You Are Getting Less For What You’re Spending. Here’s Why.

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I describe a scenario that I am Sure Happened to you: You’re treating yourself to your go-to bodega snack (yes, everyone has one), you open the bag and…it’s practically over before you even begin. What did you give?

No, it’s not your imagination: there Huh Fewer chips in your snack bag at the grocery store. It’s actually a deliberate move by our beloved snack companies—intentionally in fact, it has a name: shrinkage. Shrinkflation is a phenomenon that occurs when the cost of goods increases, so companies try to offset their higher costs by reducing the product.

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How does shrinkage work?

For easy math, let’s say a snack company sells a bag of chips for $5, and to fill a bag of chips, they have to buy one dollar worth of potatoes. Selling price ($5) minus cost of goods ($1), leaves you with a $4 profit. That’s a pretty prime profit margin.

If the price of potatoes rises, the snack company will need to spend more to obtain all the potatoes needed to make its product. Suppose the price of potatoes rises by $2. This would mean that the profit from one bag decreased from $4 to $3 (the new $2 price of the goods minus the $5 price tag). This difference in profit actually grows over time.

The snack company is stuck. No company wants to curtail its profits under any circumstances. So, to keep its profits the same, the snack company has two options.

Option #1: Increase the price. The company could raise the price of a bag of chips by up to $6. This means they would still get the same $4 profit margin ($6 price tag minus 2 cost of goods = $4 profit margin).

Option #2: Deliver less. The snack company can still buy one dollar worth of potatoes, which means they’ll only get half How many potatoes did they get before the price went up? If the company chooses this option because they have half the amount of potatoes to work with, they will have to put half the amount of potato chips in each bag, but keep the $5 price tag.

In other words, if a company wants to maintain the same margin in the event of a higher cost of goods, they need to either raise the price to compensate for their increased costs, or keep the sticker price the same, but distribute less.

Although it seems like a more complicated solution, with shrinkage, companies are choosing the latter strategy. The logic is that you, the consumer, can’t see how much your favorite treat is worth. weighs, but you Definitely note how much Cost, Therefore, companies hope to attract consumers by sneaking slightly smaller packages onto the shelves or filling the packaging a little less.

And are they right? Does it work? Honestly, yes. Do you know how much a bag of your favorite chips is weighs, Would you notice the difference on the label as well? If you’re like me, maybe not. You have to wait until you buy the bag, open it, and then realize that the bag has half the amount of chips you were expecting. I’m optimistic, but when it comes to snacks, if companies are skimping on how many chips they put in their bags, that bag is half empty, not half full.

Who is shrinking?

There are a few big shrink culprits that I’d recommend keeping an eye on. I’ll give you a warning: it’s a game of oz. I know we usually think of ounces as teeny-tiny and insignificant, but that’s not the case. Going back to our trusty potato chip example, often, a serving size is one ounce, or about 18 chips. So even though an ounce sounds small, the chips are light, right? That’s how we justify eating a lot of them (is it just me?).

General Mills, the company that makes Cheerios, Lucky Charms, Cinnamon Toast Crunch, and many other big-name cereal brands, shrink away Keeping the price the same the “family size” boxes are just over an ounce. Again, I know this may not sound like much, but think about how light a box of cereal is. You are getting almost 5% less on the same price.

From value paper towels to bulky trash cans, household items are also shrinking. Kimberly-Clark
KMB
, parent company of a big brand, raised prices Anywhere between 4 and 9% on toilet paper, diapers and other everyday items.

How do we un-shrink?

A word to the wise: Buy your household items in bulk now. All signs indicate that the product continues to shrink throughout the winter; So to get the most out of your money, and go shopping sooner rather than later. Do it now, so you can take out the shrinkage with the trash.

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