Topic for Nov. 23. ( Thur )

[Alex !]

Skimpflation & Shrinkflation

Skimpflation : An even sneakier form of shrinkflation

-posted on bbc.com

Amid inflation, businesses are cutting services and quality. It's called skimpflation, and you may not even notice it's happening.

Products on shelves are getting quantifiably smaller, yet you're paying the same price: a practice known as 'shrinkflation'. But in addition to shrinking products, businesses are also cutting back on the quality and availability of their services, while keeping prices steady. This is called 'skimpflation' – and although the changes are sometimes significant, they often fly under the radar. 

"Skimpflation is defined as businesses 'skimping' on the quality of a product or service,” says Scott A Wolla, economic education officer at the Federal Reserve Bank of St Louis. As raw prices go up with inflation, businesses skimp by spending less on services or materials to stay profitable – cuts that get passed down to the customer, even as prices remain stable.

In 2021, consumers called out Disney for reducing its offerings for the same ticket prices. During the Covid-19 recovery process, the company failed to restart its tram services to and from parking lots, which forced visitors to walk nearly a mile to enter and exit the parks. After receiving tremendous backlash from angry visitors, Disney slowly began to reintroduce the service.

Broadly, skimpflation is a prominent consumer-facing issue that can manifest in labour changes, like fewer workers to assist in stores; downgrading the quality of offerings, like eliminating service tiers; or swapping out high-quality ingredients for lower quality ones, such as within manufacturing.

Several industries across the board are skimping, but most consumers aren't quick to catch on to the trend. That's because it's trickier to see it happening real time. "Quality is sometimes hard for consumers to observe,” says Joseph V Balagtas, an associate professor of agricultural economics at Purdue University, US.

Wolla agrees. "This is harder than shrinkflation, where a consumer can simply find the price per unit – say dollars per grams or litre." Think about it: it's much easier to read a label and see the drink in your hand is smaller, rather than know your local café stopped using organic ingredients.

In grocery stores, explains Balagtas, it's now common for customers to bag their own items at checkout instead of having a clerk do it for them. The number of self-checkout stations has increased around the world, with fewer workers available to help customers pay – a change some consumers construe as a degradation of service.

Grocery aisles are also rife with skimpflation. Along with shrinking size and quantity of products, food manufacturers are applying skimpflation to the quality of goods to reduce costs. Often, this includes swapping out expensive, premium ingredients for cheaper, lower-quality ones while keeping the same price tags, or even raising them.

To save money, for instance, Balagtas says some ice cream manufacturers have reduced some of the expensive milkfat in their products, instead replacing them with "other ingredients, including water and other components of milk, but also sweeteners", says Balagtas.

If restaurant service has seemed slower, too, it's not an isolated phenomenon. Labour shortages and widespread service-work burnout have meant understaffing at food establishments has led to slower and less-than-ideal service for diners. Elsewhere in the hospitality industry, hotels are keeping room prices stable, but only offering housekeeping services upon request.

And as these strategies spread amid rising prices, they're becoming more glaring, especially in food, says Balagtas. While companies may be responsive to pushback from consumers, he believes most businesses have anticipated some backlash, and have made the judgement call that the benefits outweigh the costs.

For now, in a skimpflation economy, consumers have to be particularly resourceful and knowledgeable to get the most value out of goods and services. Both Balagtas and Wolla recommend comparison shopping to detect where companies have pulled back.

Not all hope is lost for better quality and service, however. Competition – especially in industries where higher standards are more observable and essential – means "a market for quality will exist", says Balagtas. Simply, some companies will choose to provide higher quality than their competitors to stand out.

Yet consumers still may need to make a concession: higher quality options might come with higher prices. As far as the effects of inflation go, the hits keep coming.