Shrinkflation

SHRINKFLATION

South Africa’s largest Medical Aid Scheme – Discovery Health recently announced their increases for their different medical plans for next year.  For the most part their premiums are going to increase by 9.9% however they indicated that plans in their Saver range will see premium increases of below 4%.  To achieve this, they decreased the portion of the premium that is allocated to your Medical Savings Account.  This is a good example of Shinkflation and thus in our Financial View we look at how some providers reduce the size of their product to give an impression of a “saving” or an increase below inflation. 

Investopedia defines shrinkflation as “the practice of reducing the size of a product while maintaining its sticker price.  Raising the price per given amount is a strategy employed by companies, mainly in the food and beverage industries, to stealthily boost profit margins or maintain them in the face of rising input costs.”  Because the price remains static or only marginally higher it doesn’t really impact inflation measures too much.  But because we get a lot less product it impacts the consumer.

Shrinkflation can be quite sneaky as often the packaging size remains the same, just the contents have changed.  Have you ever felt that there is more air these days in a bag of chips?  You will be 100% correct – the larger bag of Simba chips used to weigh 150g.  These days they weigh 120g.  The volume of actual chips has reduced by 20% over the last couple of decades.

My favourite picture that demonstrates shrinkflation is to look at a bar of Toblerone.  Toblerone is a Swiss chocolate bar made with honey and almond nougat.  Created in 1908 by Theodor Tobler, Toblerone is now available around the world and is known for its distinctive shape, a series of joined triangular prisms and lettering engraved in the chocolate.  

Have a close look at the above image for two comparative Toblerone bars.  The top bar is the “old” Toblerone.  The bottom bar is what you get now.  Packaging is unchanged but suddenly there is a lot more space between the chocolate peaks.  

Sugar tax may explain some of the shrinkflation that we currently see on shelves.  Your buddy bottle of fizzy drink has decreased from 500ml to 440ml and a can of Coke has reduced in size from 330ml to 300ml.  Cadbury chocolate slabs are now 80g (I seem to recall these being a lot bigger around 200g – a family could share a slab of chocolate over a couple of days.  Now I can finish one on my own in a few minutes – although perhaps I’m just greedy).

However almost every product that you purchase in the supermarket has been subject to shrinkflation.  I buy in-store baked bread every second day from my local supermarket.  It is very apparent that the loaves are smaller as a result of using small bread tins.  Even toilet paper is affected – 350 sheets of toilet paper in a roll as opposed to 500 sheets in the old days.  How did we not immediately notice a 30% shrinkage in the size of toilet paper rolls.

Shrinking the product size is not without risk for the product producer.  If consumers note the decrease in the size of the product, will they be as willing to purchase it, especially if there are competitive products.  Thus, the most successful shrinkage involves keeping the product appearance similar with minimal changes.  The onus is on the consumer to spot the difference.

The bottom line is however that you are paying more, and you are getting less it’s just another way of passing on costs.  For those of you who are trying to lose calories it may be a good thing that chocolates, sweet and cold drinks are getting smaller, hopefully this is reflected in your waistline.

With shrinkflation coming into financial services it is almost imperative to have an expert in your corner that can help you unpack product changes.  With savings and investments, perhaps you can spend less or save more and try to make your pension grow bigger.