Broadcast Retirement Network’s Jeffrey Snyder discusses the impact of the size of packaging on the actual cost of the food item with University of Massachusetts Amherst’s Christian Rojas.

Jeffrey Snyder, Broadcast Retirement Network

Professor Rojas, it is so great to see you. Thanks for joining us on the program this morning. Thank you so much.

This is very important research. We’re talking about shrinkflation and the shrinking of packages. The word shrinkflation has, I think, been in our cultural lexicon over the last year plus.

We’ve been talking about packages shrinking as the price of food has gone up. But take us deeper into your research because there’s a correlation, I think I’m using the right word, between a shrinking package and actually food prices.

Christian Rojas, University Massachusetts at Amherst

Yes, so there are two things there that I’ll try to unpack. So the first one is we did come to this research from the shrinkflation angle. And then when we looked closer at the issue, we found that that particular phenomenon is not really that frequent.

And by that, I mean, we first defined what shrinkflation means. And we are all aware of it. And it has to do with this event where we see a package that we typically like as a particular size.

And then all of a sudden it disappears and it’s replaced with a slightly smaller version of it at the same price. And so that’s what people dislike. And that’s what people refer to as shrinkflation.

So we started off first looking at the universe of products over time, over almost a decade to see whether this phenomenon is actually prevalent in the data. And to our surprise, it wasn’t the case that this was very frequent. So then we asked the question, there has to be some other thing perhaps broader than this very specific shrinkflation phenomenon that is related to the idea of package shrinkage that is present in the data.

And indeed we do find that, but it’s not, I would define it as product shrinkage and not shrinkflation. And what I mean by that is that we expand the notion of packages becoming smaller to the idea that let’s take a product category as chips. And we take a picture of that category 10 years ago, measure the average package size in that category and compare it to what it looks like today.

What we see is if we do that x-ray experiment for every category, we see that the average package size is decreasing. Now this is coming in different ways, not necessarily shrinkflation, but it could be as such as an example would be the following. So you have your Gatorade, your 20 ounce Gatorade on the shelf.

It doesn’t disappear, but another company decides to come up with a new product that is six ounce in size. And so when you do the average, the average size of the product has gone down, but the older product has now disappeared. So in the eyes of the consumer, this doesn’t look as shrinkflation, but on average consumers are experiencing a shorter package or a smaller package size.

Then the second part of the answer is that we, in our research, measure what is the effect of this average decrease in package sizes with inflation. And indeed we find what you suggested, which is that the shrinkage induces an additional inflation in products, which is not necessarily captured in statistics. Hopefully that was…

Jeffrey Snyder, Broadcast Retirement Network

Yeah, I mean, that’s very helpful. I mean, I guess do consumers, you know, if they’re seeing effectively a new product in a smaller package, to use your example, an eight ounce Gatorade to a six ounce Gatorade, they no longer see the eight ounce. Do they have a recollection?

I mean, I have a short term, I have good memory, but short term, I couldn’t remember what a Gatorade package would look like. So do consumers actually say, hey, this used to be bigger. Now it’s smaller.

I’m getting less. I’m getting gypped. Are they saying that or do they feel that?

Christian Rojas, University Massachusetts at Amherst

I think they do. And I think this is why we now see many consumers complaining. I think the other thing that I would say is that the environment that consumers face is not necessarily always conducive to them realizing that something is changing.

And so one of the things that we do in this research is we look at states that have what are called unit pricing laws. These are states that mandate retailers to have to display the per unit price on a package. So say you are purchasing napkins and you’re comparing 48 package with 24 unit package, and you’re trying to get the best deal out of it.

This is a hard exercise unless the retailer tells you what is the price per napkin. And some states actually don’t mandate this. And so consumers have a harder time realizing whether changes in package sizes or just the variety of packages that they’re facing give them a good deal.

So in the research, we indeed find something along the lines of what you said, which is that when consumers have these laws in place, they seem to realize more often that they’re not getting a good deal when packages are smaller.

Jeffrey Snyder, Broadcast Retirement Network

I got to tell you, I wasn’t aware of the unit cost law, but I got to like, I like transparency. When I go buy a car, I can see, you know, buying chips and buying a car is very different, obviously, but you can see all the charges, the destination, the fees, the taxes, the gas mileage, that is all present. I like that transparency.

It actually allows you to be a better consumer by saying, oh, the unit cost is X, I’m getting value, right? I mean, it makes you a better consumer.

Christian Rojas, University Massachusetts at Amherst

A hundred percent, right? So as a consumer, you want to know, you know, in principle, you want to know what you’re buying. And, you know, I think there has been a lot of focus on the price.

And of course, this is what most of us look at, but there has been less concern or focus by policymakers on the other stuff that comes with it. And that other stuff really helps the consumer gauge the quality of the product that they’re getting. In this case, it’s something very simple, like the package size.

So it’s, you know, there is no ambiguity, whereas if you’re talking about flavor or something else, you know, different people have different preferences, but everyone would agree that something bigger at the same price is preferable to something smaller. So by all means, transparency does play a role, we find indeed that in this case it does. Yeah.

Jeffrey Snyder, Broadcast Retirement Network

I mean, transparency to everything, Professor, whether it’s your healthcare, which is not what our show is about, but anything, it allows you to be a better, just a better consumer. I think that’s a very pro, my personal opinion, I don’t want to speak for you, is a very pro-consumer law and probably something that should be, in my mind, uniform across the states. In the last minute that we have though, Professor, let me ask you, you know, obviously Americans are under a lot of pressure financially with affordability.

This shrinkflation or shrinkage of packages and new product, especially around new products, is a direct, probably a direct result. Do you ever envision if prices do come down, hopefully over time, that we get to a, we go the reverse where we have like, instead of shrinkflation, we have expansion inflation, or I don’t know what the right word is, but we have product expansion.

Christian Rojas, University Massachusetts at Amherst

Yeah, I think it’s hard to predict. I would say that one of the drivers for why we see packages becoming smaller is because manufacturers want to pack more novel items on the same shelf space, right? So if, you know, retailer shelf space is not generally expanding, but what is expanding is demand for new products and firms realize this.

So if you only have this much shelf space, it has to be the case that, you know, the packages need to shrink in order to fit those additional items. The thing, so it’s hard for me to envision the reverse of that, but I would say that consumers can be smart about shopping and we provide some results that would help them in that way. So for example, a place where we see the phenomenon that you just mentioned is big box retailers.

So when we ask the question of whether this package shrinkage has occurred everywhere in every single retailer, we do find evidence for that except when you go to a Costco. So for example, if you look at the picture in our paper where we trace or track the package size at a Costco, it actually goes up in time, right? So if you’re a consumer and you have the ability to go and shop at those kinds of places, you know from the data that you are going to get a better deal in those kinds of places versus a convenience store.

So that’s, we can provide some advice in that regard.

Jeffrey Snyder, Broadcast Retirement Network

I mean, it’s absolutely fascinating. I think a lot of people like me don’t recognize that it is a science. You mentioned shelf space.

It is a science to promoting and selling products. Professor Rojas, we’re going to have to leave it there. Great research.

Thanks for joining us. And look, we look forward to having you back on the program again very soon.

Christian Rojas, University Massachusetts at Amherst

Thank you, Jeffrey. Looking forward to that.