Why Are Consumers Paying The Same For Smaller Portions?
Did you think you were getting more of an appetite the last couple of years? Although McDonald's did away with its "super-size" menu, have you felt like you've had a super-sized appetite? Maybe you're pregnant or have a tape worm, but more than likely your appetite isn't getting larger. The portion sizes of the food that you buy both at restaurants and at the grocery store are getting smaller. If that sounds a lot like the age-old excuse, "my pants are getting smaller," take heart. This isn't one of those conspiracy theories, we have proof.
TUTORIAL: Economic Indicators: Producer Price Index (PPI)
Producer Price Index
If you aren't a hardcore economics junkie, there's a better than average chance that you've never heard of the Producer Price Index (PPI). The PPI is a measure of how much more or less a manufacturer is paying to produce the products that are later sold to you, the consumer. In August 2011, the PPI was unchanged and in the month prior, July, the index was up 0.2%. This means that on average, General Mills, the maker of your Cheerios, paid 0.2% more in July to manufacture the product and get it on to the shelves at your local grocery store. (For related reading, see Economic Indicators For the Do-It-Yourself Investor.)
General Mills isn't too concerned about a 0.2% increase, but what it is concerned about is the 6.5% increase since August of 2010 and the even larger increase in the 12 months prior to that. General Mills can't absorb increases of that amount so it has to pass the cost on to you, the consumer.
General Mills is well aware that sitting next to its box of Cheerios is a similar yellow box that sells for less than the real thing. Joe's O's may not have the catchy commercials or the great taste of Cheerios, but they cost less and General Mills knows that when the economy causes families to think more about saving money, Joe's O's start to look a lot more tasty.
How is that PPI increase passed on to you? You get less product for the same price. Maybe General Mills fills your Cheerios box with one ounce less. Of course, they aren't going to advertise that because they know that most consumers won't even notice.
Who Else Is Doing It?
Get ready to write some letters if you're a lover of Reese's Peanut Butter Cups. The size of a two pack is being reduced by one ounce. If that upsets you, you may be happy to know that a one ounce decrease means that you will save 78 calories when you succumb to one of those late night chocolate cravings. If that doesn't make you feel better, let's be fair and see it from Hershey's' side. Due to hot and dry conditions in peanut growing areas like Georgia and Texas, the U.S. Department of Agriculture is estimating that the 2011 peanut crop could be as much as 13% smaller than one year ago. This may drive the cost of peanut butter up as much as 30% by November of 2011.
Hershey's is hoping that you don't even notice the one ounce decrease. If you do, Hershey's might say that it's doing it to help you save more than 4,000 calories a year if you indulge in that peanut butter goodness an average of once per week.
Who else? According to the New York Times, whole wheat pasta is down to 13.25 ounces from the original 16 ounces, canned vegetables went from 16 ounces to as low as 13 ounces and even baby wipes are putting a little less strain on the shelves by shaving eight ounces from each package.
What Do Companies Have to Say?
Just as any company with a well-paid public relations team would say: there's a perfectly good explanation for this. Take Kraft, for example. Another New York Times report asked about Kraft's "Fresh Stacks" line of products that package smaller amounts of Saltines and other crackers, but more packages in the box don't measure up to the same amount of crackers. In fact, there are 15% less crackers in a box for the same price as traditional boxes. When a representative from Kraft was asked about it, Kraft said that the price was to make up for the extra packaging.
Other companies are using the health conscious craze of the 21st century as well as the "less packaging is better for the environment" line to explain their actions.
The Bottom Line
It would be easy to villainize companies for finding ways to cut costs without telling you about it, but let's be easy on them. When their prices rise, they have to find ways to get that money back.
Companies have to get the ingredients to the factories, ship the finished product to grocery stores all over the country and pay employees. Want to save money? Head to a local farmers market or cook more from scratch. Still, though, it would be nice if the economy would allow us to have our cake and eat it too, wouldn't it? (For related reading, see What You Should Know About Inflation.)