Even if the American shopper can’t fully articulate it in economic terms, most know that inflation is hitting them where it hurts – in the shopping cart. The US Government has a complicated process to determine what the inflation rate is in the economy and they claim that the inflation rate is low; when it rises a bit the government usually says that the rise is “transitory” and will not last long. But many consumers simply do not believe the official statistics, primarily because they can see that the price of nearly everything for sale in their grocery store, or at their favorite restaurant, keeps rising. The old saying of ““Who are you going to believe, me or your lying eyes?” comes to mind when thinking about shoppers being asked to accept that inflation is low or transitory.

What the USDA says about food inflation

In June, 2021 the USDA’s Food Price Outlook claims that ‘food-at-home’ prices should increase between 2-3% in 2021, and ‘food-away-from-home’ prices should increase between 3-4%. The USDA classifies 45% of all food sales as away from home and 55% as at home. Whatever the number may be, there’s plenty of statistical and anecdotal evidence that not only are most food and beverage prices rising faster than the government claims but also that the industry is trying to mask this trend through an old retail trick called “shrinkflation”.

What is Shrinkflation?

Similar to how the savvy shopper can sense that the cost of food is rising higher with every trip they may to the supermarket, they can also sense that many of the food and beverages they purchase are packaged differently. The packages are deceptively redesigned to hold less of the same product than before – packaging is essentially “shrinked” in clever ways so that less of the food or beverage can fit in it. Marketers know that the average shopper is far more sensitive to prices than they are to quantities or product volumes. The practice of shrinking volume and/or counts by redesigning and altering packaging is as old as retail itself but consumers see more of it as economies struggle. The examples are plentiful and include:

  • Ragu’s 28 oz jar of spaghetti sauce is now 23.9 oz.
  • StarKist tuna used to be sold in 6 oz. cans but the can has shrinjed to 5 oz
  • Dannon yogurt shrank by 25 percent (from 8 oz. to 6 oz.)
  • For years Hellman’s Mayonnaise was sold in 1 Qt (32 oz) jars. Those jars are now 30oz averaging .16 cents per ounce at retail. However, the industry is really pushing mayonnaise in an upside down tube package and this version of Hellman’s has only 20 oz and sells at reatil for an average of .23 cents per oz.
  • Breyer’s half-gallon ice cream tub has shriveled to 1.5 quarts while a “pint” of Haagen Dazs is now only 14 ounces.
  • Skippy peanut butter shrank their 18 ounce container size down to 16.3 ounces in 2008.
  • Finally, it’s hard to find orange juice, lemonade or grapefruit juice in 1/2 gallon containers as most manufacturers sell these in 52 oz bottles that look very similar to teh old 64 oz bottles.

The economics and marketing behind Shrinkflation

Experts in the industry who defend this practice believe that the average consumer would be even more upset if the true raw costs (ingredients, transportation, marketing, etc) were added to the price of products. These marketers have to contend with some basic realities of retail. One such reality is that price points like $9.99, 19.99, 49.99, etc., have a very strong psychological value in the marketplace. For example, once an item that is normally promoted at $9.99 goes to more than $10.00, sales drop notably. It’s just another way of acknowledging that a broad swath of their customer base are very price conscious – many at the expense of quality and/or quantity.

All the while that marketers are trying to cater to consumers, manufacturers need to satisfy the grocery stores who struggle to maintain price points and margins. The first tool in their toolbox is to re-configure product packaging to reduce volume and count; sometimes even this is not economically viable and then wholesale prices are also increased. When the price sensitive consumer sees the price increase on the shelve and they also notice the shrinking of packaging is when they feel like they are getting “ripped off”. The retailer is the first to feel their customer’s wrath and they return to the manufacturer with complaints. The truth is that it’s a delicate network all designed to respond to rising costs and inflationary pressures across the industry.

Consumers should:

  1. Look for the unit price – comparing unit prices is the easiest way to figure out the best deal when evaluating different packaging designs.
  2. Consider store-brand products – they too may be in shrunk packaging but the price is lower which brings down the unit cost. Plus, research has shown that it’s hard to discern taste and quality differences between many name-brand vs. store-brand products.
  3. Buy less packaged and processed foods – not only are fresh foods better for your health but it’s harder for the industry to deceptively package a dozen eggs, a head of lettuce or a single avocado.