What is Shrinkflation?

April 15, 2024

As input prices turn inflationary, the spectre of shrinkflation looms large within the Fast-Moving Consumer Goods (FMCG) segment.

About Shrinkflation:

  • It occurs when goods shrink in size but consumers pay the same price. It occurs when manufacturers downsize products to offset higher production costs but keep retail prices same.
  • It is basically a form of hidden inflation. Instead of increasing the price of a product, producers reduce the size of the product while maintaining the same price.
  • The absolute price of the product doesn’t go up, but the price per unit of weight or volume has increased.
  • Reasons: The reasons for shrinkflation are rising production costs and market competition.
  • Impacts:
    • Shrinkflation runs the risk of turning customers away from a product or brand if they notice they are getting less for the same price.
    • Another downside of shrinkflation is that it makes it harder to accurately measure price changes or inflation.
    • The price point becomes misleading since the product size cannot always be considered in terms of measuring the basket of goods.