Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / The Silent Tax Of Shrinkflation
Transcript
- Lucas: You pick up a bag of chips today and it feels lighter. Not just a little lighter, but noticeably less substantial than the one you bought six months ago. That is shrinkflation, and it has moved from a desperate stopgap to a permanent fixture of the consumer goods landscape. Luna: It is subtle enough that most people don't even realize they are paying the same amount for less product until they actually weigh it at home. It is a quiet erosion of value that slips past our radar. Lucas: Right. And the reason it works is because of price anchoring. Consumers see the sticker price and compare it to their memory of last month's sticker price. If the price hasn't changed, the brain assumes the value is stable. The reduction in grams or ounces happens in the negative space, where we don't naturally look. Luna: Exactly. And for the companies, it is the path of least resistance. They can raise prices by ten percent and lose customers instantly, but they can reduce volume by five percent and hope nobody notices. Lucas: Let's look at the numbers. In the third quarter of twenty twenty-six, several major fast moving consumer goods companies reported flat unit sales growth but maintained revenue stability. How? By shrinking packages. We are seeing reductions ranging from three percent in beverages to as much as twelve percent in snack categories. The margin protection is immediate because packaging and logistics costs drop with every fewer grams shipped. Luna: But there is a breaking point. When does the product become too small to justify the price tag? I remember when chocolate bars started losing whole segments of their surface area. People got angry pretty quickly then. Lucas: That anger is real, but it is fragmented. One brand shrinks its pasta box, and the customer complains. But if every brand in the aisle does it simultaneously, the consumer has nowhere else to go. The market normalizes the new, smaller standard. It creates a floor under prices that allows companies to hold steady even when raw material costs remain elevated. Luna: So it is basically a coordinated game of chicken where the consumer is expected to blink first. Do you think brands are testing the limits of that patience right now? Lucas: They absolutely are. Look at the personal care aisle. Shampoo bottles haven't gotten bigger in years, but the viscosity seems thinner, or the cap design makes it harder to get the last bit out. Companies are optimizing the entire user experience to deliver less while maintaining the perceived premium feel. It is engineering designed to mask volume loss. Luna: That is fascinating and slightly terrifying. You buy the bottle because you trust the brand, but the brand is actively working against your utility. Lucas: We deliberately don't run ads on these shows. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. It helps keep the research sharp and the conversation free. Luna: Yeah, it really does matter. Thanks for listening and supporting us directly. Lucas: Back to the shrinkage data. The interesting pivot point is where the category changes. In food, shrinkage is tolerated more than in durable goods. You might accept a smaller bag of coffee, but you would never accept a smaller laptop for the same price. The elasticity of demand varies wildly depending on whether the item is a daily habit or a quarterly purchase. Luna: Right. Daily habits are sticky. You drink that coffee every morning regardless of the slight size change. But if a tech company did this, you would switch competitors immediately. The switching cost is zero for electronics. Lucas: Precisely. So CPG giants know they have license to shrink in staples. They focus on items with high repeat purchase frequency and low differentiation. Toothpaste, detergent, snacks. These are commodities where brand loyalty is fragile but habit is strong. They bet that you will buy the next box because you are out of the current one, not because you love the specific formula. Luna: It feels like they are counting on inertia rather than satisfaction. That is a risky way to build long term equity though. Eventually, the math won't add up for the shopper. Lucas: And that is where private label brands are starting to win. Discount retailers are holding package sizes constant while raising their own prices slowly. They are positioning themselves as the honest alternative. You start comparing the store brand to the national brand and realize the national brand has shrunk twice since you last checked. That comparison shopping is the death knell for brands that rely on opacity. Luna: I have noticed that myself. I started buying the generic detergent last year because the name brand bottle kept looking emptier. Once I made the switch, I didn't look back. Lucas: That is the trend line. As consumers become more financially