Jan 13, 2022 - Economy & Business

Companies turn to "shrinkflation" in bid to avoid price increases

Illustration of a large dollar bill sign balloon being held by a man who is floating slightly off the ground.
Illustration: Aïda Amer/Axios

The four-decade high in inflation is leading companies to look for alternatives to price increases to avoid scaring off customers.

Why it matters: With annualized inflation registering at 7% in December, businesses are turning to a mix of price increases and "shrinkflation" — cutting the amount you get, not the price you pay.

Driving the news: Less than 24 hours before the Consumer Price Index reported its highest reading since 1982, Domino’s Pizza CEO Ritch Allison said the chain plans to reduce the number of chicken wings in its $7.99 deal from 10 to eight.

  • Facing food-cost increases of 8%–10%, Domino’s also plans to eliminate its $7.99 pizza deal for call-in orders, making it online only amid labor shortages.
  • "The company is optimistic these changes will improve franchise profitability through online upsell opportunities and provide labor savings" as orders move online, Cowen stock analyst Andrew Charles wrote Wednesday.

By the numbers: In November and December, companies mentioned "inflation" or "inflationary" pressure in 2,509 corporate transcripts, up from 643 during the same period of 2020, according to financial research firm Sentieo.

  • "Inflation is persisting because of labor shortages," Columbia Business School finance professor Laura Veldkamp tells Axios. "Scarce labor makes labor and goods more expensive, and this will last as long as COVID lasts."
  • Also key: supply chain breakdowns.

Reality check: Sometimes shrinkflation's not enough, and price increases are unavoidable.

  • 52% of U.S. businesses "expect prices of their products to continue rising in 2022," while only 3% expect them to decline, according to an S&P Global Market Intelligence poll released Tuesday.
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