Shrinkflation isn’t due to ‘greed’. It’s actually a desperation move in an extremely price sensitive industry when input costs go up. Raising prices is better for the manufacturer, because when all prices are going up your brand doesn’t suffer in relation to others. But when consumers notice shrinkflation, they get mad at the brand.
The fact is, just about everything in the food delivery chain has gone up in price. Wages are higher, input goods are higher, shipping is more expensive, and increased energy costs are particularly hard on energy-intensive industries like food production.
So prices start going up, but if the bean counters notice rapid dropoffs in demand due to price increases, they may try a shift to shrinkflation tactics to maintain sales.
In volatile times, profits often increase in the short term. This leads to attacks on companies for ‘greed’, but what those added profits really are doing is pricing in added risk from volatility, and the fiture cost of replacement inventory in an inflationary environment.
For example, if inflation is 10%, I pay 10% more for a product. But do I sell it for only 10% more? Nope, I have to sell it for more than that, because when I sell it, inflation will make the replacement inventory more expensive. So temporarily I will have more ‘profit’ - until I order the replacement inventory. Shrinkflation can mitigate this, because prices don’t change - just the volume to the consumer. But that’s managed by the producer, so the retailer doesn’t have to carry the pricing risk.
Don’t look for simple answers to complex problems.
Two I’ve noticed over the past years:
Shredded cheese is commonly packaged in 16oz (or 2 cup) packages. While most still are I have seen more and more certain brands cutting them down to 14 or 12oz.
The big cereal brands, Kellog-GeneralMills-Post, are not about to give up shelf space by shrinking their boxes height or width. So they’ve all decreased the depth dimension. The boxes can hardly stand upright anymore.
There’s a Banh Mi place nearby, Vietnamese crispy pork sandwich on fresh French bread, yummy!
It’s not cheap, over $12.95, but it’s big, makes two meals for me. It came in a baguette sleeve, like a sub. Got one two days ago, it cost over $15, (ok, everything going up, I get it!), now comes, cut in half in a smallish seeming box.
I immediately opened it, certain they’d given me the wrong order. But no. Got home and I ate both pieces in one sitting.
“These price increases have been driven by food companies passing their costs onto consumers, subsequently generating windfall profits. 2021 was the most profitable year for big corporations since 1950, with pre-tax profits rising to $2.5 trillion and after-tax profits surging 35%, enabling the 1% to finally overtake the middle class in share of overall wealth.”
Funny how whenever you dig into the details, you find that the journalist so often got things completely wrong.
The TIME article claims that Kraft-Heinz profits are up 448%, from $255M to $887M. Wow! They’re really raking things in, right?
No. When you actually read the balance sheet they helpfully linked to, you find that the $255M number was a loss. That is, they swung from losing $255M to earning $887M (in Q4 of 2022 vs. 2021).
Isn’t that worse? No, because obviously the company can’t just lose money forever. Cranking up the prices in 2022 was partly a result of having to make up for losses in 2021. Which plays into what Sam_Stone said about volatility: if prices are fluctuating wildly (as they were), then that demands higher prices to cover potential losses. Which actually occurred in this case.
Also, in volatile times companies often hoard cash to get them through uncertain times, build inventory to mititpgate supply chain issues,etc. In an environment of rising interest rates, investments in new infrastructure slow down.
So companies can temporarily look more profitable than they are in the long term, and governments chasing corporate money every time they try to build a cash reserve to weather the bad times is a bad idea.
Companies always pass their costs onto consumers, that’s kind of the point. If there’s anything left over they can be profitable.
How much you want to bet that the “record profits” are nominal? The numbers are bigger sure, because the currency itself is eroding. Monetary inflation is what happens when a currency is untethered to anything. Even the “2% targeted” rate, supposedly a good thing according to the dismal scientists, is corrosive to savers.
Why didn’t all these companies gouge the consumers in prior decades anyway? What was stopping them? There would have to be a widespread collusion going on that strain credulity with even the most fevered conspiracy theorist.
