Economy

Redflation: What happens when groceries weigh less and cost the same

Ileo8jst

Grocery shoppers notice something strange. Bags of chips filled with air. Soup cans that have shrunk. Smaller detergent packets.

Companies are reducing the size of their products without reducing prices, and consumer feedback, from Reddit has TikTok, through the comments section of the New York Times, brimming with outrage over this trend, known as redflation (contraction-flation in English).

The practice is not new. Sellers They wear centuries by quietly reducing products to avoid raising prices, and experts say this has been a no-brainer corporate strategy at least since 1988, when the Chock Full o’Nuts brand reduced its coffee cartridge from 455 grams to 368 grams and its competitors followed suit.

But the indignation is more pronounced today. President Joe Biden echoed the anger in a recent video. (“What makes me the most angry is that ice cream containers have decreased in size, but not in price,” he lamented). Companies themselves exploit this practice with advertising tricks. A Canadian chain introduced pizza growth . (“In terms of pizza,” the company’s press release joked, “a bigger slice.”)

But how does redflation work from an economic point of view? Is this happening more frequently in the United States and, if so, does this mean that official data does not reflect the true extent of inflation? Below we explain the trend and what it means for your pocket.

It may be hard to believe, but redflation seems to be happening less frequently today than it did a few years ago.

The U.S. government adjusts official inflation data to account for shrinking product sizes, and data collectors who monitor size adjustments have found fewer instances of shrinking household goods and groceries in 2023 than a few years ago.

The reduction was common in 2016, when overall inflation was low. It became rarer after the pandemic began in 2020 and, more recently, began returning to pre-pandemic levels, according to Bureau of Labor Statistics analysts. (Economists have noted that the set of products measured has changed somewhat over the years, making comparisons over time an approximation rather than an exact science.)

Even though size reductions don’t happen as frequently, they have a big impact on some key categories, such as candy, detergent and toilet paper.

From 2019 to 2023, redflation added about 3.6 percentage points to the inflation of products such as paper towels and toilet paper, compared to 1.2 percentage points from 2015 to 2019. In recent years, the Contraction also contributed the most to the rise in prices of candy and cleaning products.

In the case of snacks, size reductions added 2.6 percentage points to inflation, roughly what they contributed from 2015 to 2019. The government has not yet released an analysis on the contribution of reductions to general inflation from 2019 to 2023.

The contraction itself is reflected in official inflation data, but there is another hidden force that represents a cost to consumers and does not show up in the statistics. Sometimes companies use cheaper materials to cut costs, a practice some call lesinflation. For the government, it is much more difficult to measure.

If a roll of paper towel costs the same price, but the number of sheets is fewer (reduction), the increase in the unit price is added to the official inflation. If the paper napkins are the same size, but suddenly made of worse quality material (lesinflation), the government does not record it as inflation.

In fact, according to government statisticians, food and household products do not directly adjust for changes in quality other than height and weight. This way, if the brand of microwave food you buy starts using vegetable oil instead of olive oil, or if the resealable container comes without a seal, it won’t be noticed.

Companies choose to downsize their products rather than charge more for a simple reason: consumers tend to focus more on price than size.

When the numbers drop, “people may notice, but often they don’t,” says John Gourville, a professor at Harvard Business School. “There’s no impact to seeing it on the label.”

A famous example is Dannon, which sold yogurt in larger containers than its competitor Yoplait: 226 grams versus 170 grams (eight ounces versus six). Consumers were convinced that Dannon’s yogurt was more expensive and didn’t realize that it was simply bigger. Eventually, the company gave in and reduced the size of its packaging.

“Dannon’s yogurt sales, which declined immediately after the downsizing, have since recovered,” the Times reported in 2003. “And Dannon now pockets a bigger profit on every cup of yogurt it sells.” »

Not all size changes are the same. Some may be surreptitious, such as increasing the size of a slot in the base of a pot or cutting the corners of a bar of soap. Consumers have particular difficulty recognizing changes in size when they occur in three dimensions, says Nailya Ordabayeva, an associate professor at Dartmouth’s Tuck School of Business who has studied consumer responses.

“The brain is programmed to execute simpler heuristics,” he explains.

Additionally, he noted, consumers may be willing to accept smaller quantities or even prefer them in some cases. For example, junk food products have sometimes been reduced to reduce calorie counts.

When companies simply care about their profits – and not their consumers – pricing experts worry that persistent redflation will drive away buyers.

When raw material costs rose and inflation made the news, consumers likely realized that companies needed to pass on some of those increases to them. They would even have preferred smaller products at higher prices, according to several experts.

But now, overall inflation has calmed: after peaking at 9.1% in July 2022, it had fallen to 3.1% in January. And consumers may be less willing to accept redflation now that companies face less severe cost pressures, particularly because food company profits have been — and in many cases remain — high.

They may simply feel cheated.

“I see consumers becoming more aware of redflation,” said Jun Yao, a marketing professor at Macquarie University in Australia who has studied the trend.

And as more chains and online retailers release their unit costs, shoppers may be more attentive to size changes, Yao said, which could counteract shrinking portions in the future.

This practice, he says, “can be counterproductive and harm the brand’s image.”

Jeanna Smialek writes about the Federal Reserve and the economy for The Times from Washington. More from: Jeanna Smialek