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Pasta, sugar and paper towels are arriving on store shelves in smaller packages. As the price of raw materials increases, producers are saving money by shrinking sizes. Passing higher commodity costs on to consumers and other marketing trends.
- Rebecca Hamilton associate professor of marketing at the Robert H. Smith School of Business, University of Maryland
- Ben Popken managing editor of consumerist.com
- Catherine Rampell economics reporter, New York Times
- Bob Young chief economist at the American Farm Bureau Federation
- Scott Faber vice president, the Grocery Manufacturers Association
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Five years ago, a grocery shopper might have picked up a 16-ounce can of corn. In the last few years, those cans dropped to 14.5 ounces, and the size is still dropping. It's all tied to record-high prices for food and raw materials. Today, we look at how those rising costs are transferred and marketed to consumers through smaller packages. Joining me in the studio, Bob Young of the American Farm Bureau, Rebecca Hamilton, she is a marketing professor at the University of Maryland, and Scott Faber of the Grocery Manufacturers Association. Joining us from a studio in New York is New York Times economics reporter Catherine Rampell.
MS. DIANE REHMThroughout the hour, we'll look forward to hearing your calls, your comments. Join us on 800-433-8850. Send us your email to email@example.com. Feel free to join us on Facebook or Twitter. Good morning to all of you.
MR. BOB YOUNGGood morning, Diane.
MR. SCOTT FABERGood morning.
MS. CATHERINE RAMPELLGood morning.
PROF. REBECCA HAMILTONGood morning.
REHMCatherine Rampell, if I could start with you, are -- let me put it in another way -- how much smaller are food packages, like bags of potato chips or cans of tuna? How much smaller are they now than, say, they were five years ago?
RAMPELLIt really depends on the specific product, but you're seeing product downsizing, package downsizing across the board. In some cases, it might be trimming off a few ounces. In some cases, it might be coming up with an altogether new size that's, you know, about half the package than it was before so that consumers can't actually compare pricing from the old package to the new package. But, usually, it's pretty subtle. It might be, for example, with a peanut butter jar, that there's a little dimple in the bottom of the jar so that there's a little bit less content that can go in there. But it's something that a consumer wouldn't notice just from seeing the jar on the shelf.
REHMWhat about Tropicana? That was kind of a big jump down.
RAMPELLRight. It went down from 64 ounces to 59 ounces. That was a couple of years ago. And I think it took a little while as it usually does for consumers to respond. But once they started noticing, they were not particularly happy. And I don't think it brought very much good PR to the company itself.
RAMPELLBut the company says, yeah, you know, orange prices are rising. What can we do?
REHMSo how many companies do you see engaging in this smaller packaging, whatever the product?
RAMPELLIt's very hard to quantify, unfortunately. But when my colleague Stephanie Clifford and I wrote this story yesterday in the Times, we found that it was true in basically every aisle of the grocery store. You're looking at, as you said, orange juice, chips, ice cream, diapers, toilet paper -- that's one that everybody loves to complain about -- so it's really across the board. It's actually so extensive that there's one ice cream company, Blue Bell, whose chief marketing shtick is that it doesn't use smaller containers than it used to.
REHMCatherine Rampell, she is economics reporter for The New York Times. Turning to you, Scott Faber. Why are manufacturers creating these smaller packages?
FABERPart of the challenge for especially food manufacturers right now is an extraordinary convergence of high, very high -- record high in some cases -- prices for basic food ingredients -- corn, soy beans, wheat, sugar. All of the things that we combine to produce food are reaching are at -- or near record levels. And so we are, obviously, very reluctant to pass those higher costs of producing food along to consumers, especially right now when the economy is struggling. But at some point, those costs will be passed on.
FABERAnd there's only two ways that you can do that. You can either increase the price, or you can reduce the size of the product. And which direction a particular food maker will take depends in large measure on the particular product. But at some level, the math has to work. If the price of corn, the price of soy beans, the price of wheat, the price of these basic food ingredients continues to rise and rise and rise, those costs are going to show up at some point in the grocery shelf.
