NIGERIANS SUFFER SHRINKFLATION AS ECONOMIC CONDITIONS WORSEN

 In Investor News

Nigerians are suffering a shrinkflation, once again finding themselves at the receiving end of rising food prices and economic crunch. A survey conducted by Nairametrics research reveals consumer goods companies are reacting to widespread inflation by adopting shrinkflation as a sales strategy.

Shrinkflation is the process of reformulating or decreasing the size or quantity of an item while its price remains the same. The word is the shrink-and-inflation portmanteau. This strategy allows companies to boost their operating margin and profitability through lower expenses while maintaining sales volumes. Also, inflation indicators are associated with units of product volumes or weights, so then, shrinkflation may also affect the inflation rate in the Nigerian economy.

Consequently, unaltered pricing means that buyers are not made aware of the higher unit price of products, thereby giving them the illusion of consistency. This practice has a negative impact on consumers’ capacity to make informed purchasing decisions. While some see shrinkflation as a “ripoff,” others see it as a profitable option for competing in a highly inflationary environment.

For the second consecutive month, Nigeria’s inflation rate declined further from 18.12% reported in April 2021 to 17.93% in May 2021. However, this decline has not been significant enough to reverse the worsened economic conditions in Nigeria. Exchange rate pressures, on the other hand, exacerbate the issue.

Shrinkflation is how some firms pass on their customers, higher manufacturing costs in a way that is often not visible. Since most manufacturing companies import raw materials, they may increase their participation in shrinkflation.

While for some companies it’s a strategy used to maintain profit margins, for others it’s the difference between survival and going under. Due to the heightened competition synonymous with consumer goods firms, they seem to be the most adopters of shrinkflation. To survive, some not only reduce the size but often do this in tandem with price increases.

With the worsening economic conditions in Nigeria, shrinkflation may become more prevalent. While some perceive shrinkflation as a con, others see it as a market expedient way to compete in a high-inflation environment. Ironically, while the inflation rate is captured at 17.93%, price increases for most consumer items have more than doubled as manufacturers attempt to adjust for inflation and deteriorating exchange rate situations. Sadly, with the exchange rate situation worsening, it is unlikely that this will end anytime soon.

https://nairametrics.com/2021/06/24/nigerians-suffer-shrinkflation-as-economic-conditions-worsen/

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