Shrinkflation is a business strategy whereby as the quantity of a good decreases the price of the good is stable or increasing.

Less product at the same price: this is the new way that the food industry has found to hide price increases.

The principle is simple: reduce the quantities of a product while maintaining its price, which increases its value by influencing its weight without modifying its selling price.

An effective strategy that is spreading in the food industry since it is much less noticeable than a direct inflation of the purchase price of a product.

Causes, impact and public opinion regarding shrinkflation

The term emerged in the 2010s in Anglo-Saxon media, such as shrinkflation, an acronym for shrink, which means “reduction”, and -flation, referring to the process of “inflation”.

The causes of the phenomenon are varied, although the loss of purchasing power of the currency in the country of operations, the sharp fall in consumer purchasing power and / or the increase in the cost of inputs are common causes of the case, as evidenced by the justifications offered by different companies in this behavior, being also a conditioning factor the equalization of processes between different countries, the shortage of hand of work and tariffs.

The phenomenon is especially noticeable in packaged products, although the measure is not well received by consumers, who notice the difference in the performance of the product with respect to its price, and the changes derived in presentation formats, which are the visible effects of the case.

It is pointed out, in turn, the unequal way in which the same product is adjusted between different retailers,10 which can add extra complexity to the interpretation of reduflation, and on the additional interests that exist in this process. For its part, Pippa Malmgren, economic policy advisor to the government of George W. Bush, and who used the term in his work “Signs: the breakdown of the social contract and the rise of geopolitics,” affirms that redouflating ends up being an accurate warning of inflation, so it has very serious repercussions for the monetary policy of central banks.4 In this regard, the general tendency of consumers to blame retail actors is also pointed out when, in counter-response, it is argued that it is actually central banks that have direct responsibility for inflation, and therefore for reduflation.

Sources: PinterPandai, Investopedia, Corporate Finance Institute

Photo credit: Greg Montani / Pixabay

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