Expert Angle: Shrinkflation

In President Biden's State of the Union Address on March 7, he shined a spotlight on "shrinkflation," claiming consumer product companies are charging more for less. But what is shrinkflation and who is ultimately affected by it? SJU news talked to Michael Marzano, MS, assistant professor of practice in the Department of Food, Pharma and Healthcare, to learn more.

What is shrinkflation and how long has it been going on?

Investopedia defines inflation as “a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.” The concept of shrinkflation is a decrease in the purchasing power of money as a result of a decrease in the product size of goods in an economy.

Companies have been adjusting product sizes and prices for centuries. The term shrinkflation has gained traction as companies choose to maintain item pricing and margins against inflationary pressures by reducing the size of the packaging. There is a negative connotation around this practice, as it can appear deceptive. Consumers will easily recognize a price increase but are less likely to notice a decrease in package size.

What causes shrinkflation?

As previously mentioned, shrinkflation is caused by companies choosing to reduce the package size of a product while maintaining the current price. It tends to occur during periods of inflation as companies are challenged to maintain operating margins despite rising costs. There is a potential for companies to use this as an opportunity to increase their margins beyond their increased costs, which is a reason for both public and government scrutiny.

How are consumers affected and who is hit the hardest?

The impact on consumers means getting less for the same amount of money. All consumers are affected. Given the choice of a higher price or smaller pack size, some consumers may prefer the smaller size (example: a 3.5 ounce bag of potato chips instead of 4 ounces) for the same price. But many consumers will not notice the package size change, which results in the practice of shrinkflation appearing to be deceptive.