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Retailers Are in on Shrinkflation
It’s not just manufacturers who are responsible for this long-running, widespread phenomenon.
- By
- September 23, 2024
- CBR - Economics
Have you noticed fewer pieces of candy in the bag, smaller bottles of shampoo, or slimmer rolls of toilet paper? Shrinkflation—the practice of reducing the quantity, size, or weight of a product while maintaining its price—appears to be an increasing irritant. President Joe Biden even mentioned it in his State of the Union speech in March, taking companies to task for “charging more and more for less and less.”
But the phenomenon is not new, according to research from Singapore Management University’s Aljoscha Janssen and Tilburg University’s Johannes Kasinger. And their study of US consumer data also finds that while manufacturers tend to take the brunt of the criticism, retailers are just as likely to embrace shrinkflation to boost profit margins.
Janssen and Kasinger used NielsenIQ Retail Scanner Data provided by Chicago Booth’s Kilts Center for Marketing to analyze a decade’s worth of product size and price information. In total, they looked at about 4 million products sold at US grocery and drugstores between 2010 and 2020.
They find that downsizing without lowering prices is a long-established and widespread trend by companies attempting to increase profits in the United States. Candy, snacks, household detergents, and personal-hygiene products have been especially susceptible, Janssen and Kasinger write. Their research suggests that shrinkflation happens at least three times as frequently as upsizing—making products bigger or greater in volume, which usually entails an increase in price.
Who’s most to blame?
Janssen and Kasinger then tested the theory that US retailers, not just manufacturers and suppliers, might also be capitalizing in some way. They looked at products’ sales volumes to estimate the nationwide entry date of a new downsized product and the exit date of the predecessor version. They figured that closely occurring entry and exit dates were a likely indication that manufacturers had replaced products with smaller versions. But when an entry date appeared long before an exit date, retailers seeking to boost their margins could have been stocking the smaller version of a product rather than the larger one. In doing so, they could have helped induce shrinkflation.
Janssen and Kasinger find overwhelming evidence for the latter scenario, finding that many smaller versions of products were introduced to the market more than a year before the predecessor version was removed. According to their research, in fact, the majority of the top-selling downsized grocery products in the US in the past decade found their way into shopping carts because retailers stocked them more and for longer than full-sized or original versions—an indication that both retailers and manufacturers contributed to shrinkflation.
Customers react more to changes in price than changes in volume or size, write the researchers. According to the NielsenIQ data, every 1 percent increase in the price of a product (taking any change in volume into account) was followed by a 1.28 percent drop in sales, on average. By contrast, when the same product increased in size or volume by 1 percent (controlling for changes in price), there was an 0.29 percent increase in sales, on average. Most downsized products retailed at the same price as before, and sales remained consistent. The research suggests that few consumers noticed a reduction in fill levels.
Moreover, write Janssen and Kasinger, consumers’ inattention makes downsizing a way for manufacturers and retailers to increase revenues and profit margins while consumers pick up the bill.
Aljoscha Janssen and Johannes Kasinger, “Shrinkflation and Consumer Demand,” Working paper, April 2024.
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