REHMBut aren't you already passing on those higher costs to consumers by virtue of not lowering the price as you shrink the package?
FABERWell, it's really -- it's a choice of one or the other, isn't it? Either you increase the price -- and you've seen in the last year really significant increases already in the price of meat and poultry, dairy products, and we'll, unfortunately, see even higher prices in 2011 -- or you'll see food makers shrink the product. I think what you'll find is that we should be giving consumers more credit than we sometimes do. Consumers are certainly very aware. You'll hear from some of them on your show today.
REHMI'm sure I will.
FABERThey are -- we have...
REHMI'm sure I will.
FABER...a lot of label readers. They certainly are aware of what the price is and what they're getting for what they're paying. And so, I think, consumers are just as frustrated as we are about the extraordinarily high prices that we're facing with when it comes to these basic food ingredients.
REHMAnd Scott Faber is vice president of the Grocery Manufacturers Association. Bob Young, the idea is, of course, the consumers won't notice, but, surely, they're noticing.
YOUNGWell, again, understand that the farmers aren't in charge of dictating the size of the package. That's a decision that other folks make. We have seen a tremendous increase in energy costs that, I think, we're all very familiar with. And I would just point out that, you know, if you go back four or five years ago when we were talking about $40 a barrel of oil, there's a little over 300,000 BTUs in a bushel of corn. And at $40 a barrel of oil, the energy value of that corn -- just put a match to it and burn it -- is worth about $2.50 a bushel. At $100 a barrel of oil -- just put a match to it, just burn it -- the energy value of that corn is worth about $6.50 a bushel. And understand that, as those values change, everything within the chain has to adjust into that different value.
YOUNGAnd I think what we're seeing is part of that. I'd also say that, you know, we've gone a long time where demand has grown very strong at a very rapid rate, and you've not had the opportunity to see the supply side catch up yet. I think we're getting there, but, again, it's going to take a little while, I think, before that does happen.
REHMBob Young, he is chief economist at the American Farm Bureau Federation. And turning to you, Rebecca Hamilton, wouldn't it be a lot more honest to simply keep the packages at the same level and raise the prices?
HAMILTONYes, Diane. And we see consumers acting as economists, that they understand when farms have to raise prices, and they see that as fair as long as the farms' prices are increasing as well their costs. But where they perceive unfairness is when farms raise prices opportunistically -- selling snow shovels for higher prices during a snow storm or raising prices when their costs haven't, in fact, increased. In this case, I think they can understand the need to either raise prices or perhaps reduce the size of packages. Thus far, we've been talking just about consumers' reactions at the grocery store.
HAMILTONI think it's also important to think about how they're going to react when they bring that package home and how they're going to make a decision the next time they go to the grocery store, so the repurchase decision. There's some careful research that shows that when package sizes are reduced, consumers actually use less of a product. The volume that they consume decreases, and this is related to their inferences about the per unit cost of the product that they're using. So when they're pouring Crisco oil from a smaller container, they will pour less than when they're pouring it from a larger container.
REHMSo could that mean, for example, that instead of consuming a large bag of potato chips, they're going to think twice about that the next time they go to the store because they've seen that large bag of potato chips now half-filled as opposed to filled?
HAMILTONYes, yes. So, you know, if brand managers are thinking about whether to reduce the size of their packs, increase their prices, consumers are going to take that into consideration when they buy in the future. If, for example, they may be fooled one time at the grocery store with this less-filled bag of chips but then, going back to the grocery store the next time, if they've had a chance to realize that the per unit cost is higher, yeah, certainly, they'll be more likely to look around at the other brands.
REHMRebecca Hamilton, she is professor of marketing at the School of Business at the University of Maryland. Scott Faber, are you worried about that?
