American economist Pippa Malmgren coined the term “Shrinkflation” as an economic term that describes a situation where manufacturers lower the sizes, quantities, or weight of goods while still keeping the price the same, or even increasing it. The customer ends up paying the same amount, or more, for less goods. This tactic allows companies to keep making their profits without raising prices while significantly reducing cost prices.
The Link Between Food Prices and Shrinkflation
Recent times have seen the cost of living in the UK rise significantly. Food prices have gone up almost 20% within a year, as confirmed by the Office for National Statistics (ONS). This is an ongoing increase, adding to inflation. It’s a difficult situation for many people who are finding it increasingly challenging as is to afford basic necessities.
The Office for National Statistics (ONS) also reported a 17.4% rise in the year to June 2023- a slight dip from the previous month, where the increase was at 18.4%, and from the peak in March, where the annual inflation rate hit a massive 19.2% making it the highest it’s been in over 45 years. The slight cooling off was attributed to prices increasing by just 0.4% between May and June 2023, compared to a 1.2% increase over the same period the previous year.
This impact isn’t restricted to grocery shopping either. Eating out has also become pricier, with prices in restaurants and cafes going up by 9.1% in the year to June 2023. This, too, was down from a high of 11.4% back in February. As a result of these rising costs, many Brits have had to adjust their food habits. Almost half the adults in Great Britain admitted to buying less food when shopping over the past two weeks. Among those who noticed their cost of living going up, a whopping 96% cited increased food prices as a factor.
A particularly worrying detail from the survey conducted between 8 February and 1 May 2023 was that one in 20 adults had run out of food within the past two weeks and couldn’t afford more. It’s clear that the impact of these price hikes is being felt deeply, especially among certain vulnerable sections of the population. The rising cost of food and the relentless cost of living crisis is posing a real challenge to many Brits, making everyday essentials harder to afford.
Consumer awareness about expenditure is becoming more acute. Barclays’ research indicates that two-thirds of UK shoppers have noticed shrinkflation in products like chocolates and crisps. Almost 20% of shoppers have started buying in bulk to cope with this change.
Shrinkflation has started to worry consumers who are now getting less value for their money. Frequently bought items such as chocolates, crisps, biscuits, and snack bars have seen noticeable reductions in size but not price, causing customer dissatisfaction and changing shopping habits.
The British Retail Consortium (BRC) states that the decrease in living standards has affected spending, with consumers focusing more on essential items like groceries, while cutting back on non-essentials. Grocery spending has increased by 8.9%, a record high in over two years.
Dealing with Shrinkflation
To survive shrinkflation, consumers can consider purchasing different brands and steering away from their commitment to maintaining brand loyalty. Exploring alternative products by doing research and choosing value goods instead of brand names makes it better for consumers to find affordable options without sacrificing quality. The rise of User Generated Content (UGC) allows consumers to find real and honest testimonies to new products.
Bulk buying is another effective method—buying larger quantities, shoppers can lower the overall cost per unit, saving money and reducing shopping frequency.
Being mindful of pricing is also important. Paying attention to unit prices and the price per weight or volume can help consumers compare prices and make informed decisions. An updated government review on pricing rules could provide much-needed transparency and fairness.
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The Role of Retailers and Manufacturers
Retailers and manufacturers can also address the issue of shrinkflation. Supermarkets can alleviate financial pressure on consumers by committing to stock affordable essential items, particularly in areas where these are most needed.
Honest communication from manufacturers is also important. It’s beneficial for companies to provide clear information about any changes in product sizes and prices. This could involve explicitly stating on the packaging when a size reduction has occurred.
Economically, shrinkflation is a business strategy used to maintain profitability amidst rising costs and so by reducing the size of a product, companies can keep prices stable, in turn avoiding customer dissatisfaction from outright price increases. Emphasis should be on balancing profitability and customer expectations.
Extra Information to Consider
In one’s personal capacities and efforts to fight inflation, getting into the habit of meal planning and home cooking can be a significant game-changer as it not only cuts down on reliance on packaged and processed foods, which are often the first to be hit by shrinkflation, but it also allows for healthier and more budget-friendly meals.
Making use of loyalty programmes, vouchers, and discounts offered by retailers also helps consumers save. Regularly comparing prices at different stores and online can lead to significant savings over time.
Farmers’ markets and independent stores often have locally-sourced, fresh produce that can sometimes be more affordable than mainstream supermarkets. Understanding importance of supporting local businesses can be a positive impact on the local economy.
Fighting Shrinkflation Beyond The Consumer
With all being said, the responsibility doesn’t lie solely with consumers. Retailers and manufacturers should strive to be as transparent as possible about changes to their products. This means clearly communicating any reductions in product sizes, increases in price, or both. When changes are made, they should be easy for consumers to see, understand, and compare with other products.
Supermarkets can play a pivotal role here by ensuring they stock a range of budget-friendly items alongside more expensive brands. That way they can offer a wider choice to customers. Retailers could also help consumers by highlighting value for money products in their stores and providing clear unit pricing.
The government might have the most important role to play by addressing the root causes of rising food prices and the cost of living crisis. Policy makers can really help lighten the financial load such periods have on consumers. This could involve looking at ways to increase competition in the marketplace, investigating price-setting practices, and considering whether existing consumer protection legislation is fit for purpose.
Moving forward, one can only hope that fair and mutually beneficial marketplace can be achieved, where both businesses can thrive and consumers can get the best value for their money in every purchase and investment made towards ensuring a sufficient standard of living.