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Stealthflation is here… expect more of it

Who needs price hikes with manoeuvres like these…

I’m always sceptical when supermarket groups publish food inflation figures along with their sales data in financial results. (In February, at its results for the six months to December, Shoprite said “internal food inflation” was 5.2% year-on-year, “substantially below the official food inflation figure of 8.2%”. Woolworths disclosed euphemistically-labelled ‘price movement’ of 9.5% for the same period).

Those averages don’t bear any resemblance to what I notice on my trips to the shops. And Stats SA’s CPI data (4.6% year-on-year for May, with the food sub-component at the same level) often looks rather divorced from reality.

I’m even more sceptical when restaurant and fast food groups like Spur, Famous Brands and Taste publish the weighted price increases on their different brands’ menus along with their financials. Spur Corporation does a particularly decent job of this. At its mainstay steak ranches, menu prices increased by 3.4% in November 2013, 3.9% in May 2014 and 2.9% in December 2014. (Famous Brands seems to have quietly stopped releasing this.)

These ‘weighted price increases’ are great in aggregate. But the average diner or shopper – especially the middle- to upper-class readers of this website – doesn’t experience a 2.9% increase in the price of their steak. Or a 9.5% increase in the price of their trolley at Woolies from July last year (although, who can afford a trolley of the stuff?!)

The prices of staples are – for the most part – either cheaper or not increasing, despite the ±20% depreciation of the rand against the dollar in the past year. It helps that soft commodity prices (not just metals) are down substantially over the past six months. For example global coffee prices (in dollars) have nearly halved in the last six months. The dollar price of rice is down 25% over the last year, maize futures prices had abated before spiking over the last six weeks. No wonder food inflation has moderated and these ‘averages’ look half-decent.

Thing is, I notice prices.

And while these are steadily – and sometimes not so steadily – rising, there’s another strategy taking hold that means we’re paying a LOT more for things without even noticing: stealthflation. The chaps at ETM Analytics (who I respect a lot and who I miss talking to regularly) have blogged about this previously.

Russell Lamberti, chief strategist at ETM Analytics, explained stealthflation as “hidden price inflation when instead of raising a product’s nominal price, manufacturers cut product sizes or reduce product quality. Stealthflation is rampant in South Africa as companies try to push price increases on to consumers without consumers knowing it. It is a classic sign of the erosion of business margins and real profitability brought about by monetary debasement and inflation at a time when consumers are hard-pressed to pay higher prices.”

I couldn’t have described it any better (although I didn’t major in economics!).

Stealthflation isn’t new. It’s inflation, just worse (because most consumers don’t realise its happening).

The canonical example is Coke’s “replacement” (there’s a euphemism again) of its 340ml beverage cans with 330ml ones in late 2007. Of course, inflation at the time was near or at double-digits (it peaked at 13.7% year-on-year in August 2008). It took a while for most people to realise the slightly smaller can (some probably still haven’t). But that’s the point.

Any bets on these shrinking again in the next 12 months?

We also had “some” Cadbury’s Dairy Milk chocolate slabs shrinking from 100g to 90g (and from 200g to 180g) in 2009. In 2012, the shrunken slabs became standard across the range.

A year ago, they shrunk again. The 90g slabs became 80g ones, and the 180g slabs are now 150g. Cadbury’s parent Mondelez told iOL at the time that “new mould sizes” (ha!) had been introduced. Remember, prices haven’t exactly decreased over this time – they’ve increased! Over the past five years, prices of those bigger slabs have risen by 25% (thanks to the smaller sizes) on top of whatever increases you may have noticed on the shell.

This kind of “strategy” is fundamental at most fast-moving consumer goods companies. Executives speak about “pack size innovation”.

And in 2015, it’s everywhere.

Bacon cuts are now largely in 200g packs (a few are attempting a ‘premium’ strategy of continuing with (pricier) 250g packs).

Refills that are cheaper than the actual product but which don’t fill the original container (Jacobs coffee springs to mind).

There’s constant trimming and “refining” at Woolworths, particularly with its prepared fruit and vegetables (10g disappearing here, “new, handier” (read: smaller) portion sizes there… this new pack of diced sweet potatoes is 33% (!) more expensive than the older, larger pack (still stocked)).

The latest to catch my attention: Aquafresh’s rather brazen 25% (!) reduction of the size of some its toothpaste tubes (from 100ml to 75ml). Colgate – it seems – made the first move.

Toothpaste tubes

One of these is not like the other.

