10 Signs That Food Inflation Is Alive and Well at Retail

Includes: KHC, MDLZ
by: Lou Basenese

After the recent report from the U.S. Department of Agriculture predicted tight corn supplies, prices spiked almost 5%, in a blink.

Why should you care? Because rising corn prices all but guarantee you’ll be paying more to put food on your table. (Aside from being a summer BBQ favorite, corn is a critical input for livestock producers and food makers.)

And as an analyst from Farm Futures Magazine said Thursday, “We could see double-digit corn prices if a legitimate weather scare makes headlines on Wall Street this summer.”

But don’t mistake this as a warning of food inflation to come. Truth is, it’s already here.

And for consumers, food producers are merely masking the uptick in prices with a concept that Seinfeld’s George Costanza knows all too well: Shrinkage!

You see, food companies don’t need to raise their prices to charge more for a product. All they need to do is camouflage the increases by selling less food for the same amount, often in the same package.

Here are 10 examples to prove that this is exactly what’s happening:

  1. Chicken of the Sea Albacore Tuna: Now comes in a 5-ounce can, instead of a 6-ounce can – a 16% change.
  2. Doritos, Tostitos and Fritos: Although the company swears it’s a “limited time offer,” bags now contain 20% fewer chips than in 2009.
  3. Nabisco Premium Saltines: Kraft (KFT) claims its new “Fresh Stacks” packaging “offers the benefit of added freshness.” It also holds about 15% fewer crackers.
  4. Unwrapped Reese’s Minis: Introduced in February, the cost per ounce is 54% higher than the foil-wrapped Miniatures. And they’re smaller, too.
  5. H.J. Heinz (NYSE: HNZ): Talk about a condiment caper. Not only have prices for ketchup, condiments and sauces risen, the company is also selling smaller, 5-ounce bottles.
  6. Classico Pasta Sauce: While Italian grandmothers will still make their homemade sauce, average Americans won’t have any extra sauce left in which to dunk their bread. Classico went from offering 10-ounce bottles to 8.1 ounces – a 20% reduction.
  7. Edy’s Ice Cream: No more drowning our sorrows in a big ol’ tub of ice cream. Edy’s has reduced its standard size from two liters to 1.5 liters – a 25% change.
  8. Tropicana: As the cost of oranges rose, Tropicana decided we didn’t need as much of our daily allowance of Vitamin C. The standard carton size shrunk to 59 ounces from 64 ounces – a 7.9% change.
  9. Hebrew National Hot Dogs: Pinch an ounce and consumers won’t notice, right? Wrong. The standard package now weighs in at 11 ounces, down from the previous 12 ounces – an 8.3% change.
  10. Kraft American Cheese: Forget making sure you have enough buns for your burgers -- you’ll run out of cheese first. Instead of 24 slices, you now only get 22 slices – an 8.3% reduction.

As John T. Gourville, a marketing professor at Harvard Business School says, “Consumers are generally more sensitive to changes in prices than changes in quantity. And companies try to do it [reduce amounts] in such a way that you don’t notice.”

It’s only natural to expect the shrinkage to continue as corn prices and other commodity costs rise. That is, until it’s so obvious that food companies can’t avoid outright price increases. So don’t be fooled by the clever packaging. Food inflation is alive and well. If you have any doubt, start paying a little more attention at the checkout line.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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