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Shrinkflation 101: The economics of smaller groceries

Shrinkflation 101: The economics of smaller groceries

Nigerian consumers are facing a curious trend dubbed ‘shrinkflation.’ This phenomenon, characterised by the reduction in product sizes while maintaining prices, has been raising eyebrows among consumers and economists alike.

Quietly nibbling away at the contents of our grocery bags, shrinkflation is a fusion of “shrink” and “inflation,” describing the subtle shrinking of product sizes coupled with either stagnant or escalating prices. While initially appearing as a minor inconvenience, shrinkflation holds considerable implications for consumers’ purchasing power and the overall economy.

Read also: Exploiting consumers’ ignorance in testing product viability

“Consumers find themselves paying the same amount or even more for less product, eroding their purchasing power and squeezing household budgets.”

On the surface, it may seem like a minor inconvenience; after all, who would notice a slightly smaller pack of biscuits, snacks, or a thinner bar of soap? However, when multiplied across various products over time, the cumulative effect becomes apparent. Consumers find themselves paying the same amount or even more for less product, eroding their purchasing power and squeezing household budgets.

This phenomenon hits particularly hard on average Nigerians, who initially struggle to buy large quantities of groceries to gain the advantage of economies of scale. However, they now face the sad reality that their basic salary cannot conveniently cover the cost of usual basic groceries and food items.

This comes at a time when many households are already grappling with inflationary pressures. In January 2024, inflation surged to 31.70 percent from 29.9 percent, while food inflation spiked to 37.92 percent from 35.41 percent, according to data from the National Bureau of Statistics (NBS). These staggering figures underscore the growing financial strain on Nigerian families.

Amidst these economic uncertainties, incomes have failed to keep pace with rising prices, leaving consumers in a precarious position. As salaries remain stagnant or increase at a slower rate than inflation, individuals and families are compelled to navigate difficult choices regarding their spending priorities.

In a troubling revelation that goes beyond the realm of shrinkflation lies a darker reality in Nigeria’s food market. Unethical practices among food sellers, particularly concerning rice, paint a grim picture of exploitation within the industry. BusinessDay’s recent survey uncovered alarming findings: some rice vendors engage in deceptive tactics by repackaging lower-quality rice, blending it with higher-quality grains, and selling it at premium prices, averaging around ₦88,000 per bag.

But the deceit doesn’t stop there. Shockingly, certain sellers take it a step further by concocting mixtures of three different rice varieties and layering them within a single bag. Starting with the lowest-quality rice at the bottom, followed by fair-grade rice, and culminating with the highest-quality grains on top, these practices are aimed at maximising profits at the expense of unsuspecting consumers.

This begs the question: Is the government complicit in these fraudulent schemes? While some sellers cite economic challenges as justification for reducing product quantities, their actions betray a more sinister motive. Despite the tough economic climate, the sale of adulterated rice at inflated prices reflects a blatant disregard for consumer welfare and ethical business practices.

Data from take-profit.org illustrates a rollercoaster ride for Nigeria’s Consumer Confidence Index (CCI) from 2020 Q1 to 2021 Q1, reflecting pronounced shifts in consumer sentiment. Beginning at a modest 3.3 in Q1 2020, the index took a sharp downturn, plummeting to -0.3 in Q2, indicating a significant 110 percent decline.

This downward trend intensified in Q3 and Q4, with the CCI reaching alarming lows of -29.2 and -21.2, respectively, representing staggering declines of 960 percent and 640 percent. While Q1 2021 showed a slight improvement with a rise to -14.8, the negative trajectory persisted, underscoring deep-seated concerns among consumers.

These fluctuations suggest a notable erosion of consumer confidence, likely influenced by economic uncertainties, inflationary pressures, and diminishing purchasing power. As consumers grapple with these challenges, restoring confidence in the market will be crucial for driving sustainable economic recovery and growth.

Adeola, a working mother, voiced her concerns, saying, “As a working mother trying to stretch every naira, shrinkflation is hitting us hard. I used to rely on buying in bulk to save money, but now I’m getting less for the same price. It’s frustrating because it feels like our hard-earned money is buying less and less each time I go grocery shopping. With prices going up and sizes going down, it’s becoming increasingly challenging to provide for my family.”

“As an actuary, I’m deeply troubled by the trend of shrinkflation. It’s not just about smaller groceries; it’s a subtle erosion of consumers’ purchasing power. From a financial perspective, this phenomenon has significant implications.

When product sizes shrink while prices remain the same or increase, it distorts inflation measures and affects budgeting and savings strategies,” said Yusuf Oladehinde, reflecting on the implications of shrinkflation.

“Shrinkflation adds complexity to the equation. It underscores the need for policymakers and businesses to be transparent about pricing practices and ensure that consumers are not unfairly disadvantaged.”

Yusuf Oladehinde, an actuary, emphasised the oversight of traditional measures of food inflation, highlighting the neglect of changes in product sizes. “Unfortunately,” he noted, “in the measures of food inflation, the size of products is not factored in.”

This discrepancy means that reported inflation rates may not accurately represent the value consumers receive for their money. With prices remaining stable or increasing while product sizes shrink, the true impact on consumers’ purchasing power goes unaccounted for.

This underscores the necessity for a more comprehensive approach to measuring inflation—one that includes both price changes and alterations in product sizes. Failing to consider these factors could lead to misunderstandings of the economic pressures consumers face and result in misguided policy decisions.

Shrinkflation is not just a concern for working Nigerians; it is hitting retirees like Mrs Okonkwo especially hard. “In my retirement years, every kobo counts,” she laments. “But with shrinkflation, it feels like my pension isn’t stretching as far as it used to. I’ve had to tighten my belt and make sacrifices to make ends meet.

It is disheartening to see my purchasing power dwindle, especially when I’ve worked hard all my life to secure my financial future. I worry about how I will afford basic necessities if prices keep rising and sizes keep shrinking. It is a tough reality to face in my golden years.”

For retirees like Mrs Okonkwo, who rely on fixed incomes, the impact of shrinkflation is acutely felt. As prices rise and product sizes diminish, their ability to afford essential items diminishes, forcing them to make difficult choices and potentially compromising their quality of life.

In the face of these challenges, The Professionals Update Forum echoed the sentiments, stressing the critical importance of prioritising transparency in pricing practices by policymakers and businesses to safeguard consumer welfare. Ignoring the issue of shrinkflation risks exacerbating existing economic disparities and hindering efforts towards sustainable economic recovery and growth.

The lack of transparency not only erodes consumer confidence but also undermines the foundation of a resilient economy. Addressing shrinkflation promptly and effectively is essential for fostering an environment conducive to equitable economic progress. The professionals added their voices to emphasise the urgency of collective action in tackling this pressing issue.

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).