Dr Megan Govender

In the mid-thirteenth century, the Assize of Bread and Ale statute in England regulated the price, quality and mass of bread that was sold in towns, villages and hamlets within the kingdom. Consequently, bakers would be severely fined if they were caught duping their customers. This was less harsh than punishment meted out in ancient times. In Egypt, bakers who were found cheating their customers would have an ear hacked off and nailed to the door; whilst bakers in Babylon had their hands chopped off if they were caught selling a ‘light’ loaf.[i]

But modern day businesses are not constrained by price controls nor mass specifications when selling most products, especially fast-moving consumer goods (FMCG). Current legislation does not specify the minimum mass for a loaf of bread. The Trade Metrology Act stipulates that the packaging must be consistent with the content of the product and what is inside the package. For instance, a loaf of bread must not weigh 5% less than what is declared on the package.

This has resulted in several firms furtively reducing the size (mass) of their products as opposed to increasing the price of the goods itself. Producers have a growing propensity to ‘shrink’ products in an environment of rising input costs and a consumer resistant to price hikes. This principle has been assimilated into economic parlance as ‘shrinkflation’. That is, a rise in the price due to a reduction in size or mass of a good.

Producers employ shrewd tactics to ensure that consumers don’t instantly notice the changes to size or mass of a product. For example, a can of cool drink which was once 340ml is now 330ml, a popular tomato sauce which was 750ml is 700ml, and even a roll of toilet paper is now 350 sheet when it once was 500 sheets. It would seem that the shrinkage of products has become an acceptable business practice for companies in South Africa.

But firms are within their legal rights to do this and are not transgressing any laws or regulations. Profit maximisation is their raison d’être. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages” as pointed out by Adam Smith more than 200 years ago.[ii]

Neoclassical economics teaches us that consumers are rational beings who make choices that maximize their utility. Consumers’ purchases are indicative of their preferences and choices for particular goods. A rational consumer should be able to distinguish an increase in the price of the good due to ‘shrinkflation’ and adjust their purchases accordingly. By willingly purchasing the ‘shrinked’ product, they are endorsing the producers’ actions. These firms are merely supplying what the consumers are demanding.

But consumers do not readily perceive the increase in the price of the good and are continuing to purchase the product. According to neoclassical economics, consumers should react differently to a price increase. An escalation in price (or size decrease) would ordinarily precipitate a decrease in demand for the product. But that will not necessarily lead to a decrease in total revenue (or profit). A relatively inelastic demand (consumers that are not too price sensitive) will result in an increase in total revenue. Firms are cognisant of the demand for their products; and more importantly, consumer sensitivities to price adjustments and therefore continue to surreptitiously ‘shrink’ the product.

But consumers can switch to other products. They can substitute one brand of cool drink for another. However, this is not always feasible as all producers within the market reduce the size of their products. The industry norm for cool drink cans is now 330ml. Alternatively, the consumer can purchase a lower quality product. But the consumer will not be acquiring the same quality nor deriving the same level of satisfaction.

The shrinking of goods could paradoxically lead consumers to purchase more of the goods when the price increases (decrease in size). For instance, when the price of bread increases, it becomes relatively unaffordable to an indigent consumer. A rational consumer will forego other foods (meat) and purchase more bread to maintain the same level of sustenance.

But consumers do not always behave rationally as advocated by neoclassical economics. Recent developments in behavioural economics have found that consumers view the world in terms of losses and gains relative to the status quo situation; and see a price increase as a loss relative to the status quo price they are accustomed to. Hence, producers would rather reduce the size of the product and not increase the price as consumers will interpret the price increase as a relative loss. Although the unit cost has risen, people do not behave ‘rationally’ as they fixate only on the price as it is the characteristic they utilise when making purchasing decisions.[iii]

It is noteworthy that not all consumers behave in this manner with some being extremely vigilant and sensitive to price changes; and are therefore ‘rational’ in the classical interpretation. But their options are limited when all brands of a product begin to ‘shrink’ to become an industry norm.

Nonetheless, suppliers are obliged to reduce and ameliorate any disadvantages experienced in accessing any supply of goods and services by consumers.[iv] Specifically, Section 3(1)(d) of the Consumer Protection Act, 2008 states that the welfare of consumers are advanced by protecting them from:

(i) Unconscionable, unfair, unreasonable, unjust or otherwise improper trade practices; and

(ii) Deceptive, misleading, unfair or fraudulent conduct.[v]

While shrinkflation may not be construed as unfair or fraudulent, a case can be argued for it being interpreted as deceptive and misleading as espoused by the Consumer Protection Act. Accordingly, the National Consumer Commission, which was established in the terms of the Act, needs to give effect to its mandate of prohibiting unfair marketing and business practices of firms. The government can also attempt to regulate the size of products but that would entail setting the standard for countless goods which may be onerous to implement and prohibitively expensive to monitor. Regulation can be construed as government interference and restriction (rather promotion) of commerce in the economy.

The authorities can compel firms to inform consumers when they decrease the size of their products to moderate the asymmetry of information that prevails between producers and consumers. Consumer education would engender consumer engagement and activism (e.g. via social media) to convey their sentiment reading ‘shrinkflation’. And hopefully, this would restrain companies from cunningly shrinking products for sale to the unsuspecting consumer.