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 called a “cost of living crisis”.
An article published by BusinessTech in September last year headlined “The cost of being middle class in South Africa” noted that it takes on average just five days for middle-income South Africans to spend about 80% of their monthly income. This means they have only 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% is estimated to be spent on servicing debts and other fixed cost elements. This means on average the consumer is left with 20% of their disposable income to buy food, medicines, petrol and transport 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 that affects their grocery bills and yet is less frequently talked about relates to the economic concepts of shrinkflation and skimpflation.
So, what is shrinkflation?
In simple terms, many consumers think the quantity of some food products in the shops has decreased, and yet the price of those products has stayed the same or increased. They are left confused, upset or simply exasperated by the situation. Consumers ask themselves, “Is this real or am I just imagining this reduction in quantity.”
It turns out 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 500ml Coke bottle 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 such as electricity. 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 effect of shrinkflation is that the consumer gets less product in their monthly shopping basket for the same level of expenditure. They are left puzzled about why the grocery bags are getting lighter and lighter with each visit to the supermarket.
In some product ranges and categories, the middle class has been hit by shrinkflation and its equally nefarious cousin, skimpflation.
And what is skimpflation?
Skimpflation occurs when manufacturers continue to release the same food products but start making them with cheaper ingredients in a bid to cut costs. It may equally apply to services that a hotel offers — less frequent change of bedding and towels or longer waiting times in restaurants because of staff cuts.
With skimpflation, you are getting less value for your money as a result of the reduction in the quality of inputs or services.
Most consumer sentiments go something like this: “This ice cream just does not taste the same as it used to” or “why are my jeans less durable than before?”
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?
In an economy faced with a prohibitive cost of living caused by rising prices, consumer brand loyalty is not guaranteed. Producers face risks of cash-strapped consumers buying less of a product or opting for a cheaper alternative. But premium brands may risk losing market share should they employ such tactics.
Far from being limited to South Africa, the phenomena of shrinkflation and skimpflation have taken on increasing significance even in developed markets.
A University of Birmingham Business School blog titled “Shrinkflation and skimpflation, a permanent loss in what your money can buy”, published in October 2023, cited research undertaken by Barclays Banks in June of that year. About 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%).
So concerned by the effects of shrinkflation on American consumers, President Joe Biden took to social media in February this year, on the eve of the Super Bowl, to lament its effects and called for an immediate stop of the practice by major producers in the United States.
The US 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.
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. Compare prices, read the ingredient compositions and make smart choices to conserve your disposable income.
Dr Mthandazo Ngwenya is an international development consultant and business executive and served as a managing director at Bigen Africa Group and as Africa director of Intellecap Advisory Services.
In a bid to decrease costs, producers may either reduce the quantity of foods and beverages or they may make the product with cheaper ingredients
