2 min read.Updated: 13 May 2022, 12:31 PM ISTBloomberg
Many eateries in the US have taken similar steps to shrink portions in order to cut costs
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As India’s inflation surges, the cheap single-serving packets of staples like soap and cookies aren’t budging in price -- they’re just getting lighter.
By paring the weight of fixed-price items -- popular among lower income and rural areas at the equivalent of roughly a penny, nickel or a dime -- firms are using “shrinkflation" to cope with higher input prices while keeping customers.
Companies including Unilever Plc’s India unit and domestic consumer goods firms Britannia Industries Ltd. and Dabur India Ltd. have moved toward lighter loads in their cheapest packages amid rising costs of edible oils, grains and fuel.
The development isn’t unique to India. Eateries in the US, including Subway Restaurants and Domino’s Pizza Inc., have taken similar steps to shrink portions in order to cut costs.
The tactic has emerged as Indian consumer prices for the past four months have run above the 6% upper limit of the central bank’s target range. Headline inflation for April surged to an eight-year high of nearly 7.8%, data showed Thursday, fueling expectations of further interest rate increases after the Reserve Bank of India’s surprise hike last week.
“We will see more inflation in the next two to three quarters," Ritesh Tiwari, Chief Financial Officer of Hindustan Unilever, whose products are used by nine out of 10 Indian households daily, said in a call with media after the company’s fourth quarter earnings on April 27. Reducing the volume in certain price-point packs is “the only way for us to take price increases."
For example, a 10 rupee (13 cent) bar of the company’s popular Vim soap weighs 135 grams (4.8 ounces), compared with 155 grams about three months ago, a Delhi-based distributor said. At the same price point, a pack of aloo bhujia -- a popular crunchy and salty snack -- made by Haldiram’s fell to 42 grams from 55 grams, according to retailers. Hindustan Unilever and Haldiram’s didn’t respond to emails seeking comments.
Food companies are under pressure due to rising edible oil prices, with Nestle India’s first quarter profit coming in below estimates, also thanks to dairy prices. “Every category has had inflationary headwinds," said Sanjay Singal, chief operating officer for the dairy and beverage segment of ITC Ltd., maker of consumer products that includes chips, cookies and soaps
Dabur has reduced the volume -- also known as “grammage" -- on certain products to protect the 1, 5 and 10 rupee “sacred price points," Chief Executive Officer Mohit Malhotra said in an emailed response to questions. The operating environment has been “extremely challenging" with inflation causing “sharp drop in consumption across the board," he said.
Britannia had passed on 65% of its incremental input cost rises in 2021-22 by reducing weights on their existing price points. Now, the volume cut “might end up being even higher than that," Managing Director Varun Berry said in a call with analysts April 5.
Another emerging tactic is offering so-called “bridge" packs between popular prices. Hindustan Unilever introduced a new size between its 10 and 35 rupee Lifebuoy soap that allows it to trim the weight back, Tiwari said.
The Central Statistics Office, which publishes official inflation figures, didn’t respond to a request for comment.
Determining the impact of shrinkflation on overall consumer prices might be difficult to quantify, according Rahul Bajoria, an economist at Barclays Plc in Mumbai.
“Do you take a bar of soap, or do you take the weight of the bar?" he said. “How do you calculate inflation with that kind of sample?"