Shrinkflation, Thy Name is Bidenflation
Everyone knows it's for real. And voters understand its economics better than the politicians who bash and blame food companies for the problem.
Having spent over two decades in the food industry, I’ve seen the ebbs and flows of attacks on food makers, especially the “big” brands. While people have emotional attachments to many food, beverage, and personal care products, from snacks to razors, the attachment doesn’t always extend to their companies.
Many people and organizations hold consumer product companies accountable, from government regulators and investors to so-called consumer organizations. The latter, especially, love to feed the worst suspicions and conspiracy theories long espoused by the anti-capitalist left. Consumers are the ultimate accountability, voting with their dollars.
Consumer product companies loathe controversy. Most are naturally thin-skinned and recoil at assaults on their products and practices disparaging brands in a low-margin, slow-growth industry. Consumer trust, including protecting and nurturing “the brand,” is Mission One. As a result, they invest considerable resources to protect the brand and, in recent years, get ahead of potentially thorny issues, from environmental sustainability and labeling to diversity and food waste.
None of these attacks are particularly new, and they are recycled every few years. Labeling claims, such as “natural” or “healthy,” are frequent targets. Ingredient safety, use of technology (GMOs), and packaging are evergreen. “Protecting consumers” is good not only for politics but also for nonprofit fundraising. Meanwhile, food companies, including retailers, get little credit for millions of food items donated to food banks through terrific organizations like Feeding America.
And it’s bipartisan. Theodore Roosevelt was the first president to make food safety a major issue, shepherding the first major food safety law, the Pure Food Act of 1906. He was inspired by an Upton Sinclair novel, “The Jungle,” that exposed unsanitary practices in Chicago slaughterhouses. Franklin Roosevelt’s Administration, during the Great Depression, created our bifurcated food safety regulatory patchwork that still largely exists and is woefully outdated and bureaucratic.
Bill Clinton made food safety an issue after major recalls involving adulteration of hamburger that led to major illness and death, and also focused on imported food safety. Jack-in-the-Box restaurants survived, but Hudson Foods didn’t. George W. Bush made food safety regulation an issue, noting that in 2000, cheese pizza and pepperoni pizza were regulated by different agencies (and still are).
With bipartisan help from Congress and even support from the food industry, Barack Obama expanded the regulatory powers of the Food and Drug Administration. Also, at the behest of his spouse, Michelle, his Administration made improving nutrition and expanding the availability of school meals a priority. But top-down regulation was so bad, with kids throwing a cardboard-tasting pizza in the trash and going hungry, that the Donald Trump Administration rolled back much of it, restoring some local autonomy.
And now, Joe Biden has found his “food issue:” Shrinkflation. Perhaps you saw this over Super Bowl weekend. No doubt Team Obama Biden saw survey research that 64% of Americans worry about shrinkflation. They worry more about Biden, but no matter.
It’s not a new issue. Shrinkflation becomes an issue - a tool - during economic stress for food companies, usually due to higher commodity prices (wheat, corn, oil, etc.) and other input costs (transportation, packaging, labor, energy, etc.). Farmers have seen basic costs for things like fertilizer and fuel increase. Those costs are incorporated into the price you pay, including taxes.
You know, inflation.
Higher costs are also not reported so much for more favored “unprocessed” foods, such as fresh steak, chicken, fish, or fresh fruit and veggies, all of which have gone up. The political target always seems to be shelf-stable, center-aisle packaged foods. Given the business's highly competitive, low-profit-margin nature, food makers don’t like raising prices. Anyone who buys steak knows that their packaging isn’t suffering from shrinkflation; prices have skyrocketed. I pay more for filet mignon at my local Harris Teeter (Kroger) store than I dished out at Morton’s or Ruth’s Chris five years ago.
"We appreciate that the President has to deflect attention away from inflation that has lingered during his administration,” noted David Chavern, CEO of the Consumer Brands Association, representing companies whose products are on grocery shelves. As for companies shrinking servings and packaging while their profits balloon, an industry publication, Progressive Grocer, tells a somewhat different story.