Because we used to have things like anti-trust laws, and they didn’t think they could get away with it. COVID problems drove up a lot of legitimate costs, and the corporations realized that a lot of people would just pay those prices. So when the COVID issues abated, they just kept the prices high, and pushed them just a little bit more every month, and people kept paying. At some point, this becomes a minimum-maximum problem, and they’ll cross a point where increased prices will drive down sales enough to cut into their profits, but apparently we’re not at that point yet.
Supply chain issues can also look like higher profits, if companies can’t buy the intermediate goods needed to replenish inventories, or find the workers to build and staff new stores as needed. So the money accrues in the bank as ‘profit’, but it’s really just a tradeoff because if they can’t fix their supply issues their profit will drop when they run out of current inventory, and if they can fix it they will have to spend a lot of money to replenish.
And in a screwed up ecoomy, some businesses choose to park their money temporily untiul the situation stabilizes. No one wants to take out a huge expansion loan only to find interest rates going to 10%. No one wants to build office space when current space is 50% empty, and no one knows when or if demand will come back. And many businesses are hoarding cash because they have a giant problem coming as those 0% investment loans the goverment encouraged them to take out have to be refinanced at 7-9%.
Business bankruptcies in Canada are up 75% this year. Businesses are victims of terrible government policies just like consumers. Stop blaming ‘greed’ as the reason for problems created by stupid politicians.
Shrinkflation has nothing to do with anti-trust laws. And shrinkflation isn’t something they have to ‘get away with’, it’s a standard business practice when it makes more sense to do that than raise prices.
The term Shrinkflation was coined in 2009, but the concept was around a lot longer than that. There’s nothing immoral or illegal about it.
The real cause here is the massive borrowing and spending that’s been going on. It’s still going on. If you haven’t heard the news, the markets tanked today because the new consumer price index came in hotter than analysts predicted, erasing any hope of rate cuts any time soon.
So long as the government is creating and spending trillions of dollars they don’t have, there will be inflation. Interest rates are currently above the Taylor Rule, which is what’s held inflation down for now. The minute they are lowered, watch inflation take off again. That’s what the fed is worried about.
And this gets to what I mean about volatility. Last week the markets were on a tear becxause everyone believed that inflation was tamed and the bank rate would be lowered by 150 basis points. A week later, and no one believes that any more. How would you like to make purchasing and loan decisions in that environment?
SVB bank went under because they foolishly believed the Fed when they said they didn’t foresee interest rate rises any time in the near or medium term. A few months later, they started raising interest. SVB loaded up on 10 year bonds, and when interest rates went up they got slaughtered. No one wants to make that mistake again, so in times like this businesses keep their powder dry and build up a bit of a war chest. Then of course people scream ‘high profits!’ and ‘greed!’ and demand that their sound business practices be undermined by government taxing away their capital.
Another shrinkflation datapoint is the viscosity of toothpaste. It used to be, toothpaste was thick, like cream cheese. We used to fill nail holes in dorm walls with it, it dried just like spackle. You could extrude a bead on your brush, set it down on the counter, go take a pee, and when you came back, it was just like you left it.
But now, toothpaste is the consistency of non-fat yogurt, more liquid than solid, it barely stays on your brush to get it all the way to your mouth. If you put it on your brush and set it down, it will run off the side like Silly Putty. The toothpaste cartel is slowly watering it down, hoping we don’t notice we’re getting less paste and more agua.
I wasn’t sure if we had a thread here about this, and it turns out I started one a while back! Anyway, Hefty is selling their paper plates in packs of 38, not 50.
They shrinkflated the pockets in my pants. Dickies, been getting them for years and years. Couple of years ago the pockets got smaller. Can barely get my wallet in and out. They helped make that thinner too.
My replacement sponge mop-head is four inches smaller than the original. This means the two squeegee arms extend past it, and I can’t mop along the edge of the floor.