Food manufacturers use packaging tricks to conceal shrunken quantities in an attempt to avoid price hikes.
You may have noticed that the packaged food products you buy at the grocery store have been steadily shrinking over the years. Consumers hold too much debt today to handle paying more for the same quantity, so manufacturers have opted to keep prices consistent, but only provide a fraction of the amount of food in their packages - a practice known as shrinkflation. These tactics are often devious, requiring the most attentive of consumer to notice that the quantity of goods being sold has - in fact - shrunk.
I used the term devious to categorize shrinkflation, because I think most consumers would agree that charging the same amount of money for less product is just that: devious. But is it possible shrinkflation has a beneficial side effect? With less food per package, consumers will absorb fewer calories. By reducing their caloric intake, they will gain less weight.
So could it be that because debt riddled consumers are sensitive to price hikes, the shrinking content in modern food packaging by manufacturers to keep prices low might actually be helping Americans fight the epidemic of obesity?
The Obesity Epidemic
The state of obesity in America is bad, and it is getting worse. Obesity is a state of excess weight so severe that it creates significant risks to the health of the person afflicted with it. The diet chosen by most Americans coupled with an increasingly sedentary lifestyle are contributing factors to the state of obesity in America.
In data from the Centers for Disease Control and Prevention, obesity in the United States currently afflicts 29.6% of the population. Since 2011, the rate of obesity in the United States has grown at an annual rate of 1.56%. Over that same period, the population of the United States has also grown. That double whammy means the actual number of Americans crossing the line into obesity is significantly getting bigger each year. If a 1.56% increase in obesity growth continues until 2050, 50% of the population of the United States will be classified as obese.
Obesity in America is bad today, but it is the forecast of growth in obese Americans that makes this problem an epidemic. To think that 50% of the population will be obese in the relatively near future is scary.
Shrinkflation
Americans are more in debt today than at any point in history. Consequently, food manufacturers are shrinking food content in packaging because consumers are sensitive to price increases. But as sizes have decreased, people have taken notice.
In late 2017, U.S. consumer debt for revolving credit, which is the type of credit most often associated with credit cards, topped $1 trillion for the first time in history. That massive amount of debt outstanding means Americans have less of their disposable income to spend on actual goods, as more of it must be devoted to simply paying down what they already owe. Increasingly, before Americans even earn their wage, it is already spoken for in the form of minimum credit payments.
Manufacturers only have the ability to raise prices when a consumer is reasonably able to pay. But with constraints on American personal cash-flow due to debt obligations, consumers lack the ability to absorb increases to the prices of the goods they need. As a result, food manufacturers often choose to reduce the quantity of the food they provide per package. On an individual basis, manufacturers do not save much money. But when multiplied by millions of units sold, the impact to a food manufacturer's bottom line can be significant.
People are more capable of observing decreases in size than increases when they have access to view the food directly. This is due to the basic reality that content can only decrease to a finite size (i.e. nothing) but increases could theoretically increase infinitely.
But what about when people do not have access to view the food directly - such as when it is hidden within deceptive packaging? In that case, only more discerning consumers will take notice. However, when they do, the consequences for manufacturers can be very high. Through social media, consumers have tools to make their displeasure very widely known. And often their problems resonate with other consumers, which can lead mass action. In 2016, a petition was formed to protest plans food manufacturer Mondelez had to reduce the quantity of chocolate in a Toblerone bar. Despite that protest, however, Mondelez proceed to reduce the size of the product from 400 grams to 360.
Manufacturers are caught between a rock and a hard place with respect to the decision of increasing prices or reducing food quantities. Neither path will appeal to consumers, but with increases in prices in raw materials, manufacturers often have no choice. Given consumer price sensitivity, the lesser of two evils for food manufacturers often winds up being shrinkflation.
Increasing prices on whole foods
Some products are immune to shrinkflation. An egg will always contain the same amount of yolk, so if prices for eggs increase, those costs will be passed onto the consumer. This same reality affects all whole foods, a term which refers to food that is unprocessed and typically plant based. Animal based food that is unprocessed is also immune to shrinkflation, and therefore as prices increase in the cost of beef, they are passed on to the consumer. But as prices increase and impact consumers ability to pay, they are faced with a dilemma: get less whole food per dollar, or use that money to purchase packaged food whose price has not changed. Americans are choosing packaged food, and the impact of that decision has negative dietary consequences.
Over the course of the past year, retail beef prices have increased by 2.8%. Worse still, wholesale beef prices have increased 8.2% over the same period. Because it takes time for wholesale prices to be reflected in retail, consumers who want to purchase unprocessed beef will see the retail price rise significantly during 2018. That price increase will be tough to bear for shoppers on a tight budget.
Price sensitivity toward beef has resulted in a 15% drop in beef consumption over the past 10 years. Over that time, beef prices have increased by a whopping 53%. Although improvements to yield greater efficiencies in beef production could bring costs down in the future, the current state of beef production is clearly showing signs that costs will continue to rise. With the money they save on reducing their beef intake, consumers are turning to less healthy packaged food.
Increasing real food prices mean consumers will eat less of it. The result? A worse diet for obese consumers than they diet they have today.
Summary
Consumer debt will make more Americans choose packaged food products with shrinkflation than pay higher prices for real food goods. The end result will be a worse diet than today, leading to more severe obesity problems down the road. And the impact on debt is no more rosy: the percentage of their budget Americans spend on food won't change, but dollars will be directed away from whole foods to more units of packaged foods that have shrunk due to shrinkflation.
Have you noticed packaged food shrinking at your local grocery store? How has it impacted your buying habits?