Two of my recent blogs focused on inflation, specifically how to manage it. Absent from those postings was a discussion of shrinkflation. Shrinkflation is the inflation that one is not expected to notice. Wikipedia defines it as “the process of items shrinking in size or quantity, or even sometimes reformulating or reducing quality, while their prices remain the same.” It’s a common, counter inflationary measure in a retail or online setting.
The demand for most consumer goods is elastic. When prices rise, demand falls. Hence the temptation to keep pricing stable by reducing product size and/or quantity. I see examples of this trend when I buy K-cups. A few years ago, my favorite store sold twelve packs of Green Mountain branded K-cups for $5.99/box; that price is $7.49/box today. Yet, many other K-cup purveyors have maintained the $5.99 price point by selling 10 packs instead . . . in boxes indistinguishable in size from those of the 12 packs. Such downsizing is not unique to coffee; examples can be seen in every aisle of your local supermarket.
And beyond . . ..
Shrinkflation has even reached the workplace. In the face of today’s tight, post Covid employment environment, many companies are offering free refreshments, free food, even parking and commuting subsidies, among other enticements designed to convince employees to return to the office. Perhaps you read about the firm that offered its workers free coffee as an incentive to return to onsite work. It succeeded. As more employees returned the coffee ran out earlier and earlier each day. When they complained, Management took action:
They reduced the size of the coffee cups.
Peter has spent the past twenty-plus years as an acting/consulting CFO for a number of small businesses in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He is a co-founder of Keurig.