UAE: Are you paying more for less? How 'shrinkflation' hides price hikes

Manufacturers keep prices seemingly low by shrinking size, weight or quantity of products, while the subtle reduction may go unnoticed by consumers

Vijay Valecha, Khaleej Times, March 14, 2024

The size of your favourite burger has shrunk, and the patty has gone thinner. When you open a bag of chips, there’s more air. Less coffee or tea in a jar; more space in a box of cereal; fewer sheets in a roll of tissue roll. The bag of rice is the same, but the unit is not, and the nuts in your preferred snack are almost missing.

That's 'shrinkflation' – a portmanteau or blending of the words shrink and inflation – a ploy by manufacturers to keep prices seemingly low by shrinking the size, weight or quantity of products. The idea is to hide inflation or price hikes in plain sight and not to shock buyers.

With the UAE being a net food importer, "shrinkflation is a 'silent threat' that adversely affects consumers," analysts and economists told Khaleej Times.

Lian, a Dubai resident, decried this "price manipulation". She said: "During my last grocery shopping, I saw two brands of Jasmine rice. The colour of the packaging and logo looked similar. One was Dh16.95; the other, Dh16.25. As a price-conscious shopper, I picked up the Dh16.25 – thinking it was the same 5kg of rice.

"But afterwards, I realised that the Dh16.25 bag of rice was only 4.5 kg. I ended up paying more for it!" she added, explaining: "The 5kg was priced at Dh16.95 or only Dh3.39 per kg, while the one I bought (Dh16.25 for 4.5 kg) was more expensive at Dh3.61 per kg."

Consumers end up losing more

Dr Rommel Sergio, associate dean at the School of Management, Canadian University Dubai, said: "Shrinkflation often results in a subtle but real reduction in value, which can lead to a sense of betrayal or frustration for consumers when they realise they actually got less for their money."

He explained: "Manufacturers resort to shrinkflation primarily as a means to cope with rising production costs, including raw materials, labour, and transportation, without raising prices outright. Price hikes can be readily apparent and off-putting to consumers, whereas changes in product size or quantity are less likely to be noticed immediately."

By hiding the hike in prices, consumers end up losing more. "As products become smaller, consumers buy more to meet their needs, which can lead to adjustments in consumption habits. Financially, it stretches household budgets. Some may seek alternatives offering better value, while others might reduce their consumption of the affected goods," Sergio noted.

A silent threat with real consequences

"Historically, consumers have shown a greater aversion to price hikes than to reductions in product sizes," observed Vijay Valecha, CIO at Century Financial. "Some consumers prefer receiving smaller packages at the existing price rather than the same-sized packages at higher prices."

"Moreover, the subtle reduction in product size may go unnoticed by regular consumers, rendering the unchanged price less conspicuous. Consequently, most consumers may not immediately discern the higher unit price, thereby impeding their ability to make well-informed purchasing decisions," he added.

Because of this, Valecha underscored: "Shrinkflation is a silent threat that adversely impacts the economy as it leads to an increase in inflation, and the same might not be reflected in inflation metrics, which could lead to delayed or inappropriate economic interventions.

"Shrinkflation has become a noticeable trend in the UAE, affecting various consumer products. For instance, the size of the Listerine mouthwash bottle was cut by 17 per cent from 600 ml to 500 ml. Originally, the price per ml was 25 fils; however, after the reduction, the price went up to 30 fils or a staggering 20 per cent increase," he added.

It's a rip-off'

Even US President Joe Biden called 'shrinkflation' a rip-off. He recently called on manufacturers to reduce their product size.

"Some companies are trying to pull a fast one by shrinking the products little by little and hoping you won't notice," said Biden, adding: "Too many corporations raise prices to pad the profits, charging more and more for less and less.. The snack companies think you won't notice if they change the size of the bag and put a hell of a lot fewer — same size bag — put fewer chips in it."

The downsizing of products, however, is nothing new as manufacturers have been doing this since the 1950s, according economists. What is more worrying is that shrinkflation has become more prevalent during heightened inflation.

Ensure consumer welfare

Sergio, who recently launched his latest book titled Emerging Innovation: Business Innovation in the New Normal, said shrinkflation only benefits manufacturers as "it allows them to protect their profit margins in the face of cost pressures."

"While shrinkflation can help manufacturers navigate challenging economic periods by preserving profit margins and maintaining employment, it only masks true inflationary pressures, potentially misleading consumers and policymakers about the state of the economy. Shrinkflation will actually result in the erosion of trust that will influence brand loyalty and purchasing decisions," he added.

Consumer welfare should come first, Sergio underscored. "The reduced transparency and potential for consumer dissatisfaction could undermine long-term trust in brands and businesses, potentially affecting market competition and consumer welfare," he concluded, emphasising the urgent need "to strike a balance between maintaining profitability and consumer trust amid inflationary challenges."

Source

Khaleej Times