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Shrinkflation to force consumers to stretch budgets

  • It’s the process where companies reduce item sizes and sell them for the same price.
  • A bag of toasted muesli cost $3.85 in 2020 for 1kg and is the same price in 2022 for 750g.
  • The Consumer Price Index (CPI), or household inflation, rose 1.3% in the December 2021 quarter and 3.5% annually.

Many consumers are feeling like their grocery shopping bags are much lighter for the same spend these days as supermarkets seemingly sell smaller packets for the same price.

Known as shrinkflation, which is a portmanteau of the words shrink and inflation, is the process by which there is a rise in the general price of goods per unit of weight or volume, brought about by a reduction in the weight or size of the item sold.

Basically, instead of raising prices to the ire of consumers, companies simply, and often quietly, reduce item sizes and sell them for the same price.

With concerns of an interest rate hike, inflationary pressures, the conflict between Russia and Ukraine adding to energy costs, and already broader price rises, there are fears shrinkflation could now hit consumers on top of that.

It’s already happening. A bag of toasted muesli that cost $3.85 in 2020 was still $3.85 in 2022, however in 2020 muesli-lovers got a kilogram whereas this year that same bag was 750 grams.

Many companies do it, particularly those offering items such as potato chips, confectionery, and chocolates.

Cadbury is Australia’s leading player in the chocolate market and unlike many in the sector sometimes announces such a move. It has a long history of reducing the size of items and selling them at the same price.

In February 2015, Cadbury, began reducing the size of its big-selling family blocks of chocolate by about 10% to save costs. Blaming rising packaging and raw material costs at the time, Cadbury chose to shrink the 220g weight of the product to 200g rather than increase the $4.99 recommended retail price.

Cadbury Dairy Milk Chocolate 180g currently sells for about $5.

The Consumer Price Index (CPI), which measures household inflation, rose 1.3% in the December 2021 quarter and 3.5% annually, according to the latest data from the Australian Bureau of Statistics (ABS).

Rising production costs are generally the primary cause of shrinkflation, as the increases in the cost of ingredients and raw materials, as well as rising labour production costs, effectively diminish producers’ profit margins.

Shrinkflation is not to be confused with stagflation, otherwise known as recession-inflation, which describes an economy with higher-than-normal inflation and unemployment rates but little to no economic growth.

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