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ECONOMY| 24.10.2022

What is shrinkflation and how does it affect your personal finances?

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Sound financial education enables us to make the best decisions. These decisions can shape our future, which is why MAPFRE promotes financial education and literacy. Today, we want to talk about “shrinkflation,” a trending term in the world of finance.

Shrinkflation is a portmanteau of the words shrink and inflation, two terms that perfectly sum up what we’re talking about, as it involves reducing the quantity of a product so that the price increase is not noticeable at first glance. Essentially, you get less quantity for the same price.

The concept of shrinkflation appeared in 2010 in the midst of the economic crisis to describe an increasingly common practice in supermarkets. This legal practice is intended to mask the rising prices caused by inflation, which affects production costs. In today’s article, we go over everything you need to know about shrinkflation and how to deal with it.

How does shrinkflation affect us?

We might notice shrinkflation when we go to the store to buy groceries – it is pervasive in staple consumer products such as canned food, rice, or pasta; in other non-essentials such as sauces and sweets; and in personal hygiene items such as liquid soaps or toothpaste. For example, certain leading brands have reduced the content in some of their products by up to 25 percent while maintaining the previous price in order to create the impression that prices have not risen.

The average American household spends approximately 9 percent of its disposable income on food and buying groceries (food-at-home spend) accounts for almost 70 percent of that total, about $412 a month on average. (People earning less than $15,000 per year spend $272 on groceries a month, while those earning between $70,000 and $90,000 per year spend $450 or more on groceries.) Grocery store food prices in America rose by 3.5 percent in 2021 compared to 2020, but most estimates for 2022 suggest the full year-end figure for food-at-home price rises will be between 10.5 and 11 percent.

Why does this practice occur?

Shrinkflation has been on the rise in recent months due to the inflation seen across industries, which are experiencing increases in production costs caused by the rising price of the energy used to power factories and the raw materials used to prepare the final product. Moreover, shrinkflation takes advantage of our perception habits; since the first thing we look at is the price, we tend not to notice the change if the price remains the same. 

Tips to avoid shrinkflation and look out for your personal finances

Here are some tips to help you shop as efficiently as possible while looking out for your personal finances.

  1. Make a shopping list

It may seem like basic advice, but the truth is that when we head to the supermarket without specific purchases in mind, we often end up buying treats or specials that we don’t really need. That’s why we recommend making a shopping list before you leave home.

  1. Review your receipt

It’s a good idea to keep your till receipt so that you can compare prices when you do your next grocery run. This way you can find out which products have gone up in price, which ones no longer have promotions or special offers, and even which ones have gone down in price.

  1. Compare the weight of products

We encourage you to change the way you look at products. As shoppers, we’re used to making purchases according to the most attractive price or whatever’s on special, but a quick exercise in reflection may be your greatest ally: compare the price per pound or per pint, instead of simply comparing the whole pack. That’s where you really see the cost and whether or not the product has undergone shrinkflation.

  1. Don’t fall for misleading special offers

If your favorite product has dropped in price, it might have also dropped in quantity. Make sure the special offer isn’t just a marketing ploy designed to alter your perception of the price of the product.

  1. Spread your shopping dollars across several stores

As you probably know, some products vary in price depending on where you buy them. The same brand can have different prices, as the final price of the product is determined by the markup that each supermarket sets. Supermarkets take a portion of the profits of each sale, causing prices to vary.

In short, our advice is to analyze and compare the average amount you spend at the supermarket — with the food and products you usually consume — in different supermarkets and with different brands. Remember to always take quality and your own preferences into account. This initial exercise will help you to better organize your finances and keep track of your recurring and essential expenses.

Is this practice legal?

Yes, it’s legal. Although it may be considered misleading or even unfair competition, this practice is allowed as long as the labels are correct. That’s why it’s so important to look closely at the products we buy so that we don’t fall prey to this type of consumption.

At MAPFRE, we champion financial education by offering tips that our customers can use to make the best financial decisions and look out for their personal finances. Taking the time to examine our weekly purchase of basic products can help us make optimal decisions at the supermarket and reduce the burden of inflation.

 

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