The Economy of “Shrinkflation”

The other day I read an article that originally aired on NPR, “What tracking one Walmart store’s prices for years taught us about the economy.” It looked back at a “market basket” survey done in mid-2019 (originally to assess the impact of “tariffs the White House imposed in 2018 on imports from China, Mexico and Canada — as well as China’s retaliatory tariffs on U.S.-made products”). Staffers attempted to match the 2019 market basket with current (2022) purchases. In some cases, they were unable to exactly match the items: often, Walmart had substituted a cheaper brand, and the original was not available. But the article called out two price increases as examples of “shrinkflation,” where a manufacturer attempts to disguise a price increase by reducing the size or quantity of an item.

One that especially caught my eye was Dove soap. In 2019, a package of ten 4-oz. bars cost $10.88. The equivalent package in 2022 was eight 3.75-oz bars for $10.97. The unit price of a bar thus increased from $1.09 to $1.37, but the price per ounce increased from $0.27 to $0.37. Interestingly, after being unable to find my Lever 2000 soap at Walmart, I finally gave up and ordered it from Amazon—two packages of eight 4-oz. bars for $19.43—a unit price of $1.21 per bar and $0.30 per ounce. I won’t attempt to compare the quality or desirability of Lever 2000 vs. Dove, but as far as I know, I have been buying the same size and quantity of Lever 2000 for many years. Perhaps the recent absence from Walmart portends a price increase, and perhaps I am fortunate to have stocked up.

But what really struck me about the Dove price increase was this: How does this make sense economically? When you consider all the factors that go into making and selling a bar of soap, the cost of the ingredients must be infinitesimal compared to advertising and promotion, package design, production and packaging equipment, and staff to do all of these things. When the size of the bar is changed, not to mention the number of bars in a package, I assume that many pieces of production and packaging equipment must be retooled. A new package must be designed and produced. All of this must be very expensive.

Perhaps I’m unusual, but I don’t think I’ve ever paid that much attention to the price of soap (aside from a general feeling that everything I buy nowadays is overpriced compared to the days when a loaf of bread was 25¢), and I don’t think I would have noticed even a large price increase on the original package of ten 4-oz. bars, nor would I be likely to buy some other brand. Indeed, if you had asked me, I would have said there was not likely a cheaper equivalent; unlike many other bath and body products, I would not have thought that there was a store-brand bar soap option at Walmart. A search, however, reveals that there actually is an Equate Beauty Bar that “compares to Dove White.” It is priced at $6.56 for eight 4-oz. bars or (elsewhere) $6.74 for six four-ounce bars. In either case, I don’t think Dove can compete with that price no matter what changes it makes. Incidentally, Walmart also advertises twelve 4-oz. bars of Lever 2000 for $6.94 (“price when purchased online”). That’s $0.57 per bar/$0.14 per ounce, so maybe I didn’t get such a great bargain from Amazon after all!

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