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September 28, 2022

How to adjust your budget for shrinkflation.

Shrinkflation has been on the minds of many Americans lately. In a recent survey, about 64% of adults surveyed said they are worried about it. Both shrinkflation and inflation are happening at the same time, meaning Americans are spending more for less on the items they use daily. Learn more about shrinkflation and how to budget for it.

What is shrinkflation?

Shrinkflation is the practice of reducing the size of a product while maintaining its former price, according to Investopedia. Companies use shrinkflation to subtly increase profit margins or maintain them as a response to rising input costs. This strategy is typically used by food and beverage companies. Shrinkflation is also known as package downsizing in business.

Why do companies apply shrinkflation?

There are multiple reasons why a company would use shrinkflation. It’s a useful way to ensure revenue without drawing too much attention from customers. Here are some common situations when shrinkflation is used.

Higher production costs. Retail companies often use shrinkflation to address increases in production costs. If the cost of raw materials or labor goes up, the cost to make items also increases. These increases can reduce profit margins, which isn’t good for investors or the company. If a company doesn’t have strong pricing power, reducing the quantity of products can help maintain profits without jeopardizing sales.

Market competition. If a company is in a highly competitive industry, raising prices could be its downfall. Consumers who are price conscious might switch brands. Shrinkflation allows companies in competitive markets to remain competitive in terms of price.

How to adjust your budget for shrinkflation.

Budgeting for shrinkflation can be tricky since the price for these items stays the same even though you’re running out of product faster. Instead of looking at your receipt, consider how long your food is lasting. If you used to be able to get enough groceries to last for a week with a certain amount of money, and now you’re running out of meals before the week is done, you might be impacted by shrinkflation.

Adjust your budget for shrinkflation so that you aren’t overspending in other areas. To beat shrinkflation, compare what you were spending before and how long that food lasted. If you suspect you’re getting less for more money, try switching brands to a generic brand or substituting frozen produce for fresh produce. Shrinkflation is hard to catch, so you may need to experiment to find savings.

Summary

Americans are dealing with both inflation and shrinkflation. Many people are finding that their money doesn’t go as far as it used to. Shrinkflation is tricky to identify, so it’s important to pay close attention to what you’re spending and how much you get for it. You may also need to adjust your budget to avoid overspending.

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