Shrinkflation

Shrinkflation

Subject: Economy

Context:

To tackle high raw material costs, several fast-moving consumer goods (FMCG) companies in India are downsizing product packets, while keeping the price unchanged.

Shrinkflation:

• In economics, shrinkflation is the practice of reducing the size or quantity of a product while the price of the product remains the same or slightly increases.
• In some cases, the term may indicate lowering the quality of a product or its ingredients while the price remains the same.
• It also includes products being reformulated. For example, Cadbury Dairy Milk stopped using foil which it used to prevent chocolate from losing its quality and flavour in order to save expense.
• Example- Shrinkflation is mostly common in the FMCG industry, especially in the food and beverages sector. 
  • Firms such as Hindustan Unilever, Nestle, Dabur, P&G, Coca-Cola, and Pepsico have adopted this method.
• British economist Pippa Malmgren is generally credited for inventing the term in 2009.
• It is a form of hidden inflation when the absolute price of the product doesn’t go up, but the price per unit of weight or volume has increased.

Causes:

• Higher production cost-Increases in the cost of ingredients or raw materials, energy commodities, and labor increase production costs and subsequently diminish producers’ profit margins.
• Intense competition in the market-The food and beverage industry is generally an extremely competitive one, as consumers are able to access a variety of available substitutes. Therefore, producers look for options that will enable them to keep the favor of their customers and maintain their profit margins at the same time.

Impact:

• Deceives consumers into believing that the brands are not affected by inflation.
  • Thus, it reduces brand loyalty as consumers feel cheated and loose sentiment/ trust towards a producer’s brand.
• Saving manufacturers more money in the long run-since container and vessel sizes are reduced by very small amounts
• Underestimation of inflation-  Price points become misleading when the basket of goods cannot always be measured by considering the product size.

Suggestion:

• In India, the Right to Information has been recognised as a consumer right under the Consumer Protection Act, 2019.
  • It means that the consumer has the right to know the quality, quantity, potency, purity, standard, and price of goods.
  • The Central Consumer Protection Authority can bring some guidelines to inform consumers when the weight of a product is reduced.