Another reason why inflation is much higher than the official numbers indicate.
The incredible shrinking Doritos bag
Big companies are protecting profits with subtle repackaging, putting a little less into boxes of cereal, containers of ice cream, rolls of paper towels and other products. Guess who's paying for it.
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By Michael Brush
Does it seem you run out of Doritos, orange juice or mayonnaise faster than you used to?
Your mind is not playing tricks on you.
Slammed by the skyrocketing costs of agricultural goods and energy, many companies are quietly shortchanging their customers by putting a little less into bags, jars and boxes.
"We are tightening our belts," PepsiCo (PEP, news, msgs) chief Indra Nooyi said in a company conference call last week. PepsiCo recently reduced the amount of Tropicana orange juice you get in a large container by 7%, from 96 ounces to 89 ounces. Bags of Doritos, also made by PepsiCo, have been trimmed by as much as 2 ounces.
PepsiCo is not alone in subtly cutting size as a substitute for raising prices. Kellogg (K, news, msgs), General Mills (GIS, news, msgs), Unilever (UL, news, msgs), Wm. Wrigley Jr. (WWY, news, msgs) and Procter & Gamble (PG, news, msgs) have quietly trimmed the amount of cereal, ice cream, chewing gum, paper towels and toilet paper you get. (See the slide show.)
Legal -- but sneaky?
This is perfectly legal as long as companies don't lie about how much they're putting into packages. And they don't do that.
But how many time-starved consumers will notice that a box of cereal holds 8.7 ounces instead of 11 (as has happened with Kellogg's Froot Loops)? Consumer advocates say it's sneaky to put less in a similarly sized package without announcing it loudly.
Companies, of course, don't do that either.
Talk back: Are food companies shortchanging shoppers?
"It is a sneaky way to pass on a price increase," says Edgar Dworsky, a former Massachusetts assistant attorney general for consumer protection who is now editor of Mouse Print, a Web site dedicated to tracking what the fine print on consumer products "taketh away."
"If companies are going to do this, they need to be transparent about it and let consumers know," agrees Chris Waldrop, the director of the Food Policy Institute at the Consumer Federation of America.
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He doesn't think that merely putting the new weight on a package is enough; he'd like to see a notice on labels or a company press release.
But he acknowledges few companies will be eager to point out these changes.
Because they can
Companies pass along higher costs by reducing contents because "it works," says Harvard Business School professor John Gourville. He has done research showing that consumers react to changes in price more than changes in quantity. In short, if consumers don't notice a change, they won't turn to a different product.
Recent experience supports Gourville's conclusions. Kellogg says it gained market share last quarter despite reducing the amount of cereal in boxes. PepsiCo says it saw overall sales of chips grow last quarter even though it is putting fewer chips in each bag.
Less is more
Of course, some consumers may actually prefer to get a little less than see prices go up, especially if the product is a less-than-healthful indulgence. Consumers make this choice all the time, Gourville says, when they opt for smaller packages of chips knowing they are paying more per ounce.
Consumers also accept being shortchanged if they perceive some improvement in a product. So, not surprisingly, shrinkage is often timed to coincide with a product "upgrade." For instance:
Procter & Gamble last year cut the number of paper towels in two kinds of Bounty. But the products have done well because upgrades at the same time made the paper thicker and more absorbent. "Both upgraded products have proven to be preferred by consumers because they allow consumers to do more with less," a spokesman says.
Though Tropicana cut the amount of orange juice in its new containers, consumers are actually better off because they have new flip-top caps that reduce spillage, the company says.
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Wrigley is reducing the number of sticks in its large pack of gum from 17 to 15. But the company says that consumers will find the new package is more convenient and that gum flavors have been improved so they are tastier and longer-lasting.
How much do companies save?
Most of the companies mentioned here cite the same reason for skimping: rising costs. They don't reveal how much they are saving, and it's not easy to figure out, says HSBC Global Research analyst Lauren Torres, who covers PepsiCo.
But at many of the companies reducing content size, profits are growing a lot faster than sales volumes. This reflects price increases for many products, but it's also the result of content reductions -- another kind of price increase.
One example: In Latin America, PepsiCo actually sold fewer tons of Sabritas chips -- a popular brand there -- because it cut the amount in each bag. But the number of bags sold grew in the midsingle digits. Overall, PepsiCo's food business volume in Latin America was up 4% while profits increased 21% -- because consumers were getting fewer chips in each bag.
Slide Show
See which products you are getting less of for the same price. Click here to see the 10 shrinking products
The good news in all this for consumers, if there is any, is that companies have a hard time shortchanging consumers on products packaged in amounts represented by widely accepted round numbers, Gourville says. "Certain things come in standard quantities, and it would seem strange to have anything else," he says.
So don't expect to see 11 eggs in a carton anytime soon. |
