Economic Update

While we have spent a fair bit of time talking about inflation over the past year (and will very likely discuss more in the coming months), the newest phenomena in the “inflation game” is so called “shrinkflation”. With prices for many goods rising close to 10% year-over-year and with soaring gasoline prices squeezing what consumers have left to spend on everything else, consumer products companies have been faced with a very challenging environment.

If they raise prices, demand will almost certainly fall, but if they maintain prices against a backdrop of soaring input costs, their margins will quickly disappear. Enter shrinkflation.

Let’s look at an image and then comment:

Okay, so we are looking at two very similar looking boxes of Kleenex ultra-soft tissues. Now, we first need to point out that these tissues are not just soft, but ultra-soft, so you can imagine how good they would feel wiping your nose. Anyway, while both boxes sell for the same price - $3.99 at this store – you might notice that the one on the left contains five more of the glorious ultra-soft sheets (65) than does the one on the right (60). This is the textbook definition of shrinkflation, as Kimberly-Clark (the maker of these Kleenex bad boys) rather than raising the price and potentially scaring away buyers, is banking on consumers not noticing that they are getting ~8% fewer ultra-soft tissues than they did the last time they bought them.

Now, some companies have been even more audacious than K-C with this gem catching our eye:

Both boxes are family size, but while the one on the left is apparently for the entire family, the one on the right excludes the dog (see Steve the dog lower right), who is clearly concerned that he will not be getting his share. That said – in some cases, shrinkflation has been a net benefit, as in the case of these delicious morsels:

Who doesn’t like a taquito? But who wants the unsavory job of trying to divide up 21 taquitos amongst four hungry kids? Who gets the extra taquito? No problem, shrinkflation to the rescue as El Monterey has now magically disappeared one taquito and solved one of life’s most challenging math problems.

Okay, last one and we will put this in the category of shrinkflation taking something away, but also offering something of value in return:

The Gatorade on the left is 32 glorious ounces of electrolytes and sugar. The one on the right is merely 28 ounces of after-sports reward. However, while we are losing 1/8th of our ounces, we are gaining a sleeker bottle that is “pinched” in the middle. We are not sure that the new stream-lined look is worth giving up four ounces of liquid delight (and paying $0.50 more), but we are willing to admit that the bottle on the right with its pinched middle and taller label is far more likely to get nods of envious approval from those around you as you tip back a bottle than is the old “fat bottle” version.