Companies grappling with the highest inflation in 40 years face a quandary: How can they pass along rising costs without obvious price hikes that drive customers away?
The answer is “shrinkflation.” While consumers are keenly focused on the price of goods, they are less aware of small changes to the size or volume of products. Shaving a few pretzels or cookies from familiar packaging or reducing the size of a drink container ever so slightly can save companies money. And consumers often don’t notice that they’re paying the same for less.
“Shrinkflation is a way to disguise inflation, and we see it commonly with food and beverages, or disposables [products] like garbage bags, things with a lot of turnover,” said Chris Motola, a financial analyst at MerchantMaverick.com, a comparison site for small businesses shopping for financial services. “This is not a new thing.”
But shrinkflation — a mash-up of the words shrink and inflation — is a tool most companies repeatedly use without penalty. A few eagle-eyed shoppers may home in on the slightest change to their favorite brands. But if a company labels its product clearly and accurately, shrinkflation is perfectly legal.
“It’s not fraud,” Motola said. “But they count on consumers not to do the math.”
Edgar Dworsky, editor of ConsumerWorld.org, a consumer newsletter and advocacy group, can rattle off a list of products downsized by the shrinkflation treatment. Over roughly the last six months, Procter & Gamble’s Gain detergent has sold less liquid — 154 ounces, down from 165 ounces — but in the same bottle fetching the same price, Dworsky noted.
“Over the past 60 years, we’ve seen Charmin toilet paper go from 650 single-ply sheets on a roll to the equivalent of 90% less,” to under 70 sheets a roll today, said Dworsky, a former assistant attorney general in Massachusetts and consumer advocate. P&G did not respond to requests for comment.
Most recently, Charmin ultra soft “mega” rolls shrank from 264 double-ply sheets a roll to 244 sheets. And “super mega” rolls dropped from 396 sheets to 366 sheets.
“It’s a backdoor price increase,” he said. “Some companies might be doing both. A big price increase is blunted because they reduce the product a little and raise the price a little.”
Shrinkflation might sneak by shoppers, but the Labor Department’s Bureau of Labor Statistics, which releases inflation data, tracks some products by quantity and weight and will note a price increase if consumer pay the same for less, the Wall Street Journal reported.
For example, Cottonelle toilet paper, made by Kimberly-Clark, also shrank mega rolls from 340 one-ply sheets to 312 sheets. Cottonelle’s soft version dropped from 284 two-ply sheets to 268 sheets. Texas-based Kimberly-Clark, also the maker of the Kleenex and Huggies brands, among others, didn’t respond to a request for comment.
» READ MORE: 7 ways to protect your small business from inflation
“Candy sellers are one of the biggest culprits,” Dworsky said. Food giant Mondelez faced legal action in 2017 over creating more space between peaks of Toblerone chocolate bars, and ended up changing back to the previous shape.
“Consumers need to be net-weight conscious, not just price conscious,” Dworsky said.
Dworsky bought Gatorade recently at his local Stop & Shop supermarket outside Boston and paid $1.19 for both a 32-ounce bottle and for a smaller, newer 28-ounce bottle. “They were both on the shelf at the same time. It’s happening very quickly. So load up on the bigger sizes while you can.”
Gatorade beverages and other products are manufactured by parent company PepsiCo, which didn’t respond to a request for comment. The company’s Frito-Lay subsidiary confirmed to Quartz that its Doritos bags are holding fewer chips because of inflation. “Inflation is hitting everyone. … We took just a little bit out of the bag so we can give you the same price and you can keep enjoying your chips,” a spokesperson told the online business news website.
Some companies blame commodity prices, others blame high energy prices, which add to transportation or packaging costs.
U.S. inflation climbed to a 7.9% annual rate in February as energy prices rocketed higher amid the Russian invasion of Ukraine. Investment firm UBS expects inflation “to stay elevated in the near term and decline in the second half of this year,” said Julie Fox, Northeast market head at UBS Private Wealth Management.
