Package size changes mask product price increases
Daily News Article — Posted on October 16, 2012
(by Mary Kay Linge, NY Post) – More companies are downsizing their packages – but many consumers don’t realize [it is happening] because price and size changes are carefully camouflaged.
“We get a ton of examples of these from readers,” said Chris Morran of the Consumerist Web site. “You pay the same price but you get less product.”
Not even supermarket standards like the 5-pound bag of sugar are safe from shrinkage. The new normal: 4 pounds of the sweet stuff per bag.
Ivory Soap bars have slimmed down – going down from 4.5 to 4 ounces.
Toilet paper, once sold in standard 4.5-inch-square sheets, now may be so narrow that it slides out of your wall holder.
And you can’t buy a pound of Oreos anymore – they’re now just 15.5 ounces to a package.
“Companies do a lot of research to find out what’s more palatable to consumers,” said food-industry analyst Phil Lempert.
“They’re always trying to figure out the balance – raise prices or decrease sizes. When commodities prices rise, somewhere somebody’s got to pay for it.”
Large-scale studies confirm that consumers are extra-sensitive to price changes, leading more manufacturers to maintain steady prices — while miniaturizing products.
Some companies try to bluff their way past shoppers’ rip-off radar.
Mueller’s 25 percent downsize of its spaghetti packages, from a pound to 12 ounces, features a box design that flags its “NEW – 6 servings” quantity. Of course, that’s two fewer servings than the old box contained.
Those classic stacks of Premium saltine crackers proved too easy to count when Nabisco tried marketing smaller packages, and consumers protested.
So the company rolled out a line of round saltines, packed loose in a bag.
Both square and round versions sell for the same price – but the “new and improved” crackers come in much smaller packages, boosting the unit price that shoppers pay. And some local markets offer only the more expensive option.
Consumer advocates like Morran recommend checking the unit price, not the price on the package, so that you know what you’re paying for each ounce or pound of a product.
“I just wish companies would be honest about this,” he said. “What really irritates people is that the sizes almost never go back up.”
Reprinted here for educational purposes only. May not be reproduced on other websites without permission from The New York Post.
Background
Commodities are objects that come out of the earth such as orange juice, wheat, cattle, gold and oil. [products of agriculture or mining]. People buy and sell commodities based on speculation. For instance, if you thought hurricanes over Latin America were going to destroy much of the coffee crop, you would call your commodity broker and have them purchase as much coffee as possible. If you were correct, the price of coffee would be driven up drastically because the crop had been destroyed by weather, making the surviving harvest worth more.
Almost all commodity speculators trade on margin which results in substantial risk to the invested principal. The odds are heavily against anyone hoping to build permanent wealth in the commodity markets. (from about.com)
From a March 2012 Forbes article "Why are food prices so high?":
Historically, food was a local issue as supply chains were short. Food supply and demand were largely functions of local crop conditions impacted by weather, growing conditions, pests, etc. Over the past century, supply chains and preservation have improved so that the food trade has become international. Commodities, crops, and finished goods are traded globally. This trade has stabilized prices when local weather or growing conditions are impacted. But rising populations, largely in Asia, have created demand for crops and finished good from other parts of the world, and have impacted prices.
... one could conclude that rising food prices have been caused by falling supply or increased demand. This is true, but there is a lot going on behind the scenes causing this.
What’s going on?
1) China and India have the largest and fastest growing populations creating demand for food from around the world. So one impact on prices has been rising demand from these countries, especially China.
2) The Japanese tsunami and earthquake last year drove up seafood prices by nearly 6%.
3) Vegetable prices rose 50% in the past month. Crop damage in Australia, Russia, and South America are to blame.
4) Government subsidized and mandated ethanol use has increased the demand for corn and reduced acreage dedicated to food thereby pushing food prices up. A Congressional Budget Office report concluded that the increased use of ethanol accounts for 10-15% of the increase in food prices.
5) Changes in government subsidies for crops other than corn for ethanol impact food prices.
6) Regulations restricting use of herbicides, pesticides, fertilizers, etc., while positive on some fronts, may result in poorer crop yields.
7) Increased oil prices drive up costs for transportation, fertilizer, plastic packaging and inks used to print packaging.
8) In some areas of the U.S., the government is paying farmers not to plant to save water. This reduces food supply.
9) Drier and hotter weather trends in farming areas generally reduce crop yield and drive prices higher.
10) Import tariffs and export taxes distort supply and demand, and hence food prices around the world.