Various snack companies recently released their latest financial reports. On Feb. 9, PepsiCo shared its fourth quarter and full fiscal year results, revealing a 0.5% decline in revenue during the fourth quarter and projected organic growth of at least 4% in 2024 compared to 9.5% in 2023. On Jan. 30, Mondelēz reported that net revenues for the full year grew 14.4%, driven by organic net revenue growth, but called for slower growth this year, predicting a 3% to 5% growth on organic net revenue for 2024.
Over the past three decades, food has ranked third behind housing and transportation in its percentage of household expenditures, about 12 percent. Thanks to a 40 percent increase in the money supply during the pandemic and well into 2023 without a corresponding increase in productivity - $7 trillion in new funding from the Biden Administration and Congress - Bidenflation is everywhere.
So why do packaged food makers shrink some of their packages? First, let’s define the term and where it came from. Let’s consult the Corporate Finance Institute:
In economics, shrinkflation is the practice of reducing the size or quantity of a product while the price of the product remains the same or slightly increases. In some cases, the term may indicate lowering the quality of a product or its ingredients while the price remains the same.
British economist Pippa Malmgren is generally credited for inventing the term in 2009. The phenomenon has become quite common in the food and beverage industry.
US Sen. Bob Casey (D-PA), a centrist-turned-progressive Democrat facing the first tough Senate election of his career, is on the case. He used his platform as chairman of a Children and Families Subcommittee (Health, Education, Pensions, and Labor Committee) to conduct a study. The title:
You see, it’s the food makers’ fault that massive federal spending voted for by Bob Casey sent prices for everything skyrocketing. I find it odd that the senior US Senator for one of the nation’s largest food-producing states is blaming his constituent companies for trying to deal with a problem he helped create. Food manufacturing is a $24 billion industry in Pennsylvania as of 2021, supporting more than 50,000 jobs.
When blaming food companies for shrinkflation, as we say in Oklahoma, that dog won’t hunt.
Food makers are dealing with the same pressures working families face daily and are slightly reducing package sizes by an ounce or two, in most cases, to reduce costs and mitigate price increases. And just for the record, the latest inflation data show that food at home prices rose way less over the past 12 months (through January 2024, “unadjusted”) than food “away from home” (restaurants), 1.2 percent compared to 5.1 percent. Well over half of food dollars are spent away from home.
Food companies can’t always “take price,” as they say. Retailers push back, especially Walmart and big-box discounters like Costco, BJ’s, and Sam’s Club. Grocers also compete with brands that push their “private label” store-brand products. They can’t raise prices willy-nilly any more than you can set your pay or demand pay hikes from your boss. Since most are public companies, they’re also under great pressure from investors to keep their profit margins and market shares. They deal with that like you do - either increase your income, cut costs, or both.
Another factor is the highly competitive nature of the industry. Cereal makers General Mills and Kellogg are intensively competitive and now face competition from less-expensive private label or store brands and a growing legion of small, innovative entrants. The same applies to almost every packaged food category, from soup to nuts.
It’s not an easy world for food makers any more than it is for you.
Politicians like Joe Biden and Bob Casey, both up for reelection in 2024, do not want to take the blame for the inflation they caused. They’re looking for boogeymen to blame, and food companies have become a convenient target.
I’ve had my experiences with shrinkflation; in most cases, I don’t notice it, but sometimes companies go too far. Before I retired a few years ago, my wife and I used to buy a terrific frozen chicken Cordon Bleu product made by Barber Foods, now part of Tyson’s Foods, as the main course for a quick evening meal after a long workday. As the family grocery shopper, I found some on sale a few weeks ago amid a challenging relocation. I noticed quite a reduction in calories per serving, from around 400 to 260. They’ve made their product less caloric, I mused. Upon opening the package, I discovered how they did it, shrinking the product by a third or more. It went from a “center plate” protein serving to a quaint appetizer. They’ve lost me as a customer. I vote with my dollars, too. Not that I need the calories, but you get my point.
Biden and Casey think you’re too stupid to see through their deflection. Prove them wrong this November. You can vote with more than your dollars.
Great explanation based on your decades of professional experience. Well done.