In September, major Australian supermarket chains were scrutinised for “inflating” grocery prices for a short period and then advertising them as “discounted items” afterwards. This opened up a discussion on various retailer tactics that make it difficult for shoppers to accurately and concisely compare prices. One such tactic is shrinkflation.
What is Shrinkflation?
If you’ve noticed products getting smaller with their prices staying the same, it’s not just you—it’s shrinkflation at work. Shrinkflation is the practice of reducing the size of a product while maintaining its retail price. The term is a portmanteu of “shrink”, referring to the change in product size, and “flation”, which refers to inflation or the rate of increase in prices over a period of time.
Many businesses know that consumers are more likely to spot product prices, so they choose to reduce the size of these products instead, aware that this move has a higher chance of going unnoticed. According to research, customers react greatly to periodic changes in price but not at all to periodic reductions in quantity.
In other words, shrinkflation is a form of hidden inflation. As the global economy contends with challenges like rising raw material costs, supply chain disruptions, and increased post-pandemic labourer wages, consumers are shouldering the impact of these soaring production expenses.
Is Shrinkflation Legal?
Food manufacturers have no legal requirement to alert consumers of a change in product size so long as the new quantity and unit price are appropriately displayed. However, failing to clearly inform consumers can easily be perceived as misleading and a deceptive marketing practice.
A recent report by the Australian Competition and Consumer Commission (ACCC) highlighted growing shopper concerns about shrinkflation and the regulations surrounding unit pricing. Unit pricing identifies the cost of a good based on standard measurements, such as per kilogram. Consumers have complained that shrinkflation is “happening with every product,” with packaging redesigned to hide a reduction in quantity.
According to the ACCC report, unit pricing may have a limited effect when a manufacturer engages in shrinkflation, as consumers who regularly purchase the same product may not notice that it has gotten smaller. This is because the code covering unit pricing can be inconsistent in measurements with some products not included. With nearly 90 per cent of consumers using unit pricing to decide on their purchases, this inconsistency can become problematic.
In response, the Australian Federal Government recently announced that it would implement a stronger Unit Pricing Code where price tags will be improved, making them more legible and prominent in stores, and units of measure will be overhauled to make them more consistent across supermarkets, allowing consumers to compare the cost of goods by weight or volume. There is also a possibility for the current code to be extended and cover retailers outside of large supermarkets.
Retailers found breaching this enhanced code will face “substantial penalties.”
How Shrinkflation Affects Businesses
While the practice of shrinkflation is not illegal, businesses should consider the issues that may arise once they employ this strategy, including:
Potential backlash from consumers
Thanks to social media, consumers have become hyper-aware of shrinkflation. As of August 2024, the hashtag #shrinkflation has gotten over 86 million views, with customers sharing their findings—whether photos or videos of products showing signs of shrinkflation—online. Not only does this hurt brand loyalty, but it can also impact consumer perceptions of the brand’s value and lead to a loss of trust and confidence in the business, with customers choosing to switch to products with better offerings.
Longterm impact on brand value
While shrinkflation may offer short-term relief from rising costs, the repeated use of this strategy can significantly affect a brand’s value and reputation over time. Once consumers detect this practice, they can react negatively to the change, making it difficult for the company to maintain its competitive market advantage.
What Businesses Can Do to Address Shrinkflation
Addressing shrinkflation requires thoughtful communication and brand management. Below are some strategies businesses can employ to help maintain consumers’ trust when using shrinkflation.
Clear communication
Companies that are transparent about price or product size adjustments can help reduce potential backlash. Whether it’s because of increased production costs or supply chain challenges, sharing the reasons behind their decision to use shrinkflation can help maintain trust between the business and its customers.
Demonstrate additional value
With consumers negatively perceiving this retailer tactic, companies can highlight the additional value their products provide beyond their size. They can underline improvements in quality or environmental benefits, such as more sustainable packaging, to justify the changes. Others might offer new product lines with varying sizes or quantities, providing consumers with options that align with their budgets and preferences.
Transparency in pricing
If price increases are unavoidable, brands should communicate the reasons clearly using simple language. Connecting these explanations to a customer-focused value narrative, such as enhanced product quality, can help build trust and sustain positive relationships with customers.
Shrinkflation is here to stay as a nuanced retailer tactic, and it is up to brands to successfully navigate this practice so it does not significantly impact their relationship with their loyal patrons. As customers become more informed and sceptical, transparency and honesty become key to maintaining consumer confidence. By balancing the need for profitability with consumer trust and satisfaction, businesses can foster strong customer ties while effectively managing the challenges posed by economic pressures and rising production costs.
Protect your business or brand and ensure full compliance with the revised Unit Pricing Code by speaking to experienced FMCG lawyers. Engage early with Lazarus Legal and get comprehensive protection and guidance for your business today.
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