Walking through the familiar aisles of your grocery store, you pick up your favorite box of cereal—same brand, same price, same packaging. But when you open it, it somehow feels… emptier. This is shrinkflation, where products subtly shrink in size while their prices stay the same. In today’s inflationary economy, shrinkflation has become a go-to strategy for brands attempting to increase their profits while facing skyrocketing input costs and volatile market conditions.
What is Shrinkflation?
Shrinkflation is when a company chooses to reduce the size, weight, or quantity of a product while keeping its price constant. Compared to traditional inflation, where the price rises for the same quantity of a good, shrinkflation is subtler and often disguised while still effectively increasing the per-unit cost of a product (by providing smaller “units”). Consumers may not immediately notice the smaller product volumes—often difficult to realize given the similar packaging and branding—but over time, they pay more for less. [1]
The Microeconomic Logic
Shrinkflation is largely a manifestation of price stickiness (the tendency for prices to remain stable even when economic conditions suggest that they should change). For consumer goods, firms often avoid raising prices outright because shoppers are acutely sensitive to price hikes on frequently purchased staples. A sudden increase in the sticker price of a granola bar or laundry detergent, for instance, may trigger immediate backlash and a drop in consumption (due to elasticity) or prompt customers to switch brands (to a substitute in consumption). In contrast, reducing quantity allows firms to effectively raise the per-unit price without as obvious of an alert to the average consumer. Indeed, shrinkflation largely subverts the drop in consumption often caused by increased prices: the price appears unchanged, but the value subtly declines—a tradeoff that most shoppers either overlook or accept passively.
The root cause of shrinkflation comes down to managing corporate profits. In the face of cost-push inflation—where the prices of raw materials, energy, labor, and transportation rise rapidly—companies use shrinkflation to avoid absorbing costs so that they can preserve margins silently. This is especially critical in volatile markets where costs are rising unpredictably and frequent price changes would be unsustainable, thus functioning as a dynamic microeconomic tool to maintain stability in unstable environments. At the same time, however, shrinkflation is not just used to mitigate losses, but also to increase profits. Companies often use shrinkflation to increase profit margins at a rate that is greater than the losses from cost-push inflation, thus increasing their profits instead. [2]
Consumer Responses
Though shrinkflation may go unnoticed at first, consumers are increasingly catching on, especially in the age of online social media and a greater pressure for price transparency. Once it is called out, it often feels deceptive, eroding brand trust and damaging long-term customer relationships. Even minor changes in product volume can lead to high backlash, especially for firms that have built their reputation on providing a consistent product.
Indeed, shrinkflation increases a company’s risk of the consumer switching to an alternate product via the substitution effect. Because of the increased prices, a shopper noticing a fewer quantity of their original product may switch to store brands, bulk purchases, or even different goods entirely. In turn, this disrupts brand loyalty—and in highly competitive product categories, even small declines in perceived value create openings for competitors to take hold of the market. As a whole, shoppers tend to take one of three paths: they either buy more frequently to maintain previous consumption levels (thus increasing total spending and decreasing their savings), they reduce their usage of the product, or they shift to a different product entirely.
At a broader level, shrinkflation is fundamentally regressive, disproportionately impacting low-income consumers who spend a larger share of their income on everyday necessities. These individuals, as a result, are less able to absorb subtle price increases and often have less alternatives when seeking better value. The effects are especially devastating for these groups: for households already managing tight budgets, a smaller box of cereal or fewer rolls of toilet paper at the same price can significantly affect their purchasing power, raising major concerns over economic equity amongst socioeconomic groups.
Conclusion
Shrinkflation often appears to be a quiet shift in the grocery aisle—but its ripple effects often go far deeper than that. Companies employ shrinking product sizes as a calculated strategy to preserve profits while attempting not to provoke price-sensitive consumers. While the strategy may seem innocuous at first, the long-term outcomes, however, are more significant: declining brand trust, increased consumer skepticism, and a decrease in economic equity. For everyday shoppers, shrinkflation is a manifestation of how microeconomic behaviors play out in everyday life as companies quietly adapt to economic stressors, one smaller snack or roll of paper towels at a time.
Sources:
[1] https://www.chicagobooth.edu/review/retailers-are-shrinkflation
[2] https://groundworkcollaborative.org/work/big-profits-in-small-packages/
[3] Image: https://storehousenm.org/shrinkflation-affects-local-families-budgets/