Small businesses are doing everything they can to cope with high inflation. Whether it’s disruptions in the supply chain, inventory problems, material shortages or other challenges, many small businesses have seen their costs of doing business increase over the past few years.
Unlike large corporations that have scale and bargaining power to raise prices for consumers, small businesses are caught in the middle. Small businesses are often reluctant to try to pass on their increased costs to customers.
A recent Clarify Capital survey found that 12% of small businesses have implemented shrinkflation as a way to get around higher costs and price-sensitive customers. With inflationary contraction, companies find ways to repackage, reformulate, or sell products in smaller quantities, but at the same (or slightly higher) price. Instead of raising sticker prices for customers, inflationary contraction can be a subtle way to control costs and maintain profitability.
Let’s look at some consumer survey data from Clarify Capital to see which product categories are most likely to “shrink” in 2024.
Top 10 Products Affected by Inflated Shrinkage
He Clarify capital contraction study surveyed consumers to see how people feel about shrink inflation and which products are “shrinking” noticeably the most. A surprising 81% of consumers said they have noticed an inflationary squeeze, 78% said they are “worried” about it, and 82% believe the inflationary squeeze will increase.
These are the product categories where consumers say they have noticed inflated shrinkage occurring most frequently:
- Snacks (noted by 80% of consumers)
- Sweets (55%)
- Personal care (46%)
- Cleanliness (41%)
- Produce (34%)
- Coffee (28%)
- Meat/fish (26%)
- Dairy (22%)
- Chewing gum (11%)
- Eggs (9%)
There is some room for debate about how accurate these consumer perceptions of “counterinflation” really are. After all, some products cannot be reasonably “shrinked.” A pound of ground beef still weighs one pound, even if it is packaged differently. Eggs are regulated by the USDA and labeled “Grade A” or “Grade AA”; It seems hard to believe that there is any way for eggs to become “smaller,” even if the price of eggs recently reached painfully high levels for many grocery shoppers.
But it’s clear that many consumers feel they see smaller package sizes and quantities on grocery store shelves. And “the customer is always right”, right? Small business owners should be aware of this price sensitivity and skepticism that consumers are bringing to the conversation: The Clarify Capital survey also found that 96% of consumers do not believe that companies are transparent on inflationary contraction.
How the inflationary contraction is developing in various industries
If your small business is in the appetizers, candy, personal care or cleaning products, you may feel pricing pressure to offer smaller sizes (but without reducing the retail price). A common strategy could be to offer slightly smaller shampoo or soap bottle sizes, or to offer packaging with one less item in the box.
It’s also interesting to note that some of the product categories where consumers are seeing the most “inflationary squeeze” are also the categories where small businesses are under the most pressure due to rising costs of supplies and materials.
Snack industry (inflationary contraction noted by 80% of consumers)
Consumers aren’t the only ones noticing the inflationary contraction in snacks: politicians are noticing it too. U.S. Senator Bob Casey’s office released a report in December 2023 that stated that snack food prices have increased 26.4% since January 2019, and that 9.8% of that price increase is attributable to ” giving families fewer chips and cookies for their dollar. President Biden even posted a video on social media in February 2024 in which he called on companies to stop snack counterinflation.
Candy industry (55% of consumers noted inflated contraction)
The candy industry faces a huge global crisis in 2024 due to skyrocketing cocoa prices. The cocoa shortage has made all mass-produced corporate-brand chocolate bars and small-batch artisanal chocolates much more expensive to make (and less profitable to sell).
Coffee industry (28% noted an inflationary contraction)
Coffee prices are also rising due to low crop yields in the major coffee-producing regions of Indonesia and Vietnam. This can make it difficult for restaurants and cafes to be profitable and charge the usual price for a cappuccino.
How Your Small Business Can Handle “Counterinflation”
Here is the biggest problem with “counterinflation” as a pricing strategy: Consumers don’t like it. In fact, 68% of consumers told Clarify Capital that they had switched brands due to the inflationary contraction and 45% chose generic alternatives. How your company handles the inflationary contraction is an opportunity for your company build trust with customers – or lose customers.
The inflationary contraction has not only to do with prices, but with the marketing of small businesses. Instead of giving customers less food, coffee, or chocolate for their money, your business can lead the way and build stronger customer relationships. If you have a small confectionery or chocolate business or personal care products company, now is a good opportunity for Be transparent with your customers about pricing. Show them how hard you’re working to keep prices low, or if you have to raise them, show them why your business is being squeezed by larger forces in the global economy.
Bottom line
Using inflation reduction may not be a smart strategy for your business. Reducing the size of your products or packaging while maintaining the same prices can leave your customers feeling disappointed and cheated. Instead, more small businesses should consider raising their prices in a fair and transparent way that builds customer trust.
Go deeper into your customer relations. Offer more value. Show your customers why they don’t want to replace your product with a cheaper brand. Avoiding inflationary contraction could be an opportunity to differentiate yourself from your competitors and build customer loyalty.
Alert: Our top-rated cash back card now has a 0% introductory APR through 2025
This credit card isn’t just good, it’s so exceptional that our experts use it personally. It features a long 0% introductory APR period, a cash back rate of up to 5%, and all somehow with no annual fee! Click here to read our full review Free and request it in just 2 minutes.