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Understanding Shrinkflation: What It Is and How to Combat It

September 13, 2024
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4 mins
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Inovayt

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The cost of living in Australia is rising, and many people are feeling the pinch. You might have noticed your favourite snacks, household items, or even your everyday essentials aren’t lasting as long as they used to. This isn’t your imagination—what you’re seeing is something called shrinkflation.

What is shrinkflation?

Shrinkflation is a form of hidden inflation where the size, quantity, or weight of a product is reduced while the price remains the same. Essentially, you’re getting less for your money, but because the price hasn’t changed, it can be harder to notice. For example, you’ve been buying a certain cereal brand for years. You might remember when the box was a solid 500 grams, but now, it’s only 450 grams. The price, however, has stayed the same—or worse, it’s gone up. This is shrinkflation in action.

Why does shrinkflation happen?

Shrinkflation isn’t new, but it has become more prevalent in recent years, especially as companies try to navigate rising production costs without scaring off customers with price hikes. Here’s a closer look at why it happens:

Rising production costs 

The cost of raw materials, labour, transportation, and energy has been increasing globally. Rather than passing these costs directly to consumers through higher prices, companies opt to reduce the size of their products.

Maintaining profit margins

Companies are in business to make a profit. By shrinking products rather than raising prices, they can maintain or even increase their profit margins while keeping prices relatively stable.

Psychological pricing 

Research shows that consumers are more sensitive to price increases than size reductions. This means you’re more likely to notice—and be put off by—a price hike than you are by a slightly smaller packet of biscuits or box of cereal.

Market competition 

In highly competitive markets, companies may be hesitant to raise prices for fear of losing customers to cheaper alternatives. Shrinkflation allows them to stay competitive without compromising on profitability.

How to spot shrinkflation

Shrinkflation can be sneaky, but with some care, you can start spotting it more easily. Here are some tips to help you keep an eye out:

Compare package sizes

Pay attention to the weight, volume, or number of items in a packet. If possible, compare it with older versions or look at competing brands to see if there’s a difference.

Watch out for rebranding

Sometimes, shrinkflation is accompanied by a rebranding or redesign of the packaging. If a product suddenly looks different, check to see if the size has changed too.

Check unit prices

Unit pricing, which shows the cost per 100g, 100ml, etc., can be a useful tool for spotting shrinkflation. Even if the overall price of the product hasn’t changed, a higher unit price indicates you’re getting less for your money.

Stay informed

Don’t be afraid to shop at different stores to find the best deals. Price comparison apps and websites can help you find the lowest prices on the items you need.

Tips on how to avoid the impact of shrinkflation

While shrinkflation can be frustrating, there are ways to reduce its impact on your wallet. Here are some ways you can take control:

Buy in bulk

Larger quantities often have a lower unit price, so if you have storage space, consider buying in bulk from places like Costco. This is particularly useful for non-perishable items like rice, pasta, and cleaning supplies.

Opt for store brands

Many supermarket-owned brands offer similar quality to the big-name brands but at a lower price. These products are less likely to be affected by shrinkflation.

Shop around

Don’t be afraid to shop at different stores for the best deals. Price comparison apps and websites can help you find the lowest prices on the items you need.

Look for alternatives

If a product you regularly buy has been hit by shrinkflation, consider switching to a different brand or even a different product altogether. Sometimes, the alternatives can be just as good, if not better.

Cook from scratch

Pre-packaged foods are often the first to be affected by shrinkflation. Cooking meals from scratch allows you to control portion sizes and ingredients, potentially saving money.

Plan your shopping

Make a list before you go shopping and stick to it. This will help you avoid impulse buys and ensure you’re only spending on what you really need.

The role of financial planning in managing shrinkflation

Shrinkflation is one of the many challenges that can make it harder to stick to a budget. As the cost of living continues to rise, it’s more important than ever to have a solid financial plan in place. At Inovayt, we understand that managing your finances can feel overwhelming – especially when it seems like everything is getting more expensive. That’s why we’re here to help. Our experienced financial planners can help you create a personalised budget that considers the current economic climate, including the impact of shrinkflation. We can help you identify areas where you can save, develop strategies for managing debt, and set realistic financial goals that align with your needs and lifestyle. By taking control of your finances, you’ll be better equipped to navigate the challenges of shrinkflation and inflation.

Manage the impact of shrinkflation on your finances today

Shrinkflation is a reality that many Australians are facing, but by staying informed and making smart choices, you can minimise its impact on your finances. Remember, you don’t have to do it alone. The team at Inovayt is here to support you every step of the way. If you’re worried about how shrinkflation and the rising cost of living affect your budget, contact the Inovayt team to take the first step towards a more secure financial future. Remember, by staying informed and proactive, you can make smarter financial decisions that help you stay ahead, even in tough financial times.

Looking to manage the impact of shrinkflation on your finances?

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