Companies turn to “shrinkflation” in bid to avoid price increases

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The four-decade high level of inflation is prompting companies to look for alternatives to hike prices to avoid intimidating customers.

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Why this matters: With annual inflation registering 7% in December, businesses are turning to a mix of price increases and “shrinkages”—a cut in the amount you get, not the price you pay.

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

  • Facing an 8%-10% increase in food costs, Domino’s also plans to end its $7.99 pizza deal for call-in orders, doing it online only amid labor shortages .
  • “The company is optimistic that these changes will improve franchise profitability and provide labor savings through online upsell opportunities,” Cowen stock analyst Andrew Charles wrote on Wednesday.
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By numbers: In November and December, companies noted “inflationary” or “inflationary” pressure in 2,509 corporate transcripts, according to financial research firm Sentio, up from 643 during the same period of 2020.

  • “Inflation remains because of the labor shortage,” Columbia Business School finance professor Laura Veldkamp told Nerdshala. “Scarce labor makes labor and goods more expensive, and this will last as long as COVID lasts.”
  • Also key: supply chain breakdown.

reality check: Sometimes shrinkage isn’t enough, and price increases are inevitable.

  • According to an S&P Global Market Intelligence poll released Tuesday, 52% of U.S. businesses “expect the prices of their products to continue to rise in 2022,” while only 3% expect them to decline.
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