As India’s inflation surges, the cheap single-serving packets of staples like snacks 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, a nickel, or a dime—firms are using “shrinkflation” to cope with higher input prices while keeping customers. Due to rising costs of edible oils, grains, and fuel, companies such as Unilever India and domestic consumer goods firms Britannia Industries Ltd. and Dabur India Ltd. have shifted to lighter loads in their cheapest packages.
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, fueling expectations of further interest rate increases after the Reserve Bank of India’s surprise hike last week.
Reducing the volume in certain price-point packs is “the only way to take price increases.” 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.
“Food companies are under pressure due to rising edible oil prices and 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 include 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.
The operating environment has been “extremely challenging” with inflation causing “a 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 at their existing price points. Now, the volume cut “might end up being even higher than that,” Managing Director Varun Berry said.
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.
According to Rahul Bajoria, an economist at Barclays Plc in Mumbai, determining the impact of shrinkflation on overall consumer prices might be difficult to quantify. “Do you take a packet of chips, or do you take the weight of the chips?” he said. “How do you calculate inflation with that kind of sample?”