The Brand Batti Consulting Case Study: Shrinkflation – A Hidden Economic Reality

 

Link to YouTube Video: Shrinkflation Imagine buying your favorite chocolate bar only to realize it feels a little lighter, or opening a bag of chips to find more air than snacks. Welcome to the world of shrinkflation – a subtle yet impactful practice where product sizes shrink while prices remain unchanged. This phenomenon, though frustrating for consumers, has become a common strategy for companies to cope with rising production costs without directly increasing prices. Let’s explore shrinkflation through the lens of data, consumer psychology, and market practices.

Understanding Shrinkflation

Shrinkflation is not merely a cost-cutting tactic; it’s an economic strategy. According to a 2023 report by NielsenIQ:

• 18% of global FMCG products experienced size reductions over the past three years (NielsenIQ, 2023).

• The average size reduction was 7%, while prices remained steady or increased marginally.

How It Works: Companies reduce the quantity of a product while maintaining the price, banking on consumer habits to avoid backlash. For instance:

• A chocolate bar that once weighed 50 grams now weighs 45 grams.

• A bag of chips now contains 10% fewer chips but the same packaging size.

Economic Drivers Behind Shrinkflation

1. Rising Input Costs
   
   

• Raw materials like cocoa, wheat, and palm oil saw price surges of 15-40% during 2021-2023 (FAO Food Price Index, 2023).

• Packaging costs increased by 12% due to supply chain disruptions (Statista, 2023).

2. Inflation and Consumer Sensitivity
   
   

• With global inflation averaging 7.4% in 2022, companies avoided direct price hikes to retain customers (IMF Inflation Data, 2022).

3. Competition in FMCG
   
   

• Brands must stay competitive, and visible price hikes could lead to customer loss.

Case Example: A popular biscuit brand in India reduced its pack size from 100g to 88g in 2023, citing rising wheat prices (Moneycontrol). Despite a social media uproar, sales figures remained stable, showing limited consumer resistance.

Psychological Tricks of Shrinkflation

Shrinkflation is as much a psychological game as it is an economic move. Here’s why consumers often fail to notice:

1. Packaging Illusions
   
   

• Companies maintain packaging size while reducing content. A cereal box remains the same height but holds less product (Consumer Reports, 2023).

2. Focus on Price, Not Quantity
   
   

• Studies show that 72% of consumers prioritize price over weight or volume (Mintel, 2023).

3. Consumer Behavior Insights
   
   

• A 2022 behavioral study by the University of Chicago found that only 29% of shoppers noticed a 10% reduction in product size (University of Chicago, 2022).

Consumer Experiment: Two identical-looking cereal boxes, one with 500g and the other with 450g, were presented to shoppers. Over 65% chose the smaller box simply because it was placed at eye level, showing how subtle changes often go unnoticed (Journal of Consumer Research, 2022).

Impact on Consumers

The effects of shrinkflation extend beyond minor annoyances:

• Increased Spending: A family buying weekly groceries could end up spending an additional $100 annually to maintain the same consumption levels (Forbes, 2023).

• Perceived Deception: Consumer trust diminishes when they eventually notice the changes.

• Productivity Adjustments: Some consumers switch to generic or local brands as a response.

In our primary research at a Grocery supermarket chain "MARKET POINT" in Mumbai, we observed that consumers previously bought 4 packs of biscuits for a month but now purchase 3. But naturally, 3 isn't enough for them, so they purchase another 2 packs the following week. In short, now they are buying 5 packs a month.

Corporate Perspective: Is Shrinkflation Justified?

From the company’s viewpoint, shrinkflation is often a survival strategy.

Interview Insights:

• Economics Professor: "Companies are balancing rising costs with consumer affordability. It's a trade-off between transparency and sustainability." (Harvard Business Review, 2023).

• Consumer Activist: "While understandable, this practice is misleading. Clear labeling should be mandatory." (Advocacy Group Report, 2023).

Statistical Analysis of Shrinkflation

Here are some key statistics from recent market surveys:

• 40% of global snack brands reduced their product sizes in 2022 (NielsenIQ, 2023).

• 12% of households switched brands upon noticing shrinkflation (Statista, 2023).

• On average, products reduced in size by 8% while prices increased by only 3% (Forbes, 2023).

What Can Consumers Do?

To combat shrinkflation, awareness and proactive measures are key:

1. Read Labels: Check the weight or volume of products regularly.

2. Compare Unit Prices: Stores often display prices per gram or liter—use this to find the best value.

3. Raise Awareness: Share your findings on social media or with friends to keep others informed.

Conclusion

Shrinkflation reflects the challenges of balancing consumer trust with corporate profitability in a volatile economic environment. While it’s here to stay, consumers equipped with knowledge and awareness can make better choices.

"Next time you pick up your favorite snack, pause and weigh your options… quite literally!"