By David Koch, CFP®, AIF®, CFA, Director of Portfolio Management/Senior Wealth Advisor
Inflation has been a hot topic for several years now and is well understood as the price increasing for the same good or service. There are two more subtle, less understood, yet impactful phenomena that also impact inflation: shrinkflation and skimpflation. While you may have experienced these for yourself, you may have not noticed them, or not known there’s a word for them.
Shrinkflation: Less for the Same Price
Let’s start with the more common. Shrinkflation occurs when companies reduce the size or quantity of a product while maintaining its price. This tactic allows businesses to either increase revenue, or cope with increased production costs (or both) without overtly raising prices, which might deter price-sensitive consumers.
You would notice if your eggs came in a box of 10 eggs for the same price as what you used to pay for a dozen, because eggs come in packs of 12. This reduction, however, often goes unnoticed with many other goods because most consumers pay less attention to packaging details than price. Most people would not notice, for example, if the same sized box of Cheerios came with only 15oz inside instead of 16oz.
Skimpflation: Lower Quality for the Same Price
Skimpflation, on the other hand, involves reducing the quality of a product or service while keeping the price unchanged. This might mean using cheaper ingredients, cutting staff, or offering fewer features. For example, a restaurant might use lower-quality ingredients in its dishes, like using red wine vinegar instead of balsamic vinegar, or margarine instead of butter – or a hotel might reduce housekeeping services to cut costs.
The motivation behind skimpflation is similar to that of shrinkflation: to manage rising costs or increase profits, without increasing prices. Skimpflation, however, can be more insidious because it often affects the consumer experience. Unlike shrinkflation, where the change is in quantity, skimpflation impacts the perceived value or satisfaction derived from the product or service. Consumers might not immediately notice that their favorite snack doesn’t taste as good as it used to, or that their bed sheets in their hotel room have not been changed.
Shrinkflation vs Skimpflation: Comparing the Two
How Shrinkflation Affects Consumers
Shrinkflation is about quantity, reducing the amount of product consumers receive, but may not feel like a hidden price increase, because consumers are paying the same amount for less product. A recent study by Purdue University found that more than three-quarters of American consumers have noticed shrinkflation in stores. Commonly affected items include snack foods, packaged desserts, and frozen foods.
That same survey showed that while about 80% of consumers check the price of their grocery items, only about half also checked the unit cost or weight. Corporations defend the practice because they claim consumers want prices or packaging that are “familiar” with, even if that means there are less chips inside the same bag.
How Skimpflation Affects Consumers
Skimpflation, on the other hand, is about quality, diminishing the product or service’s overall value in order to protect or increase profit margins. For example, companies have been switching to high fructose corn syrup for decades instead of using sugar, despite the health concerns. The Pop Tarts of my youth (don’t judge!) had far more filling in them, and were thicker. Today’s Pop Tarts are a shell, literally, of what I ran to school with wrapped in a paper towel.
Less fruit in your yogurt, less chocolate chips in your cookies; but skimpflation isn’t limited to products, services are being impacted by skimpflation as well. This can mean longer wait times for call centers, or in lines because of fewer staff.
Recognizing and Responding to Shrinkflation and Skimpflation
From a consumer perspective, both practices can be frustrating, especially because they can be subtle enough for most consumers not to notice (that’s the point). Whereas an increase in price would be more apparent, inflation in the form of shrinkflation and skimpflation isn’t so obvious.
Both practices can lead to disappointment and dissatisfaction, as both the quantity and quality of goods and services decline. They can also erode brand loyalty if consumers feel they are not getting their money’s worth. Now that you know the difference, you may be better tuned in to notice them and make changes when you feel like you’re no longer getting what you paid for.
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