And the price stays exactly the same, R12.99 (it’s crept up from R10.99 to R11.99 to R12.99 over recent years).That tube of toothpaste is suddenly 33% more expensive. Toothpaste makers couldn’t exactly put prices up to R15, there’d likely be a dent in sales (I’m assuming they’ve conducted tons of detailed research on the price elasticity of demand of toothpaste).

It’s not only a phenomenon found in supermarket aisles.

Fast food outlets are perpetually redefining portion sizes, to the point that many have “regular” and “medium” (and “small” and “kids”) sizes of items on menus these days.

Wimpy hamburger patties are now 90g (a good few years ago, they were 110g, no doubt shrinking to 100g en route to 90g).

Pay attention next time you go shopping or buy fast food. Be particularly watchful of any volume or weight that isn’t a round number (190g or 900ml). Nappies which magically shrink from 70 to 68 in a pack, for example.

In an economy with pedestrian growth and large electricity price increases (etc, etc… you know the drill), expect a lot more stealthflation. We’re paying more for things – often, a lot more – than you think. And the rand’s 20% depreciation over the last 12 months didn’t exactly evaporate into thin air…

* Hilton Tarrant works at immedia, specialists in native mobile app and web development and available at hilton@moneyweb.co.za

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I have noticed this, but what is there to be done as, for example, all the toothpaste manufacturers are going the same way.
I don’t eat at Spur anyway, everything tastes the same!

Many manufacturers and retailers have climbed into reducing quantities to hoodwink customers. Potatos used to be in 10kg bags and now the standard is 7kg. I used to buy Vaseline lotion in 1litre bottles and it used to last a month – now I got to buy 2 bottles of 400ml which cost much more. Even kids are not spared – packets of chips are manipulated all the time.

Take a look at dog food – no 10 kg bags anywhere to be seen…

There should be a national register held by a consumer group that lists and shames all manufacturers who reduce the contents of their products and keep the price the same. This register should allow any consumer to tap into it and what you should see is the previous product size and it’s price prior to reducing the size. Also I don’t understand how a manufacturer manages to sustain the cost of continually changing packaging size, and the concomitant cost of merchandising that package and the printing of the new wrappers/labels.
This ploy of shrinking quantity is wholesale across many brands from Tiger brands, Pioneer, AVI, and a host of others in essential product manufacturers. I occasionally buy boxed prawns and this packaging quantity has shrunk significantly – used to get 1kg you now get 600, 700, 800 grams per package. This is a massive con by the manufacturers and they should be censured for their robbery

Prawns, nogal, Graham! I’ll think of you when I buy my next tin of Beluga caviar.

The worst is packets of bacon that has gone from 250g to 200g….the cheek!

But seriously I once saw a brand that had printed largely on the packet that the packet ‘Still weighs 250g’. I immediately bought that brand and continue to do so. Perhaps this is an opportunity for companies to regain market share by selling the heavier/bigger goods but make it patently clear that you get more bang for your buck.

Lets also not forget the injecting of brine into the bacon – that white scummy stuff that seeps out when frying bacon. That’s another 10/15%. Another one, ice cream – used to be 2L now 1.8L.

Another classic example of hoodwinking customers is to place large size boxes of own brand containing less than same size boxes of other brands. You call it stealth, I call it dishonesty.

Breeze soap bar – from 125g to 100g

More concerning is overcharging at the tills, i.e. what gets rung up at the till is often 5 – 20% more than the shelf price on some items. I’ve often had this at a specific branch of Spar (hellopeter), often on a basket of as little as 3 items – who’s going to check actual prices on a full trolley though?

I’ve stopped shopping at this group but have had this experience at a number of other chains as well.

My wife buys Palmolive soap with “coconut scrub” (what will they think of next!) and once it has been about half used, it turns to jelly and is useless. So that’s a 50% increase in price. I have complained on their “response form” on their website. No reply, not expecting one, changing brands.

My econonomic’s lecturer told us of a study he was commissioned to do on tin foil in the late 80’s. They surveyed housewives to gauge their knowledge of price vs quantity, a significant percentage knew price but very few quantity. Solution same packaging, same price, less tin foil.

Ever noticed the larger sized hole in the toothpaste tube ? Came about very soon after the move to smaller toothbrushes.

Also have a look at the depth of the indentation in virtually everything from tomato sauce to peanutbutter. Thankfully not my favorite brand of whiskey just yet.

And my personal favorite these days, most bulk packs are more expensive than the equivalent quantity in multiple smaller packs, ie now that we’v been conditioned to think bulk is cheaper, make it more expensive as people do not look.

