America is not a shrinkflation nation – Washington Examiner
The article titled “America is not a shrinkflation nation” discusses President Joe Biden’s remarks regarding ‘shrinkflation’ during his State of the Union address, a term that refers to companies providing less product for the same price, effectively raising prices while reducing quantity. Biden highlighted how snack food manufacturers, like those of Snickers and Doritos, altered their product sizes instead of adjusting prices directly, which he criticized as corporate greed.
Biden called attention to this issue and pushed for the passage of the Shrinkflation Prevention Act, which seeks to regulate shrinkflation practices through the Federal Trade Commission. He indicated that many corporations increased their profits at the expense of consumers, with the author of the bill, Senator Bob Casey, supporting his claims with research indicating significant profit growth in the food industry during a period of inflation.
The article also delves into economic concepts, explaining how companies might reduce product sizes in response to rising costs and shifts in consumer demand, a strategy that some brands adopted during the pandemic. it examines how the administration is attempting to combat inflation-related practices and protect consumer interests in a challenging economic environment.
America is not a shrinkflation nation
President Joe Biden is arguably America’s chief executive with the sweetest tooth since Ronald Reagan, who kept a bowl of jelly beans on his desk long before the Jelly Belly brand was de rigueur. Biden is also the snackiest president since Bill Clinton. So when he read reports that potato chip and candy bar manufacturers were skimping, he appeared to take that personally.
“Too many corporations raised prices to pad their profits, charging more and more for less and less,” Biden complained at this year’s State of the Union address before Congress. “In fact, the snack companies think you won’t notice if they change the size of the bag and put a hell of a lot fewer, same-size bag, put fewer chips in it. No, I’m not joking. It’s called shrinkflation. Pass [Sen.] Bobby Casey’s [D-PA] bill and stop this. [Laughter and cheers.] I really mean it!”
Biden added, “You probably all saw that commercial on Snickers bars. You get charged the same amount and you got, I don’t know, 10% fewer Snickers in it.”
The president’s discussion of “shrinkflation” was situated between his administration’s plans for Social Security and its war on so-called junk fees. These were both major emphases of his now lame-duck administration, which is an indicator of how much Biden either detested shrinkflation or believed the issue would resonate with voters.
Snack food corporations had different tactics to address the president’s charge. Snickers manufacturer Mars, for the most part, simply denied that it was true.
“We have not reduced the size of Snickers singles or share size in the U.S.,” a company spokesperson said in a statement to CNN Republican commentator Scott Jennings. “Like many industries, we continue to face high inflation and spikes in material costs; however, we work to absorb these extra costs wherever possible to provide affordable treats and the best value. Final prices are always at the discretion of the retailer, but we make every effort to minimize costs to provide a full range of delicious products.”
However, Biden had snack chips’ and other mass food providers’ numbers with that criticism. Thus the cheers from the cheap seats in Congress. He urged both houses to pass a bill titled the Shrinkflation Prevention Act, which would “direct the Federal Trade Commission to issue regulations to establish shrinkflation as an unfair or deceptive act or practice,” according to the bill’s official description.
Pandemic prices or ‘greedflation’?
The bill’s author dropped it in late February and attempted to launch it with some urgency. “You can’t wait a year to buy paper towels or to buy boneless chicken or to buy groceries or to buy Huggies diapers,” Casey told the New York Times.
Casey is up for reelection this year in a neck-and-neck struggle with veteran, wealthy former asset manager, and George W. Bush administration alumnus Dave McCormick. The Pennsylvania senator has sunk considerable capital into the issue of shrinkflation, or “greedflation,” as he calls it.
As chairman of the Senate Health Subcommittee on Children and Families, Casey issued four reports on prices and profits. The third report, “A Greedflation Report — Shrinkflation: How Corporations Are Shrinking Products to Super-Size Profits,” is the most relevant.
Casey’s “Shrinkflation” report charges that, between July 2020 and July 2022, “Federal Reserve research shows that 41 percent of inflation over this time was due solely to larger corporate profit-making.”
To stick with the president’s favorite example, “Frito-Lay reduced the size of a bag of Doritos from 9.75 ounces to 9.25 ounces,” according to the report. “Frito-Lay blamed the pandemic, but Frito-Lay North America’s operating profit increased 9 percent from 2021 to 2022, while Frito-Lay’s parent company, PepsiCo, touted the snackmaker’s performance. Prices for Doritos increased as volume decreased, and PepsiCo outperformed its earnings expectations.”
Both bags listed their volumes, allowing interested customers to note the decrease. Casey nevertheless holds this up as one of many examples of “greed” and deceptive marketing that he would like to see regulated out of existence.
Want size with that?
However, the reason for the reductions in volume by major brands likely had to do with what economists call the substitution effect. It is called that because of the “change in demand for a good as a result of a change in the relative price of the good compared to that of other substitute goods,” according to the Corporate Finance Institute.
The example given by the CFI is that “when the price of a good rises, it becomes more expensive relative to other goods in the market. As a result, consumers switch away from the good toward its substitutes.” In other words, rising prices serve as a price signal telling customers to look elsewhere.
At least initially, during the wrenching early supply chain disruptions caused by COVID-19, major brands thought they were providing almost as much product at the same price and believed that was a good thing. Casey’s report quotes one unnamed Frito-Lay representative, who explained, “We just took a little bit out of the bag so we can give you the same price and you can keep your chips.”
Most snack manufacturers were frank about what they did and why they did it, but consumers and congressional watchdogs took this badly. There was such a noticeable backlash among consumers that many brands are now reversing course, by reinflating those snack bags, for instance. Tostitos and Ruffles announced in October that they will soon add about 20% more chips to what they call “bonus bags,” for the same price.
Despite the president’s very public lobbying, the Shrinkflation Prevention Act stalled in Congress. It was read twice in the Senate and led to a few hearings. The last one, before the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, took place in late March. Perhaps the coming extra crunch can serve as some consolation.
Jeremy Lott is the author of The Warm Bucket Brigade: The Story of the American Vice Presidency.
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