strained, the tolerance for hidden price hikes drops. The silence of shrinkflation is becoming louder criticism. Brands are having to be more careful about communication. Some are adding labels like 'new smaller size' to preempt complaints, which ironically draws attention to the fact that you are giving them less. Luna: Is that ever effective? Does telling people you are shrinking actually help, or does it just highlight the negative? Lucas: It depends on the framing. If you frame it as 'optimizing for sustainability' by using less plastic, some consumers buy it. But if you frame it as 'keeping prices low,' it feels manipulative. The sustainability angle is a thin veneer over the margin protection play, but it works well enough to delay the backlash. Luna: It feels like greenwashing meets shrinkflation. Two buzzwords used to cover up the same basic business decision. Lucas: Spot on. And let's talk about the packaging design itself. Companies are changing the shape of the container. A wider, flatter box looks different on the shelf than a tall, bulky one. It changes the visual weight. Your eye judges volume by height and width separately. By altering the aspect ratio, they can hide a significant volume reduction behind a familiar silhouette. Luna: That is clever design work aimed at exploiting our visual shortcuts. We judge size by how tall something stands, not by its actual cubic capacity. Lucas: Exactly. And digital shelf space makes this worse. On Amazon or grocery apps, you often only see the front of the package. You don't see the net weight clearly until you click through. The primary image showcases the product, not the measurements. This lack of transparency accelerates the shrinkage model because the initial impulse buy is based on appearance, not specification. Luna: So the digital shopping experience is actually enabling more aggressive shrinkflation than the physical aisle ever could. Lucas: Without a doubt. Physical aisles force you to handle the item. You feel the lightness. Online, you scroll past. The friction is lower, so the deception is easier. This is why the return rates for some snack categories are creeping up. People receive the item, realize it is half empty, and complain. Luna: Complaints drive returns. Returns drive costs. Are companies worried that the savings from shrinking the package are being wiped out by increased customer service overhead? Lucas: It is a marginal concern for now. The volume savings outweigh the return costs, but it is a growing risk. If the trend reverses, if consumers collectively decide 'no more,' the brands will be stuck with expensive, oversized inventory that they promised to shrink. It is a strategic trap. Luna: A self-inflicted wound. They optimized for short term margin protection and created long term brand fragility. Lucas: Which brings us to the future. As we move into late twenty twenty six, we might see a bifurcation. Premium brands will maintain size and raise price, accepting lower volume for higher margin per unit. Budget brands will shrink further to stay affordable. The middle class gets squeezed out. Luna: That sounds like a market that rewards extremes and punishes the average consumer. Is there any regulatory pushback coming? Governments usually hate when businesses do this quietly. Lucas: There are discussions in the EU about stricter labeling requirements for net content visibility. But in the US, the FDA has been slow to act unless the deception is blatant. For now, it remains a voluntary disclosure model, which means companies disclose exactly what they want to, when they want to. Luna: Voluntary disclosure in a competitive market is basically a suggestion. Unless there is a penalty, the incentive is to hide. Lucas: Agreed. So the smart move for shoppers is to ignore the package front entirely. Check the bottom for the net weight. Compare the dollars per ounce, not the dollar per package. It takes five seconds extra, but it restores the information asymmetry that these companies are relying on. Luna: It turns shopping from an emotional activity into a mathematical one. Which is exhausting, but necessary in this environment. Lucas: Exhausting but revealing. You start to see the machinery behind the shelf. And once you see it, you can't unsee it. The next time you grab that lighter bag of chips, you will know exactly what happened to the rest of the weight. Luna: And you will wonder if the taste got better to compensate for the missing mass, or if it just tastes like regret. Lucas: Probably both. But the real question is whether the industry will continue to bet on our forgetfulness, or if the collective memory of the consumer will finally break the spell. Luna: If the pattern continues, we might find out that the only thing shrinking faster than the products is the time we have left to adjust. Lucas: A sobering thought for a Tuesday. Let's see where the data lands next quarter.