FABERYou know, the -- worried about the fact that people are consuming less as a result of changes in package size or worried about...
REHMNo. Well, worried that what you're doing is turning consumers off.
FABERWell, you know, I think companies are very careful to try to maintain the loyalty of their consumers. And that's why they wait a very long time and -- before passing any of these really extreme costs along to consumers. So in 2010, even though we were seeing higher commodity prices, you and all the other consumers listening at home saw the lowest level of food inflation in 37 years. So we really waited until now to begin to pass some of these very high costs of food ingredients along, in part, because we are very worried about them.
REHMBut aren't you passing them on deceptively?
FABERYou know, consumers are reading labels like they had before. They're asking for more information, clear information. We'll be putting more of that on the front of our packages. But consumers, by and large, know what they're getting.
REHMScott Faber of the Grocery Manufacturers Association. When we come back, we'll talk further to Catherine Rampell and to Ben Popken of consumerist.com.
REHMWe're going to open the phones to take your calls in just a few moments. But, first, joining us now is Ben Popken. He's managing editor of consumerist.com. Good morning, Ben.
MR. BEN POPKENHi, Diane. Thanks for having me.
REHMSure. I gather the website, consumerist.com, follows what you are calling the grocery shrink rate. Tell us about that.
POPKENRight. The grocery shrink ray, like a ray gun in a science fiction movie, is this horror, which is stocking up the aisles of our local supermarkets, shooting at our favorite products, shrinking their sizes while keeping the price the same. It's a term that we coin to cover this trend. And I'm going to have to disagree with your other guest, Scott Faber. I don't think that people know what they're getting. I believe it's a secret inflation, and they're passing on their cost in the least disruptive way possible to get away with it.
REHMYou're calling the process sneaky...
REHM...because you feel it hurts consumers, and they don't fully understand?
POPKENAbsolutely. It's taking a bite out of people's paychecks, out of their pocket books. And in a time when we're pinching pennies and, you know, darning our socks and trying to stretch our dollars, we really don't need any more stress when we're just trying to put together dinner for our family. If people knew what they were getting, the stories that we received from our readers when they noticed it would start, so I was reading the label, and I noticed that the tiny print was -- said that there was six, you know, six fewer ounces than last time.
POPKENThat's not how our reader's story starts. They start with, so I went to the supermarket, and when I, you know, put the new product in my refrigerator next to the old one, and I noticed that their size is different. I noticed in my cupboard, that, actually, the box of cereal has the same height and width, but a smaller depth. And that's when I noticed that there's actually less product inside. And they feel tricked. They feel like the rug has been pulled out from under them.
RAMPELLWell, I was going to say that, obviously, this is less noticeable to consumers in that when you think about it, you know, as one of the other guests mentioned, producers have the option of either raising their price on their existing packages or shrinking the size of their packages and keeping the price the same. And it would be much cheaper for the producer to just raise the price, you know, to tell grocery stores to change the price on the aisle, on the shelf. It's expensive for them to manufacture all of these new packages and, in some cases, just toss out the old packages so that consumers can't make that side-by-side comparison.
REHMWhat about this...
RAMPELLSo, clearly, that means that they think that the smaller package is inducing more consumers to buy it because they don't notice the higher price.
REHMScott Faber, are you on the wrong track?
FABERYou know, the simplest way to think about this is that because prices of the things we make are getting more costly, because it's getting more and more costly for us to make food...
REHMI don't think anybody is disagreeing on that point.
FABER...in part because of the extraordinary demand around the globe...
FABER...people -- more and more people are eating like you and I eat, Diane. Because of that, we've got to find ways to manage those costs. And, unfortunately, you're seeing both. You're seeing some food makers having no choice but to slightly shrink the amount in the package. And if you're in the meat aisle or the dairy aisle or in the egg case, you're seeing higher prices there as well. So it's -- you know, at a time when food ingredients are at or near record levels, unfortunately, inevitably, you're going to see both of these challenges. I think that the big challenge for many consumers is simply, how do you feed your family?
