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Food sizes experiencing shrinkage

Once upon a time, a jar of Nutella held 750 grams and cost $6.99. Now it holds 725 grams, but still costs $6.99.

This is just one example of a variety of food products that have been decreasing in serving size, but not in cost. Food companies such as Coca-Cola, Nestlé and Kraft would rather shrink the size of their products than increase the price.

“Like other manufacturers, we have been experiencing rising commodity prices over the past few years,” Shannon Denny, a communication representative from Coca-Cola, said. “Given the challenges to costs associated with our frozen concentrate, the decision was made to adjust the package size.”

According to Derek Nighbor, senior vice-president of public and regulatory affairs for Food and Consumer Products of Canada, rising cost of energy and raw materials, a strong Canadian dollar and growing international competition are to blame for the decrease in serving sizes.

“It has become increasingly difficult for companies to balance maintaining costs with meeting consumer needs for innovative products, particularly in the wake of increasing commodity prices,” Nighbor explained.

The cost base is going up for products because import and commodity costs are increasing.

“The question [companies are] asking themselves is, ‘Can we pass the increase onto the consumer?’ Often the answer may be ‘No we can’t pass this onto the consumer, or the consumer will start to purchase less if we pass it onto them.’ They are very careful,” Niraj Dawar, a marketing professor from the Richard Ivey School of Business, said.

Companies would rather decrease the size of a product rather than increase the price because consumers are more aware of the cost of a product than how much they are getting.

“The consumer psychologically has these magical reference points in their mind. A $4.99 price, for example, is a magical reference point because it is less than a five dollar bill. If you go over $4.99, like $5.03, it will be seen as much more expensive than something that is priced at $4.99 [...] the price point is what drives consumer behaviour, so you prefer to cut the quantity than the price,” Dawar explained. “If you break consumers’ habits, they suddenly start to ask all sorts of questions—’is there anything else cheaper available, is there a private label cheaper, can I still stay at the $9.99 price point for the same product, can I get the same benefit from other brands?’ You are re-evaluating that purchase if you go beyond a certain price point.”

According to David Wilkes, senior vice-president of the grocery division for the Retail Council of Canada, the shrinking of food products is not an issue he is aware of, but believes the major issue driving food prices is supply and demand.

“There is certainly pressure on food prices in general. Those pressures come from a variety of sources—the two major ones are supply and demand, [and that] equation for commodities is really out of balance right now,” Wilkins explained. “As demand increases for food in places like China, India and other developing economies, it really is resulting in global increases in the cost of food. Although the members have not been talking to me about declining sizes, we have seen an increase in the cost of food.”

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