Don’t be ridiculous. The ANC regime loves articles like this that divert attention away from the relevant issues. Ongoing currency debasement is the problem not the size of the article for sale. The ANC have engaged an army of mandarins who consume voraciously and compete with everyone else in the country for goods and services = more demand. Likewise their cretins don’t produce anything of value that could be sold in a free market= less supply. This unabashed statist expansionism coupled with irresponsible monetary policy, rampant theft of public monies that goes all the way to the top, ethnic cleansing of skilled people, wholesale job/wealth destruction and raising the risk profile of the country is a sure fire recipe for Zimbabweanization of the Rand and concomitant hyperinflation. Let’s analyse the big issue not the side shows.

@Richardthe Great: I used to enjoy your comments but now your continued fixation on and raving about the ANC is becoming somewhat tiresome. Hilton’s article is important because it highlights the ongoing corporate (not ANC) abuse of the consumer. Calling this a side show issue is exactly what the corporates want so they can continue to sneak through those price increases via devious means clearly described by Hilton and commentators. Richard, please keep on commenting but ease off on the anti-ANC tunnel vision.

Richardthe Great is great, because he is always spot on with his insights. Inflation is not created by corporations, they merely try to push it on to the consumer. Inflation is always created by reserve banks and government policy.
So, to take the focus off politicians in control, and blame business for the implosion of purchasing power of our money is wrong, and plays in the hands of these politicians.
People that reason like you JustinB are funding the Luthuli House crowd to stay in control. You are sponsoring the lifestyle of Gwede Mantashe.

I don’t think many people realise the ANC of South Africa is so powerful that they run all emerging market countries, that’s why they’ve all seen currency depreciation.

Woolworths have been doing this very successfully over past decade. The miute a new product starts moving well you see them decrease size for same price and increase their profit margin.

Another figure trick they are playing? Are they doing their food inflation averages across their full basket of goods on aggregate per individual item cost or are they doing the inflation aggregate based on what consumers are actually buying and where woolworths get more aggressive with stealthflation of the top selling items.

Roll-on deodorants now come with a greater gap between the roller-ball and the container so one uses more and it gets empty much faster. This for the benefit of readers who use such things.

Firstly, unless there is sharp decline in fuel price such as what we saw earlier this year, the concept of prices decreasing is far-fetched and a fallacy, so you can can get that idea out of your head.

Note, though NOT exclusively attributable to this factor, stealthflation mostly exists because producers, facing heavy and most-likely above inflationary cost pressures, are trying to maintain the price of a product within a certain band, so as to appease and retain the loyalty of customers, by ensuring that, though you are getting less bang for your buck in terms of quantity, you get consistent quality relative to what you are paying.

Official inflation numbers are a joke, So don’t pay much attention to them. Margins have to be maintained, even in the wake of increasing costs, and a producer cannot be expected to continuously absorb these costs, if prices increase steeply, we complain and eventually trade-down, brand loyalty is lost, and revenue follows suite, so your loyalty has to be kept in some way.

Though it differs from company to company and product to product, I highly doubt that the intention is to dupe, defraud, hoodwink etc customers, as is implied here.

Hilton.. Is this common practice in all markets globally or is it local practice?

It’s by no means _only_ an SA phenomenon. But things like a 20% depreciation in the rand (and the knock on (especially) on fuel prices), electricity tariff hikes, e-tolls (etc, etc) exacerbate it. In other countries with tame inflation – or worse, those battling deflation – and a stable currency, corporates don’t have to resort to these kinds of tricks to preserve margins.

It is common practice in almost all countries – the USA is a leader in this practice. It’s just that when you don’t live there you have no inkling of what goes on. Most Americans simply don’t know it’s happening because a) they are severely math challenged, b) corps are really good at hiding this and c) the MSM does not report on this as news. You will need to do some creative Googling to get the low down on this.

Even countries that have ‘tame’ official inflation have seen food price inflation well above that official figure.

The gov has been “allegedly” playing with the weighting of the indexes for years. Consider this in the area of financial planning. Almost all financial planners are planning at 6% inflation….why, because gov says that is what it is and it’s easier to plan for 6% than say 9% because the client doesn’t get overwhelmed by a huge premium that he needs to save for retirement. The Fund Manager has a soft target as he only needs to get say 9% growth to get 3% real growth instead of a 12% target. The client is the one who will wonder in years to come why the goal posts keep on moving and why he will not be able to retire. Carl Marx said “we will control them with inflation and taxation” The gov realises this and it is in their interests to create a large middle class who they can control and milk. Go figure

In which country in the world do people not view the official inflation figure as not reflecting their own personal inflation rate?

Its happening with fashion too- tried to by some jeans at woolies the other day. Skinny jeans and slim fit in XL sizes WTF?

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