very or somewhat concerned about shrinkflation. Understandably, it has forced consumers to take measures to mitigate its impact. In the survey results, which allows for multiple selections, 49% will purchase a different name brand while 48% will purchase the generic brand. 33% will buy the product in bulk. Finally, and perhaps most importantly, 30% will simply stop purchasing the specific brand altogether.
This creates a difficult balancing act for manufacturers and retailers. On one hand, they too are impacted by the rising costs of inflation which eats into their profitability. On the other, they must maintain a level of consumer affordability and price sensitivity while not putting their brand loyalty at risk. As the survey results suggest, consumers can be quick to switch brands, and their loyalty, when offered better value-for-money.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
