Courtesy of Zero Hedge
Do you ever get the sense that your favorite steak at that Quick Service Restaurant of your choice keeps getting thinner and thinner all while your check size at the end of the night continues getting larger and larger. Well, it is. How else are publicly traded chains going to continue to deliver margin growth to Wall Street in the midst of rising labor costs, rising commodity costs and shrinking customer traffic?
As a new study in the U.K. just revealed, shrinking portion sizes among food manufacturers is actually way more common than you might think and you probably never even noticed it. In fact, according to data from the Office for National Statistics, over 2,500 consumer products in the U.K. shrunk in size over the past five years despite being sold for the same price.
But it's not just food manufacturers that are shrinking portions while maintaining price as many consumers goods items from chocolate to coffee to toilet paper are all experiencing the same trends. Known in grocery circles as 'liar packs,' shrinking portion sizes became an attractive alternative to simply raising prices back during the great recession when consumers became particularly sensitive to price. Of course, the net effect is exactly the same but it's much more difficult to notice that fine print on the bottom corner of the packaging than it is the price tag at check out. From The Telegraph:
Mark Jones, a food and drink solicitor at Gordons law firm, said: “Shrinkflation was borne out of the recession and has gathered staggering pace since 2009. The ONS’s report confirms this. Against the back drop of a weak economy, commodity prices have been rising over the last five years.
"The recession made people very price sensitive and you can see the evidence of that by looking at the impressive growth of discount retailers in the last five years, no retail sector has grown faster.
“Suppliers and retailers do not want to raise the ‘on the shelf’ price, but both have had to adapt to increasing commodity prices.
"Shrinking the size of the products being sold, whether that is toilet paper, chocolate or cleaning products, is just another way of pushing through a price increase, but in a more subtle way. How many of us noticed Andrex reduce the number of sheets on a toilet roll from 240 to 221?”
And here is the breakdown by month over the past 5 years:
But it's not just British consumers getting duped by "shrinkflation" as all the same games are played in the U.S. markets as well. For example, who is actually going to notice that 10 sheets of paper are missing from the Bounty rolls on the right versus those on the left? Yet, assuming that both packages are sold at the same price this small reduction in size equates to a substantial 9% price hike on a per sheet basis.
Meanwhile, these containers are completely identical aside from some tiny print in the bottom right hand corner.
Conclusion: Caveat emptor…there is a whole army of Harvard MBAs working in consumer goods companies all around the world whose sole mission in life is to get you to pay more for less without ever noticing.
