In the News

By Elizabeth Chuck

Two Democratic lawmakers are demanding that some of the biggest food and beverage companies stop engaging in “shrinkflation” — the practice of reducing product sizes while charging prices that are the same or higher.

In pointed letters, Sen. Elizabeth Warren of Massachusetts and Rep. Madeleine Dean of Pennsylvania accused General Mills, Coca-Cola and PepsiCo of engaging in a “pattern of profiteering” through shrinkflation and by “dodging taxes.” The letters, sent Sunday afternoon and shared first with NBC News, cite tactics the companies have used in recent years to increase their bottom lines.

General Mills, for example, reduced the sizes of many cereal boxes in 2021, “including decreasing ‘Family Size’ Cocoa Puffs from 19.3 ounces to 18.1 ounces while charging the same price,” the letter to General Mills Chairman and CEO Jeff Harmening read. It added: “Then, from mid-2021 to mid-2022, General Mills hiked prices five times, and in 2023, your Group President of North American Retail bragged that the company was ‘getting smart about how we look at pricing.’”

Coca-Cola has downsized its products, too, said the letter to Chairman and CEO James Quincey, and it is “selling less soda for the same price.” The same with PepsiCo, which “replaced its 32 oz Gatorade bottle with a 28 oz bottle for the same price.”

“Shrinking the size of a product in order to gouge consumers on the price per ounce is not innovation, it is exploitation,” the letter to PepsiCo head Ramon Laguarta read.

Spokespeople for General Mills, Coca-Cola and PepsiCo did not immediately respond to requests for comment. PepsiCo has denied changing bottle sizes for profit; a spokesperson told CNBC in July that the 28-fluid-ounce bottle of Gatorade has existed for over a decade and that selling it more widely was part of the company’s long-term strategy, not a response to the current economic environment. Coca-Cola has explained its smaller bottles as a way to offer lower price points to budget-conscious consumers.

Regardless, Warren and Dean also accused the companies of funding lobbying for Republican-led corporate tax breaks in 2017 that promised a trickle-down effect but instead “incentivized price gouging” because “corporations raised prices to pad their profits, knowing that lower corporate tax cuts meant they would get more back on each dollar of price increase,” all three letters said.

Citing a February analysis from the nonprofit Institute on Taxation and Economic Policy, the letter to General Mills said that in the first five years following the 2017 tax cuts, General Mills paid an average effective tax rate of 14.8% on its $12 billion in profits — a lower tax rate than many working individuals pay. Coca-Cola paid 13.5% in federal income taxes on its $13.4 billion in profits for the same time frame, the letter to its CEO said, while PepsiCo made $22.4 billion in profits during those years and paid an average effective tax rate of 15%.

“People have noticed that their box of Cheerios and bag of Doritos are smaller, but prices are higher — and at the same time these giant corporations are paying lower tax rates than the average American,” Warren said in a statement to NBC News. “We can’t let them get away with this price gouging and tax dodging. It’s just plain wrong, and we’re fighting back.”

Shrinking consumer goods extend beyond soda and cereal. MousePrint.org, a website that tracks retail products, has been highlighting items that have gone down in size but not in price, including a pack of razors that once contained 36 razors and now is down to 30 and a bag of almonds that went from 30 ounces to 25.

President Joe Biden has mentioned shrinkflation numerous times, declaring it a “rip-off” in a video he posted to X. In his State of the Union address this year, he urged Congress to pass a bill that would crack down on shrinkflation by regulating it as unfair or deceptive.

Even Cookie Monster has opined on downsized products, lamenting on X in March: “Me hate shrinkflation! Me cookies are getting smaller.”

But to manufacturers looking to grow profit, especially in times of inflation as the costs of packaging materials and ingredients rise, reducing product size is often seen as a better move than upping prices, said Nailya Ordabayeva, an associate professor of marketing at the Boston University Questrom School of Business.

“Final price increases draw much bigger backlash than volume decreases,” she said. “So, between the two evils, the downsizing becomes a preferred option.”

That having been said, when shoppers notice that they have paid the same amount for less, particularly if it’s something they consume regularly compared with an indulgent item they buy only once in a while, “at that point they get upset,” Ordabayeva said.

But consumer frustration has not stopped shrinkflation. A report in December by the office of Democratic Sen. Bob Casey of Pennsylvania found that household products like toilet paper and paper towels were 34.9% more expensive per unit than in January 2019, with 10.3% of the price increase due to producers’ shrinking the sizes of rolls and packages. Meanwhile, snacks such as Oreos and Doritos had become 26.4% more expensive since January 2019, with 9.8% of the increase “accomplished by giving families fewer chips and cookies for their dollar,” the report said.

Sarah Gallo, senior vice president of federal affairs at Consumer Brands Association, a trade group that Coca-Cola, PepsiCo and General Mills all belong to, defended industry practices to NBC News.

She cited an inflation report the Federal Reserve Bank of San Francisco released in May that found that “aggregate markups over the past three years are not unusual compared with previous economic recoveries, countering the misleading attacks on the industry.”

“The industry remains focused on providing the best products at the most competitive price to consumers,” she said in a statement.

The letters from Warren and Dean requested three pieces of information: the average price the corporations charged per ounce of soda or per ounce of cereal every year since 2018, how much more in federal taxes they would have paid had the 2017 Tax Cuts and Jobs Act not been in effect and whether company executives received bonuses or other incentives during periods of high inflation.

Dean said the letters were sent to “ease the wrongful burden” the companies are imposing on consumers.

“Even as our economy recovers from the pandemic, people are still hurting from high prices at the grocery store,’” Dean said in a statement to NBC News. “Charging more for products, like cereal, while reducing their size means that Americans are paying more for less and big corporations are paying less than their fair share in taxes.”

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