USA: Manufacturers downsize products as consumers reject price hikes
In a bid to maintain the bottom line while the production costs increase, many food manufacturers are indulging in "the weight out" technique. Re-jigged products with reduced weights, slightly smaller packaging sizes but the same price tag are gracing supermarket shelves across the US, while consumers are not informed that their purchases have been downsized.
The weight out boils down to a completely legal, if rather crafty, way to increase earnings on everyday products without upsetting price-conscious consumers who are used to low inflation on food goods.
One 'culprit' is the world's largest maker of snack foods, PepsiCo subsidiary Frito-Lay. While the weight of several snack products has dropped by somewhere between 6.7% and 7.5%, spokesperson Lynn Markely admits that "in our business there are certain magical price points: 99 cents, US$1.29, US$2.99." Price tags on Frito-Lay's chips have indeed risen less than 1% a year recently, ensuring consumer loyalty to the brand.
But is it fair?
"It's the most sensible way to deal with the increased cost of production," argues Gene Grabowski, spokesman from the Grocery Manufacturers of America. Manufacturers must cover increased production costs but "consumers have repeatedly shown that they are more accepting of slightly smaller amounts in the package than an increase in prices."
So have customers and retailers brought this upon themselves? If consumers will not pay higher prices, and supermarket giants continue to noisily oppose price hikes, then there must be another way for companies to balance the bottom line. Emanuel Goldman, food and beverage analyst from ING Barings commented: "We haven't encountered an environment like this in a long time. There's more resistance to raising prices than in the past, so you're going to get a lot more of these weight outs."
Prudential analyst John McMillin added: "The key is to do it without the average consumer ever noticing. Some consumers will be able to tell, but you'd be hurt a lot more if you changed the price. Then every consumer would notice."
Keeping faith with consumers
Consumers groups are up in arms against the weight out practise, however. Subtly reducing contents size is deceptive, they argue, especially in snack products that do not have the predictable standard size of, for example a quart of milk. But then, by law, content size is always stated clearly on the packaging and it seems it is up to the consumer to continually check products and make sure they are getting value for money.
Food producers like other manufacturers have to watch their bottom line, however food policy director at the Consumer Federation of America, Carol Tucker Foreman, strongly believes that "If you want to keep faith with the customers, be honest with them."
PepsiCo yesterday (2 January) announced the acquisition of Star Foods, one of Poland's leading savoury snack producers....
Consumer goods giant Sara Lee Corporation has announced today that it has reached agreement on the principal terms and conditions for the sale of its European nuts and snacks business in the Netherlan...
Snacks and soft drinks giant PepsiCo has announced its agreement, pending government approval, to purchase Stacy's Pita Chip Company, the top-selling maker of pita chips with sales approaching $60m th...
US snacks giant Frito-Lay, part of PepsiCo, has announced that it is to cut between 200 and 250 jobs as part of a move to streamline its organisation....
Frito-Lay India, the Indian snacks division of US giant PepsiCo, is set to launch several Quaker breakfast cereal brands onto the Indian market by the end of the year....
US snacks and soft drinks giant PepsiCo has reported lower third-quarter profit, due to a tax charge related to international profit repatriation....
Food and drink company Pepsico is to close its Walkers snack factory in Swansea, in South Wales, with the loss of 250 jobs, reports the BBC....
Hershey is to acquire the luxury chocolatier Scharffen Berger. In line with the quality-seeking trend in the consumer space, it is increasingly important that manufacturers target the premium market. ...
- Danone's Q1: four things to learn
- Interview: Sir Kensington's on sale to Unilever
- Column: Why snacking is the new meal
- Interview: "Disruptive" snack brand Hippeas
- Nestle Q1 update: four things to learn
- Tyson shops Sara Lee bakery, Kettle and Van's
- Nestle to cut UK confectionery jobs
- Icelandic to sell Saucy Fish Co. owner Seachill
- Tyson to buy burger-to-entree firm AdvancePierre
- TreeHouse Foods sells soup, baby food units