Jesus Fernández-Villaverde, a University of Pennsylvania economics professor, agreed but stressed that nothing is certain. “It’s more likely that [inflation] will decrease” later this year, he said. “But am I sure? Not really.”
Corporations that move to raise prices, however, risk public backlash and even scrutiny from public officials.
Lawmakers in Washington held a hearing on inflation and corporate America earlier this month. Following the event, Kyle Herrig, president of the watchdog advocacy group Accountable.US, accused a spectrum of industries — including meat packers, railroad, trucking, and shipping companies — of using the pandemic as cover for raising prices. Companies “pretend like they have no choice but to inflate prices at the same time they brag of enormous profits and payouts to their shareholders,” Herrig said.
Some companies just hike prices
Pennsylvania-based Hershey is among the wide swath of companies that began raising retail prices in earnest last year, according to its most recent earnings call.
Hershey has also dabbled in shrinkflation in recent years, shrinking Hershey Kisses and Reese’s packages, said Dworsky.
“They came up with very weird package sizes like 17.9 ounces for some bags of Kisses and 8.94 ounces for a bag of assorted chocolates,” he said.
Hershey said inflation rates “are the highest they’ve been in 40 years, impacting every aspect of costs to do business. Like most companies, we announced pricing increases last year that are on-shelf now as a result,” said spokeswoman Allison Kleinfelter.
“Most of the pricing was list price increases due to the increasing cost of doing business across the value chain,” she said, as opposed to shrinking packaging.
Even the Golden Arches has grappled with food costs by trimming portion size. McDonald’s offerings “are shrinking. Prices are going up. It’s just insane what’s happening in the restaurant industry,” former McDonald’s USA CEO Ed Rensi told Fox host Neil Cavuto in February. Rensi was the company’s president and CEO from 1991 to 1997.
Are bundles shrinking?
Many “goods” in a modern economy are a bundle of services — which could be shrinking, as well.
Fernández-Villaverde, the Penn economics professor, said “think about the bundle as everything that goes with a product such as an airline flight — the meal, the drinks, the ambience, the serving size, or how useful is the customer service.”
Trimming complimentary snacks, longer wait times for customer service, and the reduction of a points promotion program are all ways of cutting into a bundle, Fernández-Villaverde said. “You take your car to the dealer for maintenance, and they charge $150. They don’t change the sticker price, but there’s no loaner car,” he added as a further example. “That’s inflation through the back door.”
Lee Lewis, who owns and operates Exit000Skincare, based in West Cape May, N.J., said the economic recovery has been a mixed blessing.
Shoppers previously confined at home are now getting out and spending in her store, buying her hand-mixed natural soaps, cosmetics, and lotions made for eczema sufferers. Her sales online at Etsy.com also rebounded as the COVID-19 pandemic fades.
But this year, as inflation rose, “my material costs are up 15% to 20%,” she said. Instead of raising prices, she pared back on selling bulk sizes.
Supply chain woes also contributed. The majority of Lewis’ paper and plastic packaging comes from a supplier in South Korea. Mostly the price hikes derive from plastic containers and dispensers, “anything that has a mechanism, plastic or with a pump or click top,” she said. “There are certain things that I couldn’t find new suppliers, and they were back-ordered last year.”
To fight inflation on the soaps, lotions and candles, she buys her ingredients in bulk, such as food-grade argan oil, tallow, wax, and soybean oil.
And how much do companies actually save using shrinkflation?
“That’s something economists have tried to measure for 25 years,” said Penn’s Fernández-Villaverde. “But we haven’t come up with a good way to do it. Changing the price can be costly, so cutting service is less noticeable.”
Hidden price increases and fees have become so problematic that the Consumer Financial Protection Bureau, is asking Americans to notify the regulator of “junk fees” they’re charged, including resort fees added to hotel bills and service fees on concert ticket prices as well as late fees, return fees, stop payment fees, check image fees, foreign transaction fees, account closure fees, inactivity fees, fees to investigate fraudulent activity, or fees in the mortgage closing process.
Consumers who have an issue with a consumer financial product or service can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).
The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.