Shrinkflation:
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Shrinkflation is the practice of reducing the size of a product while maintaining its sticker price.
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It is a form of hidden inflation.
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Raising the price per given amount is a strategy employed by companies, mainly in the food and beverage industries, to stealthily boost profit margins or maintain them in the face of rising input costs.
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Nowadays, shrinkflation is a common practice among producers. The number of products that undergo downsizing increases every year.
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Large producers in the European and North American markets rely on this strategy to maintain the competitive prices of their products without significantly reducing their profits.
Major Causes of Shrinkflation:
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Higher Production Costs:
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Rising production costs are generally the primary cause of shrinkflation.
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Increases in the cost of ingredients or raw materials, energy commodities, and labour increase production costs and subsequently diminish producers’ profit margins.
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Reducing the products’ weight, volume, or quantity while keeping the same retail price tag can improve the producer’s profit margin.
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At the same time, the average consumer will not notice a small reduction in quantity. Thus, sales volume will not be affected.
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Intense Market Competition:
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Fierce competition in the marketplace may also cause shrinkflation.
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The food and beverage industry is generally an extremely competitive one, as consumers are able to access a variety of available substitutes.
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Therefore, producers look for options that will enable them to keep the favour of their customers and maintain their profit margins at the same time.
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