The elephant in the room is now shrinking shrinkage

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The elephant in the room is now shrinking shrinkage

Have you noticed that the volume of retail products you consume in general is shrinking while prices remain relatively stable? You have already seen a downturn. Sometimes it’s big and obvious, other times it’s subtle and barely noticeable.

Companies struggle with rising production costs during periods of high inflation and are forced to raise product prices. Doing so has a huge impact on the demand for the product, especially when there is fierce competition.

Firms tend to reduce the volume of their products while maintaining the same prices to achieve a smooth landing. They achieve a price increase in this way without changing the actual price.

Have you noticed that while the price of a loaf of bread has remained relatively constant, the weight has decreased from 500g to 450g and then 400g?

It’s also happened to milk bags, chocolate bars, a standard cup of tea at your favorite hotel, coffee bags, air-conditioning packages, tissue papers, and a variety of other products.

People may choose to buy lower-priced products from competitors if the company suddenly raises the price of its product. People may not notice or take meaningful action if the company slightly reduces the volume, package, weight or quality of the product while maintaining the same prices.

This method of increasing the price of a product involves decreasing the size, weight, ingredients, quality or packaging.

As a family on a monthly or weekly budget, you are forced to consume fewer products of lower quality, nutrition and efficacy, which can lead to lower quality of life and lower value for money spent.

For example, if a family of three consumes a 500g bag of milk every morning for 60 shillings, and the milk companies reduce the milk to 450g per bag at the same price, the family is forced to consume less milk per day, which implies less . Value for money, less daily nutrition, lower quality of life. I can call it what it is: customer fraud.

Companies sometimes remove ingredients from a product while maintaining the same price, which I see as a betrayal of trust. When there is a lot of competition, companies will reduce the size of their products to undermine competition, which often leads to a race to the bottom.

In this case, the customer is always on the receiving end of the stick.

Deflation happens everywhere and is easy to spot if you know what to look for. Rebranding campaigns and rebranding packages are two common methods companies use to hide deflation.

It is sometimes a key component of a product that is removed, such as when Apple removed the power adapters from the iPhone packaging. It often results from rising production costs, fierce competition, and a shift in demand trends.

If a company sells discretionary goods to consumers and lacks strong pricing power, it may have to engage in deflationary deflation to survive in a challenging economic environment. During periods of high inflation, stocks in this sector tend to take a big hit.

Consumer goods, or companies that sell products we need, can raise prices during periods of high inflation while avoiding deflation.

In the current economic environment in Kenya, it is clear that companies are engaged in both deflation and price hikes. This suggests that things are not going well and that we may need an incentive to stimulate production and value chains.

Addressing production costs such as electricity, energy, and raw materials creates the environment for cheaper manufacturing, lowering deflation rates.

Financial market investors are aware of deflation and how it affects stocks, particularly in times of high inflation. Investors often buy commodity stocks to increase their chances of portfolio growth during periods of high inflation.

They can also stockpile a consumer defensive stock. Giffen allotments and luxury goods might also do well.

Deflation can sometimes be counterproductive to the company you’re committing. If customers complain about product shrinkage, especially on social media, the market may lose confidence in the product, reduce consumption, and switch to another product. Companies should exercise caution when engaging in a downturn.

The writer is a research and market analyst at Scope Markets Kenya

email: [email protected]

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