The Supply Side: Brands shrinking package sizes amid inflationary pressures

by Kim Souza ([email protected]) 615 views 

With consumer prices at 40-year highs, shoppers know their grocery dollars are being squeezed.

And so is the packaging.

Package sizes are shrinking — known as “shrinkflation” — on everything from candy to toilet paper, breakfast cereal and trash bags.

Charles Haverfield, an executive at Arkansas-based U.S. Packaging and Wrapping in Lonoke County, said companies facing higher prices for supplies are trying to pass that to consumers with shrinkflation. He said decreasing packing sizes and keeping the price the same is not a new practice, but it worsens during inflationary periods as ingredient prices, shipping and labor costs rise.

Haverfield said that several years ago, confectionery giant Mondelez faced negative consumer sentiment after reducing the size and weight of Swiss Toblerone candy bars by 25% and adding more space between each piece. He said the company reversed the practice two years later after public backlash. He said there is nothing illegal about shrinkflation. Still, in an age where consumers expect transparency, there could be a backlash if brands do this without first notifying the public of their intentions.

The sentiment is mixed about the practice, as consumer advocacy groups say it’s a sneaky attempt to deceive customers by giving them less for the same money. Haverfield said product weight fluctuations occur when brands conduct consumer research and modify product lines to increase sales and profitability.

“Many brands aren’t deliberately being sneaky just because their product downsizing is now tied to inflation. It’s something most do all the time,” Haverfield said. “There is no obligation for companies to keep their products the same size or quantity, just as shoppers are not obligated to buy the product.”

Haverfield said the decision to shrink packing sizes is more of a moral dilemma concerning how much they tell consumers. He said brands could argue that the prices and sizes are clearly labeled to allow consumers to make informed buying decisions.

Companies using shrinkflation include Walmart. CEO Doug McMillon has said the retailer will hold the line on high prices amid inflationary pressure that squeezes grocery margins. McMillon has said conversations are happening with more suppliers about keeping prices stable when the Consumer Price Index is running nearly 8% higher than a year ago. Walmart’s Great Value private label paper towels have shrunk from 168 sheets per roll to 120 while staying the same price. Other goods sold in Walmart and across retail, such as Hefty trash bags, are also in smaller packages. The Hefty mega pack was reduced from 90 bags to 80 bags with the price remaining the same.

The Hershey Co. generates more than $2 billion in annual sales, with Reese’s Peanut Butter Cups ranking No. 1 on its top-selling candy list. In 2011, the candy company reduced the size of the two-package peanut butter cups from 1.6 ounces to 1.5 ounces, making the cups slightly smaller and putting more space between them. Hershey did the same thing with its Kisses candy.

Hershey management has been open about plans to raise prices higher this year. More recently, Hershey has been doubling the package size of the peanut butter cup to include four pieces of candy for $1.64 for 2.8 ounces at Walmart, compared to 98 cents for the smaller two-pack, which is 1.5 total ounces. The four-pack has a better value at 58 cents per ounce, whereas the smaller pack has 65 cents per ounce.

“Pricing will be an important lever for us this year and is expected to drive most of our growth,” Hershey CEO Michele Buck said on Feb. 3.

In its 2022 financial forecast, the chocolate company said it planned “list price increases across all segments” to drive sales growth. The price hikes should help offset higher ingredient and labor costs, said Steven Voskuil, the company’s chief financial officer. He said sugar, dairy, packaging materials and specialty ingredients prices were surging.

Consumer packaged goods giant Procter & Gamble (P&G) has also historically played the shrinking package game with Gain detergent bottles shrinking from 165 ounces to 154 ounces and Charmin mega toilet paper rolls shrinking from 264 double-ply sheets to 244 double-ply sheets per roll. Cottonelle rolls have also gotten smaller, with the mega rolls shrinking from 340 one-ply sheets to 312 one-ply sheets. The prices of the products remained the same.

Post Holdings recently reduced the size of its Cocoa Pebbles cereal from 20.05 ounces to 19.5 ounces. The company took a price increase at the same time from $3.99 to $4.95 for the smaller box. Post executives attribute the price increase to significantly higher supply-chain costs and inflation.

P&G recently noted to investors that the company upgraded formulas to more concentrated levels to look for ways to compensate for the rise in commodity and transportation costs. The company also said that in some cases, price increases would be taken this year, but in doing so, the goal is to pair price increases with innovation to deliver value to customers. Edward Dworsky, a consumer advocate, told the Northwest Arkansas Business Journal that in the case of Gain detergent, P&G reformulated the product. Hence, the number of loads per bottle was the same.

Dworsky said shrinkflation tends to worsen during periods of inflation as manufacturers have to decide whether they should raise prices directly or do so in a less obvious way by reducing packing sizes.

“They know consumers are very price-conscious and will notice a price increase. They also recognize that most shoppers are not net weight conscious, so they opt for that less obvious way of raising prices. Some do both, but not necessarily at the same time,” he added.

Dworsky said produce makers note on a package that they are increasing the size with “bonus” verbiage.

“We’ll never see a company do the opposite. They’re not required to. As long as the net weight or net count is on the package, it is up to shoppers to notice it. And that’s the only way we can protect ourselves,” Dworsky said.

He also said consumers’ budgets are getting squeezed from all sides, and they are more likely to be price-conscious. Haverfield agreed, saying brands could build goodwill with consumers by being honest and open about price increases and reduced package sizes. At the same time, they look to innovation and other strategies to give consumers more value.