Getting less but paying more: The impacts of shrinkflation on Canadians

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When Kwantlen Polytechnic University student Japharjot Dalio moved from India to Surrey and started studying computer information systems this year, he thought he could treat himself to new clothes and nice things.

But with consistently high grocery prices on top of his rent, that hope turned out to be out of reach

“When I see the prices of detergent, or I have to buy some vegetables or anything in the dairy section, it goes crazy,” Dalio says. “For example, milk, it’s $6 now, and toothpaste, it’s now $3. It should come down.”

As a result of high grocery prices, he also notices the number of goods people buy dwindle.

“[My brother] told me that when he used to go to Walmart six to seven years ago, [with] just $100, they would get a full cart, and they could buy everything they [wanted]. But nowadays, [with] just $100, they can [only] get a couple of things. … It’s terrible,” Dalio says.

In September 2018, before inflation, the price of food in Canadian stores increased 0.6 per cent when compared to September 2017, according to Statistics Canada.

However, in September 2022, the year-over-year price of food purchased from grocery stores rose to 11.4 per cent.

Armine Yalnizyan, Canadian economist, columnist, and fellow at the Ontario-based non-profit Atkinson Foundation, says 2022 was the year inflation increased. Due to which, another issue became significantly noticeable among consumers — the packaging of their goods was getting smaller for the same price.

Inflation can be understood as the rise in prices of goods and services across the economy over time, according to global management consulting firm McKinsey & Company.

When businesses shrink the sizes of their products but keep the prices the same or increase them, it is called shrinkflation, says KPU Melville School of Business instructor Tara Immell.

“When I go out, and I am shopping, or I’m eating out, I notice what I’m buying is smaller,” Immell says.

“Most recently, it was at Subway where I got that 12-inch sub, and usually we’d cut it in half, and my husband and I would share it, and we’re like, ‘Oh my gosh, this is significantly less food now.’”

Shrinkflation also includes businesses who lessen the quality of their products, such as using fewer ingredients, Immell says.

Yalnizyan adds that anything that comes in a package is at risk of shrinkflation. However, it can be hard to notice the phenomenon without having an old package for reference and thus recommends people should pay attention to unit prices, which is the cost per amount of a product.

“Most grocery stores have got unit prices per 100 grams or some kind of factor where on a shelf when you’re buying anything it is, you can look at competitors selling the same thing and [see] what the unit prices for a generic [brand] versus another brand [are],” she says.

Yalnizyan also notices price fluctuations in pantry products like cookies and other non-essential foods because businesses can get away with elevating the prices and lowering the quantities as they are items people want to buy.

Another consequence of shrinkflation affecting foods people enjoy eating is the higher costs of snack-sized products.

“For ice cream, for example, if the size shrinks to be a snack size, then there’s extra tax on that,” Immell says.

“If the number of items in a package goes from six to five, that also then gets charged extra sales tax. So not only are consumers paying more money for less product, but there’s also, if that threshold of a definition of snack size gets crossed, then consumers are also paying more taxes.”

The causes of shrinkflation

Businesses practice shrinkflation because it is in their interest to make more profit and lower costs, Immell says.

Inflation and shrinkflation are connected. In 2022, Canada’s inflation rate rose 6.8 per cent annually, the largest increase since 1982, according to Statistics Canada.

Because prices increase during high inflation, businesses end up paying more to their suppliers and having higher input prices, which are costs that go into making a product. To mitigate these costs, businesses pass down price increases and smaller products to consumers.

Global events such as blocked-up supply chains like the chili peppers for the Sirracha shortage and the Russia-Ukraine War contributed to shrinkflation through businesses having higher input prices.

“It’s costing you more to produce pasta [as] the price of wheat has gone up because the common combined area of Ukraine and Russia contributed about a third of the global supply of exported wheat, so there was less wheat on the market,” Yalnizyan says.

“I remember, last year … compared to the previous year, pasta products were up 39 per cent. There was just less on the market.”

Yalnizyan says shrinkflation is also caused by how widespread inflation is, and how much people are accepting it.

Important factors for businesses who practice shrinkflation include evaluating their margins, which is the ratio between profit and revenue, to see if they need to do something to maintain them. Margins can also be reduced to keep their market share, which is the percentage of an industry or market’s total sales earned by a single company, Yalnizyan adds.

Businesses could also consider how much consumers can tolerate price increases, and how much competition they have for the same product, she says.

Shauna Gradley, a fifth-year University of Guelph student who is completing her studies virtually in the Lower Mainland, says her buying practices have changed with the high prices at grocery stores.

“We’re buying more things when they’re on sale or I have a deal and then just freezing it. [To] compare, I would never do that before. I would just buy what I needed for the week, but it just seems to be cheaper if I buy more,” Gradley says.

Gradley has a couple of recipes she knows are cheaper to make, so she rotates between them and does not experiment much with her cooking.

“It’s expensive to buy things that you don’t know if you’re going to like or not,” she says. 

Although she is fortunate to be paid well, working in management for multiple restaurants, Gradley says she still has resorted to eating more free food from her job. Since the food is not very nutritious, she feels her health has been impacted more than her budget with expensive grocery prices.

What students can do to combat shrinkflation

To combat high prices, both Yalnizyan and Immell say young people can form bulk-buying groups to shop at wholesale warehouses.

“If a number of students were to get together and go shopping together and have only one person with the card, and then [divide] the larger packages, that would get each person a lower price per item,” Immell says. 

People can also be more budget conscious by lowering food waste through buying only the amount of food they can eat before it goes bad, Immell says.

In terms of what can be done to fight shrinkflation, Yalnizyan says consumers hold more power than the government.

“There’s very little governments can do to curb grocery prices. It’s really an issue of how consumers either boycott this shrinkflation or [find] comparable products, going generic, for example, or only buying things when there are sales,” Yalnizyan says. 

“You got more power as a consumer if we work in a block than the government does to force producers to reconsider their pricing.” 

But if a company were to have significantly high input prices and risk losing their margins or going out of business, there is not much consumers can do to convince them to address their shrinkflation, she adds.

However, Yalnizyan says some prices of products are lowering with there being new and restored supply chains and global shipping abilities, such as a rise in exported wheat markets outside of the Russia-Ukraine basin.

In September, Statistics Canada reported the year-over-year inflation rate dropped to 3.8 per cent, with grocery prices slowing down when compared to August.

As some prices continue to lower and slow down, it is uncertain how businesses will react in the long run.

“The question becomes does the manufacturer of these processed foods drop the price again?” Yalnizyan says. “We’re seeing some indications of that through sales, but that’s why we’re seeing it, it’s a sale, it’s below the regular price. So how often will we see sales, and will they revise their regular price? We don’t know the answer to that yet.”

She also says if the conflict in the Middle East expands into another global war, there may be a repeat of early 2022 where basic food items like grains, cereals, and cooking oils will be affected by shrinkflation. If the central Canadian and American banks were to also raise interest rates, housing affordability and, inevitably, the food people eat would also be affected.

In the meantime, the effects of shrinkflation and food prices continue to be felt among Canadians coast to coast.

“It’s definitely here, and it affects so many people, even my friends. They all live in Ontario, but just texting or FaceTiming them, they’re having the same issues. It’s everywhere. It’s unfortunate, and I think a lot of people are struggling, but it’s just one part of a bigger issue,” Gradley says.