The Landscape

Abra Cadabra, Shrinkflation!

By now we should all know what inflation is. When our government "prints" a bunch of money, you can't expect prices to remain the same. The price of everything goes up. But companies aren't always so keen on raising their prices. Why? Because consumers notice it. If they've been paying $.99 for something for years, and suddenly the price is $1.39 they are going to not only notice, but they might reconsider.

What if companies could raise prices without you knowing though? I bet they would love to have those magical powers.

[cloud of smoke] "Abra cadabra, ala kazzing, make prices rise without anyone noticing!" [flash of blinding light]

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Just a typical box of Cheerios, right? Cost the same as a box did six months ago. So where's the magic?

It's in the fine print. 14.9 ounces? 422 grams? What the heck is that? Why not some simple round numbers? Because, then you would surely notice that not only is the size different, but the price per ounce is also higher. Now, when the consumer grabs a box of Cheerios and thinks to themself, "This seems expensive," they will look at the size and most likely have no idea if 14.9 OZ is the normal size. There are so many random sizes of Cheerio boxes on the shelf nobody could ever keep track. The consumer will likely just assume that it's a different size, and the price corresponds to it, when in actuality what Cheerios did was likely keep the price the same, but make the box just a teeny bit smaller. Maybe this same box held 16.4 OZ a month earlier, for instance.

That is shrinkflation.

You see it absolutely everywhere. Take a look through the drinks at the gas station. Sodas come in every size and shape. Iced coffee bottles seem to have shrunk to the size of two gulps. Heck, even water bottles seem to have no rhyme or reason. But they do. They do to the executives in charge. The ones doing the math on just how much a fraction of an ounce adds up over millions of bottles.

But nobody can outdo the chip companies.

Doritos

In 2018 a 12 OZ bag of Doritos was priced at $3.99. Today a 9 1/4 OZ bag cost $4.79. This one is both inflation and shrinkflation wrapped in one. 9 1/4 OZ. Why do you suppose they use ridiculous numbers like this? Yep, because most people aren't great at doing math in their head. If that was 10 OZ just about anyone could do the math on the per ounce price and make comparisons. Not surprisingly the 9 1/4 OZ bag feels surprisingly similar to the 12 OZ bag as well. By making things incrementally smaller they can give you less without you noticing. They can even inch the price up a bit if necessary, as it has been for Doritos. The price per ounce has gone from .3325 cents/oz all the way up to .5178 cents. That is a whopping 55.7% increase in the price of Doritos. To make it even more clear, that 12 OZ bag that cost $3.99 in 2018 would now have a sticker price of $6.21. That's a price tag that would almost certainly have shoppers questioning their decision.

How to Fight Shrinkflation

Unfortunately, there is really no way for the consumer to fight back. All we can do is make informed decisions. With today's crazy sizes and pricing, it's not easy, but doing a bit of math will help. Pull out your phone, divide the price of something ($3.99) by the quantity (12 OZ) to get a price (.3325/oz) you can use to compare against similar products. It's not glamorous, I know, but it could help save you a few bucks.

Shrinkflation happens because of inflation. I mean, technically it is inflation, it's just been given a catchy name. Inflation is something that we are all going to have to live with for a long time to come. The Fed is going to begin raising rates soon to fight inflation, but there won't be any quick fix. And remember, when the Fed says they are going to fight inflation all they really mean is they are going to try and get it back to about 2%. That's sort of the Federal Reserve's own version of shrinkflation. At 2% they think you won't notice that you are losing buying power year after year. They just nip off 2%, and go about their business. Meanwhile, you start off in a 2% hole each year with your investments, and if you don't get at least a 2% raise from your boss you'll also be working cheaper.

Inflation, and shrinkflation, matters to you, whether you know it or not. It's best to understand it, so you can at least try and make the best of a bad situation.

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