Consumers know all about shrinkflation. Instead of increasing the price of something, just give people less of that thing for the same price. It has the same effect of increasing the unit price.
My anchor memory of shrinkflation was when the Cadbury Creme Egg shrank to 34 grams from 39 grams about 20 years ago. Tempers flared. People vowed to give up chocolate eggs. Alas, the shrinkflation continued.
Even just last year, Cadbury made national headlines in Britain for reducing the number of Creme Eggs sold in multipacks to eight from 10, while also increasing the price. Double whammy.
New research published in the academic journal Marketing Science helps explain why shrinkflation has been such an effective retail strategy. And yes, it applies to more than just junk food.
Looking at 10 years of grocery sales data in the United States, the authors found that shrinkflation persists not because consumers are unaware of it, but because it takes advantage of how we process price-versus-quantity changes.
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We react far more strongly to changes in price than to changes in quantity. A 1-per-cent increase in price leads to more than twice the reduction in sales caused by a 1-per-cent decrease in package size.
We tend to notice an increase in price, especially for the staples in our grocery shopping, and we are therefore more likely to react to that change. But quantity changes tend to be less salient. And if we are less likely to notice them, we are less likely to react.
As a result, reducing a package size can raise the price per unit and leave demand largely intact. While the data was taken from U.S. shoppers, the general findings could be expected to apply to Canadians as well.
Looking at millions of observations, it was found that products are downsized far more often than they are upsized, by a ratio of roughly five-to-one. (When products were upsized, prices did not always rise. And when they did, the increase was usually smaller than the increase in size, leading to an improvement in value.)
Shrinkflation was also found to be a pricing strategy used more often in food staples – the kinds of products that we buy repeatedly, often on autopilot.
In many cases, the research found that total spending rises after a product is downsized. Shoppers don’t tend to switch brands or stop buying the items, but instead simply purchase it more often. And over time that pushes grocery bills higher without any dramatic price jump.
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This fits neatly with the broader affordability puzzle highlighted by Globe columnist Tim Shufelt in which he noted that Canadians feel poorer even though income growth has actually outpaced inflation since the pandemic.
One reason is that grocery prices are a dominant emotional signal. Food costs have risen faster than overall inflation and we get the reminder every week when we do our groceries.
Against this backdrop, the federal government has turned to targeted relief. The expansion of the GST credit, through the Canada Groceries and Essentials Benefit, aims to assist low- and moderate-income households.
But part of the announcement of that credit that might have flown under the radar was that the government signalled that unit pricing standardizations are coming.
Unit pricing is the information in a small font at the bottom of a pricing label. If a 2.63-litre bottle of orange juice was being sold for $8.99, the unit price would be $0.34/100mL.
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The practice is not standardized across Canada. Some grocers who voluntarily use unit pricing may use different units in the same category of purchase such as showing one product’s unit price per 100mL and a competing product per 250mL.
With truly standardized unit pricing, if you saw an alternative orange juice being sold for $6.29 for 1.54 litres then instead of doing the messy mental math, you’d just look at the unit price on that sticker, see that it was $0.41/100mL and know that you would be paying more per unit.
Unit pricing does not lower the price of food but it changes what shoppers notice. It shifts attention away from the sticker price and towards the value. Behaviourally, that matters.
By standardizing price-per-unit labelling, shrinking packages will be easier to detect. That won’t lower food prices but it may reduce the ability of shrinkflation to work as well as it has in the past.
It can help turn hidden unit-price increases into something shoppers can more readily see and respond to. And if you’ve never paid attention to unit pricing on labels at the grocery store before, try it. Shrinkflation works best when we’re not paying attention.
Preet Banerjee is the creator of YourMoneyDegree.com, a financial literacy program with an AI companion app.
