The rise in inflation, energy costs, high unemployment, and skyrocketing food prices in recent years have placed severe pressures on the consumer and created what is commonly called a ‘cost of living crisis.’
An article published by BusinessTech in September last year titled ‘The Cost of Being Middle Class in South Africa’ noted that it takes on average just 5 days for middle-income South Africans to spend about 80% of their monthly income. Meaning they only have about 20% on average of their income to survive on for the remaining 20 days each month.
Of the 80% of their income spent within the first week of receiving their salaries, 73% out of the 80% is estimated to be spent on servicing debts and other fixed cost elements. This means on average the consumer is left with slightly above 20% of their disposable income to purchase food, medicines, petrol, and transport costs along with other daily necessities for survival for the remaining three weeks of the month before the next payday. The middle-class lives pay cheque to pay cheque with limited accumulated savings, limited fixed capital formation, and rising debt service obligations with associated marked increases in consumer debt defaults – hence the coinage of ‘crisis’ in defining the true status of the middle class today.
A pervasive phenomenon that has added to the woes of the middle class impacting their grocery bills and yet being less frequently talked about relates to the economic concepts of Shrinkflation and Skimpflation.
So, what is Shrinkflation?
In simple terms, many consumers feel like the quantity of some food products in the shops has decreased, and yet the price of those products has stayed the same or increased. Many consumers are left confused, upset, or simple exacerbated by the situation. Many consumers ask themselves ‘is this real or am I just imagining this reduction in quantity.’ It turns out that many consumers are right about this reduction in the quantity of some of their favourite foods. Shrinkflation is the real process where manufacturers reduce the quantity of their products for example a 500 ml Coke buddy is now reduced to 440ml and yet the price stays the same or increases slightly. This is done by manufacturers to preserve or increase profit margins in the face of rising input costs of production – for example rising energy prices. Instead of passing the increased input cost to the consumer, the manufacturer simply reduces the size of the product and keeps its prices constant or slightly raises them.
The impact of shrinkflation is that the consumer gets less product in their monthly shopping basket for the same level of expenditure. They are left scratching their heads, puzzled as to why the grocery bags are getting lighter and lighter with each visit to the supermarket.
In some product ranges and categories, the poor middle class has been hit by shrinkflation and its equally nefarious cousin Skimpflation!
And what is Skimpflation?
Skimpflation refers to when manufacturers continue to release the same food products but start making them with cheaper ingredients than before in a bid to cut costs. It may equally apply to services that a hotel offers – less frequent change of bedding, towels, or longer waiting times in restaurants due to a reduction in service staff. In skimpflation, you are getting less value for your money as a result of the reduction in the quality of inputs or services. Most common consumer sentiments range from ‘this ice cream just does not taste the same as it used to or why are my jeans less durable than before as examples.’ In cases of skimpflation, the product may weigh the same, but the manufacturers have reconfigured the composition of the ingredients of the product and reconstituted the product using cheaper alternatives for the more expensive ingredients, for example, adding more raisins and fewer cashews nuts in a mixed nuts bag.
Is this a South African problem?
A University of Birmingham Business School blog titled ‘Shrinkffation and skimpffation, a permanent loss in what your money can buy’, published in October 2023, cited research undertaken by Barclays Banks in June 2023 where 70% of the British public had noticed examples of shrinkflation in the products they bought, particularly in goods such as chocolate (46%), crisps (42%), packs of biscuits (37%), and snack bars (32%). The changes in the quantity or quality of products and services have a direct and serve impact on consumer wallets.
So concerned by the impacts of shrinkflation on United States of America consumers, President Joe Biden took to social media in February this year, on the eve of the Super Bowl to lament its impacts and called for an immediate stop of the practice by major USA producers. The USA is heading to an election in November and without a doubt, the rising cost of living is top of mind for many middle class Americans.
Far from being limited to South Africa, the phenomena of shrinkflation and skimpflation have taken on rising significance even in developed markets. Producers face risks of consumers who are cash-strapped buying less of the product or opting for other cheaper alternatives altogether. In an economy faced with a prohibitive cost of living due to rising prices, consumer brand loyalty becomes less guaranteed, and premium brands may risk losing market share should they employ such tactics.
One takeaway for the South African middle class facing a cost-of-living crisis – your perceived reduction in quantity or quality of products and services may very well be real and not imaged! Compare prices, read the ingredient compositions, and make smart choices to conserve your disposable income.
Author: Dr. Mthandazo Ngwenya
