Inflation is at historic levels, consumers are scrambling to make ends meet, and recent earnings reports have been disappointing, driving down the market. Still, company profits are stable or rising quickly virtually across the board, but despite that, businesses are shrinking the sizes of their products, without telling anyone.
In response to the rising cost of materials, labor, and transportation, companies have begun quietly carrying out so-called "shrinkflation", the hidden counterpart to inflation. Shrinkflation is nothing new, but it is becoming increasingly common.
The product downsizing has affected everything from toilet paper and toothpaste to cereal and yogurt. According to data front the consumer advocacy group Choice, Nestle (OTC: NSRGY), Kellogg's (NYSE: K), and Cadbury are just a few of the companies that are cutting item sizes.
In some cases, companies have acknowledged the shrinking product sizes, but most have not responded to requests for comments on the changes.
For instance, PepsiCo (NASDAQ: PEP) didn't acknowledge claims that Fritos "Party Size" has shrunk from 18 ounces to 15.5 ounces while increasing in price, but it did acknowledge the drop from 32-ounce to 28-ounce bottles of Gatorade. PepsiCo claims that the Gatorade shrinkage has been in the plans for years, but it declined to respond regarding why the smaller bottle is more expensive, according to the Associated Press.
In 2021, PepsiCo's profits rose by 11%. In the first quarter of this year alone, the company's profits have jumped by another 128%.
Amongst the other companies that the AP approached with claims regarding shrinking products, Cottonelle and Kleenex maker Kimberly-Clark (NYSE: KMG), Alba Botanica and Celestial Seasonings owner Hain Celestial Group (NASDAQ: HAIN), and corporate behemoth Procter & Gamble Co. (NYSE: PG) all declined to respond.
There are a few rare brands that have acknowledged their shrinking products: Domino's Pizza (NYSE: DPZ) announced that it would be reducing its chicken wing meal from ten to eight for the same price all the way back in January. Japanese snack company Calbee Inc. (OTC: CLBEY) told consumers in May that its products would be shrinking by 10% while prices increased by 10%. Both companies pointed to rising costs as the reason behind the changes.
Edgar Dworsky, a consumer advocate and former assistant attorney general in Massachusetts, told the AP that inflated prices often come down once economic inflation eases and competition returns to a more robust state. However, he said that shrinkflation is usually permanent.
Unlike price increases, studies have shown that customers don't tend to take note of package reductions. In fact, profits have been shown to increase when product shrinkage is paired with a discount.
Some experts like Hitendra Chaturvedi, a professor of supply chain management at Arizona State University's W.P. Carey School of Business, have expressed some skepticism about the companies' justification for down-sizing products. He says that labor and materials are definitely getting more expensive, but company profits are still going up, not down.
"I'm not saying they're profiteering, but it smells like it," Chaturvedi said. "Are we using supply constraints as a weapon to make more money?"
In 2020, the pandemic cratered the economy. However, in 2021, renewed demand and limited supply drove corporate profits way up, reaching 33% higher than pre-pandemic levels. It's estimated that companies made a cumulative $200 billion in new operating profits in 2021, thanks to the wider profit margins.