Introduction: -

Shrinkflation is downsizing the size of the product while maintaining the price. To define it economically, shrinkflation is the practice of retaining the price of the products, while the quantity or the size is reduced. It is a form of hidden inflation. Instead of increasing the price which becomes evident to the consumers, the quantity is reduced which offset the higher production cost of the manufacturers, saving their money in the long run. This practice is widely used by the producers in the Food and Beverage Industry. It is a common strategy used by them to help with their own inflation drawback. It also helps in deceiving consumers into believing that the brands are not affected by inflation since the quantity or the size is reduced by very small amounts. Even though the practice negatively impacts the consumer’s lives, it is not viewed as fraud or misrepresentation of products. It is just a smart tactic used by the producers to save cost.

Factors causing Shrinkflation:

1. Higher Production Cost:

The primary cause of shrinkflation is the rise in production cost. The producer’s profit margin diminishes subsequently due to increase in cost of ingredients or raw materials, energy commodities, and labour. They reduce the quantity or size offered to consumers as a countermeasure. This strategy is applied against immediate rise in price, because consumers generally do not pay attention to minor changes in quantity. Due to this, the sales volume is also not affected.

2. Intense Market Competition:

Fierce competition in the marketplace may also cause shrinkflation. To attract customers, the producers may maintain prices which in turn also guarantees the profit margins. We can take the example of supermarkets where they have huge competitive edge due to their large scale operations. In such circumstances they do not pass on the burden of increased cost to consumers. Due to which the only option available to small producers is to follow this strategy to retain customers by maintaining retail prices.

Impact on Consumer Sentiment: -

The regular consumers are not oblivious to sufficiently small reduction in the pack size. They are more deterred when there is an increase in price. This practice affects the consumer’s ability to make informed choices while buying products. The corporates also smartly deflect the consumer’s attention from the smaller packages by highlighting the message of “Less is more”. For example, claiming smaller portions leads to health benefits or environmental advantages of less packaging. The impact of such practice on consumers may be explained with the points below :

Examples of Shrinkflation:

Conclusion: -

To maintain their customer base and profitability, Shrinkflation is a useful strategy used by the producers. Most consumers won’t even notice the small changes done in the packaging of the products, but the strategy can backfire and can have adverse effects on the brand image. For example- Cadbury reduced the size of Diary milk by 10%.Earlier, the Diary milk bar was used by all for gifting purpose. But, today due to its reduction in size, it can no more be used to for the purpose. This strategy will have detrimental effect on consumer sentiments, which will lead to loss of trust and confidence of consumers in the brand. The harsh reality of shrinkflation is that, the consumers pay the same price for lesser volume and quantity.

Even though it being a powerful strategy, its use remains limited. It should be used as a last resort by the producers because its use beyond the limit can have disastrous effects on the company brand.

(This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)

Authors:

CA Hardik Patel

Partner| +919870738130 | hardik.patel@masd.co.in |LinkedIn profile

Shripriya Aithal

Associate Consultant |+918779984264|shripriya.aithal@masd.co.in|LinkedIn profile