Theresa Fenech

Imagine going to the grocery store and you’re asked whether you would you like to pay more for less. At least, it would be nice to have the option right? Yet, what usually happens is that you buy your packet of crisps, go home and as soon as you rip the bag open you get to know that you’ve been given four free crisps with the bag of air you have just bought. And you think to yourself, is this for real? We were intrigued by this familiar situation and reached out to a professional who can help us understand the technicalities behind this reality and after all to understand why there’s less crisps in our bag!

Why do we have less crisps in our bag?

Producers are facing rising costs around the world. Different factors are driving up prices of input products – several of these are a consequence of the COVID-19 pandemic. Lock downs caused significant delays in shipping, materials became harder to source and factories were facing staff shortages due to the illness. The result was a global disruption in supply-chains which impacted producers of goods around the world. Simultaneously, the lifting of restrictions brought about an increase in demand for these already scarce products as people had saved money during the pandemic and were eager to spend it. The situation was significantly worsened by the Russian invasion of Ukraine. The impact of the War between the two countries was particularly pronounced in the energy market, as in 2021 Russia was the largest exporter of oil and natural gas to the European Union[1]. The resulting energy price hikes together with the reduction in exports from Ukraine pushed inflation to historical highs. Faced with these additional costs, producers have to pass on this increase to consumers somehow. They face two options, either increase price or reduce the size of the product and keep the price the same. Typically, the latter is less noticeable to the average consumer. This means that producers face less risk of a customer switching to a competitor rather than increasing the price. The result: less crisps in your bag.

Perhaps we are used to the term inflation but not quite to shrinkflation. What is shrinkflation about and is it related to inflation in any way?

The term “shrinkflation” is used to describe the exercise by which producers reduce the weight of a product given to the consumer, without changing its price. Intuitively, the term is a combination of two words: “shrink” referring to the reduction in quantity or size, and “inflation”. If we consider the definition of inflation, which is a rise in the overall price level of products – then shrinkflation is simply another form of inflation, whereby the price of the product has increased, as one would require more money to buy the same amount they used to purchase before.

While the origin of the term is often traced back to 2009 when economist Pippa Malmgren first used it, the practice of altering size instead of price has been around far longer. Famously, American chocolate company Hershey’s kept the price of its chocolate bar stable at 5 cents throughout the 1950s and 1960s despite the fluctuations in the price of cocoa beans. Their secret was fluctuating the weight of the bar instead[2]. Other world renowned brands that have altered the size of their products include Quality Street, Mars and Corn Flakes among others. Between 2012 and 2017 the UK’s office of National Statistics (ONS) identified over 2,500 cases of shrinkflation in the UK alone[3].

It seems that recently prices are on the increase and keeping up with the cost of living becomes more challenging. What could the influence of shrinkflation be on consumer behavior, retailers and the industry itself?

Several studies have been carried out with respect to what marketeers call “contents reduction strategy”.

Results suggest that if the reduction in pack size or quantity is sufficiently small as not to be immediately obvious to regular consumers, the risk of loosing out customers to competitors is smaller than when increasing price. One can argue that, despite being perfectly legal, the practice inhibits the consumers' ability to make informed buying choices. As a result, suppliers and retailers have been called upon to be upfront with customers[4].

Certain companies try to divert attention from product shrinkage with "less is more" messaging, for example by claiming health benefits of smaller portions or environmental benefits of less packaging. Yet, while research suggests that consumers are less likely to notice a change in size than price, the reaction consumers have once they notice the reduction in size tends to be negative for the brand. A 2016 study[5] found that although firms may initially achieve increased sales through shrinkflation, they risk damaging a brand’s reputation and consumer loyalty to the brand.

Manufacturers of Toblerone learnt about this the hard way, when their contents reduction strategy launched in 2016 was met with an uproar amongst clients who took to social media to call out the brand. The negative sentiment actually resulted in the company reverting back to the original size of the chocolate bar and increasing the price instead[6].

Can shrinkflation trigger particular consumer behavior?

In the most simple case, shrinkflation can alter consumer’s buying decisions in favour of more transparently priced alternatives.

As in the case of Toblerone, if taken to an extreme, shrinkflation can result in boycotts of a particular brand and cause significant damage to a company’s reputation.

But if the changes to size are made in such a way that they are unnoticeable to the average consumer, how can consumers make informed decisions when faced with shrinkflation?

In the EU, the price indication directive requires the selling price and the unit price of all products offered by traders to consumers, to be clearly indicated. By looking at the unit price of the product, consumers should be able to identify increases in price even in cases of shrinkflation. By paying attention to the unit price one can also identify cases where the price varies depending on the quantity purchased. It is unlikely that a brand will shrink all of their items simultaneously; meaning that attentive consumers can still get a good deal if they buy a different format of the product, usually a larger one, that wasn’t downsized.

Keeping an open mind will also help. Big brands often get away with larger increases in prices due to brand loyalty, yet consumers that are willing to try to lesser-known brands might be able to get a better deal.

[1] Statistics Explained

[2] Krondl, M., 2011. Sweet invention. Chicago Review Press, p.349.

[3]Shrinkflation and the changing cost of chocolate - Office for National Statistics

[4] ‘Shrinkflation’ must be clear to stop shoppers feeling ‘cheated’

[5] Wilkins, S., Beckenuyte, C. and Butt, M.M. (2016), Consumers’ behavioural intentions after experiencing deception or cognitive dissonance caused by deceptive packaging, package downsizing or slack filling

[6] Toblerone: Bar to revert to original shape

Theresa Fenech

is an Economist working in the Public Sector.

She loves a good adventure and her experiences in Kilimanjaro, Manila and voluntary work in Ethiopia can vouch for her adventurous spirit!

Her practical approach to life manifests through her favuourite quote: “Start where you are. Use what you have. Do what you can.” - Arthur Ashe