Does it feel like what you are getting at the grocery store isn’t going as far as it used to? When you buy a bag of chips, do you have the sneaking suspicion that it’s filled more and more with air, and less and less with the crunchy goodness we desire? If you’ve had the hunch that your money isn’t going as far as it used to, you wouldn’t be wrong. If you’re someone with kids, you may wish that you could reduce the size of your children like they did in the ’80s cult classic Honey I Shrunk the Kids, if only to reduce the amount of your food bill.
We’ve recently talked a lot about inflation in certain areas, like housing and vehicles, or how to manage your investments in a potential inflationary environment. However, in this post we will discuss inflation’s more nefarious cousin, shrinkflation, and how it’s affecting more of the goods we buy.
What Is Shrinkflation?
Inflation is defined as “a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.” When many think of inflation, we imagine the price of goods and services going up. While this is true, it’s better to think of it not necessarily in terms of the price paid for something but instead in terms of the value actually received.
Shrinkflation occurs when a manufacturer decreases the quantity of a product instead of increasing the price for the same amount. The thought behind this is that consumers are less likely to notice a smaller quantity received when they are still paying the same price for the package. Although the end price you pay stays the same, the total cost per unit goes up (inflation).
If you’re someone who does a lot of cooking, you may have noticed that when following older recipes, the amount called for of certain ingredients does not match up to the amount of the package at the store. For example, imagine that a recipe may call for a 28-ounce can of tomato sauce but the only size that can be found in that range are 24-ounce ones. This may put you in a predicament of having to decide whether undercutting the amount of an ingredient or buying more than you actually need. The chefs of the past did not intend for their recipes to become unnecessarily difficult; shrinkflation did that.
There are countless examples of products reducing their package size over the years. This blog identified 25 separate items that have gone through the shrinkflation phenomenon, many of which occurred just over this past year.
On the surface it may feel like you’re paying the same price for a box of cereal or a carton of orange juice, but don’t be fooled. You may be falling prey to shrinkflation lurking behind grocery store shelves.
Item Price vs. Unit Price
While many manufacturers attempt to deceive consumers about the true value of their products decreasing over time, they can’t skirt all surveillance. . . if you know where to look. They may be able to manipulate the price of the item, but they have no control over the unit price; that’s governed by math.
The item price is simply the nominal cost you pay for the product. A box of crackers may be listed for $2.35, and the item price is the listed cost. The store and manufacturer can raise this price up and down as they see fit, in addition to adjusting the quantity of the product as a whole. This is how you can pay the same item price for a smaller amount—it’s because the manufacturer controls these variables.
The unit price, on the other hand, values a product based on a defined unit of measurement, in most cases ounces. Using the unit price as a valuation method compares the amount of a product received against the price paid. If the price of a product stays the same, but the quantity received goes down, the unit price will go up (you’re paying more for less).
Example: Mike enjoys treating himself to a Delectable Delight’s Danish on Fridays before work. These artisan pastries cost $1.00 (item price) and weigh 10 ounces. The unit cost for this item is 10 cents an ounce ($1.00/10). The price of the flour used in these pastries has gone up, so to maintain the same profit margin, Delectable Delight’s decreased the size of its Danish to 8 ounces but kept the price the same, at $1.00. Mike’s item price stayed the same, but his unit price increased to 12.5 cents an ounce ($1.00/8) and he doesn’t feel as satisfied after eating his delicious Danish.
Since the manufacturer can play games with the item price, it’s best to use the unit price as the gauge for the actual value you’re receiving. It’s also a helpful comparison tool between two products, because the price and size may be different. So, when using the unit price, you are removing these variables and can evaluate the value on an even basis.
How to Combat Shrinkflation
The best way to combat shrinkflation is to become a conscious consumer. Be aware that shrinkflation is a common occurrence and that the item price is not necessarily a true reflection of the value received. Different manufacturers within the same product family likely won’t adjust their prices and sizes at the same amount at the same time. To best ensure you’re getting the best deal, you should always evaluate your purchases based on the unit price and not the item price.
Another way to stave off shrinkflation, or inflation in general, is to actively compare substitutes. When it comes to inflation, not all goods will increase at the same rate at the same time. For instance, chicken may be experiencing a slower pace of inflation than beef. When you’re shopping it’s a good idea to have a feel for what products usually cost per unit, and if you see certain ones increasing in price, it may make sense to consider a substitute for a certain period of time, depending on your budget.
Buying fresh produce that’s in season is another possible way to reduce your grocery bill. Like all goods that are subject to the forces of supply and demand, produce that is in season is generally more abundant, increasing the supply. Not only does fresh produce usually taste better, but it also generally costs less during its peak season.
For nonperishables especially, buying in bulk can save a substantial amount of money on the unit cost. The total dollar value paid will be greater but the cost per unit is almost always less and it will be a longer period of time before you need to stock back up.
Of course, when buying in bulk, you need to be sure that you’ll actually consume the entire product. This is less of an issue for nonperishables, like paper towels or toilet paper (hence the run on these products during the peak of the pandemic), but can be wasteful when it comes to perishable items like fruits and vegetables. According to one study, the average food waste per household could total $1,866 a year! Of course, depending on the size of your family, the type of food you buy, and how well you plan to use your food, that number could be higher or lower. But in any case, wasted food can be a much larger expense than many realize.
The concept of inflation is relatively straightforward—it’s the gradual rise of prices over time. But how this occurs can be quite deceptive. In the case of shrinkflation, it’s not an increase of the price you pay, but instead the quantity of the product you receive.
The best way to evaluate the value you are receiving or whether inflation is happening is to review the unit price and not the cost of the item itself. This helps compare the price of a product on equal terms where price and quantity can be manipulated.
There isn’t much we can do to control inflation or the size of the packages. But what we can do is become more conscious consumers who actively compare products on their relative value, look for substitutes when appropriate, and reduce the overall waste of the products we buy.
Nick Prigitano, CFP® is an advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.