FABERThere are 44 million Americans right now who are on food stamps, and I think they would consider just having enough nutrition a bigger challenge than doing some basic math in the grocery aisle.
REHMRebecca Hamilton, what about the cost to manufacturers of creating these smaller packages, different kinds of print on the outside of the package, et cetera?
HAMILTONAbsolutely. That's a high cost to the manufacturers, and, in some cases, it's motivated by things the consumers want. Consumers often want portion control, so some of these smaller packages like Nabisco's 100-calorie snack packages are very attractive to consumers. Even though the packages are higher in per unit cost, they like the fact that they can feel comfortable opening one package and not overeat, not overdo it. Other factors that they might consider valuable rather than tricky are things like sustainability.
HAMILTONIf a detergent manufacturer decides to put their detergent in a smaller package and make it more concentrated and -- you know, that might actually result in easier to pour container for consumers, as well as more sustainability because there's less water added, less transportation cost. So consumers might feel very positively about that kind of a change. On the other hand, they might end up using more of that detergent because they are used to using a cup and pouring it into the wash. And so there might be some consumer habits that need to change along with it.
FABERCan I just add to that point? There's a lot -- you and a lot of your listeners are -- and a lot of our customers or retailers are asking us to shrink our packaging to improve the sustainability footprint of our businesses. And as a result of that, we've avoided 1.5 billion tons of packaging just in the last five years. So some -- certainly not all -- but some of the changes that you're seeing in packaging are designed to help the environment as well.
REHMBen Popken, what do you make of that?
POPKENWell, I mean, that's great, but that's definitely not the primary consideration. The primary consideration is passing on cost. And I think that, you know, everyone knows that times are tougher, and commodities' prices are rising. There's probably about, you know, a 10 percent bubble in commodities' prices over fundamentals right now. And we know everyone is having difficulty -- consumers, manufacturers. That's not what's in disagreement. Consumers just want manufacturers to be upfront and aboveboard about it to pass it on in the form of prices and not in the form of deceptive packaging.
POPKENBecause if it was just about, well, we're going to bundle this smaller portion with improved package, then why do they also come out with things like the -- when Tropicana reduced the amount of orange juice, the new package was actually new and curvier and seemed to be borrowing from the auto industry in all these lines. They also did this with Dawn -- with soap. These lines are meant to disguise and trick the eye so that you don't notice that there's been this change in the packaging size.
POPKENAnd when people do find out about it, they get upset, and, obviously, that's going to hurt your brand loyalty and -- but, obviously, the calculation has been made already that the amount of people, amount of consumers who are going to notice the change is smaller than those who are going to accept the cost. So that's why they do it, but that's why we try to publicize it and talk about it on our website.
REHMAll right. And, Catherine Rampell, are they noticing? And what are they saying?
RAMPELLWell, I think, in many cases, consumers don't notice. I mean, that's generally the plot, right? That's why these companies are changing the size of their packages because they want to keep the same price point because certain price points are just sort of what consumers are used to. You know, it goes back to the 5-cent candy bar. If you change that candy bar to cost 6 cents because the cost of cocoa was going up, people would complain, whereas, if you shave a little bit off the end, they probably wouldn't notice. They'd be comfortable staying at that exact same price, even if they're getting a little bit less.
RAMPELLSo, in many cases, consumers don't notice. That's the whole point. But then when they get to the bottom of the cereal box or they cook all of the pasta that they bought and then find out that it's not enough for a second helping for their family, when it was last time, that's when they get a little bit peeved.
REHMNow, Ben Popken, what do you think consumers should be doing?
POPKENWell, we always tell people to compare unit cost. So, on the price tag, it shows you what, actually, the price per volume is. And when you're shopping and going along the shelves, don't just buy the same old brand just 'cause you're used to it. You know, be willing to brand-jump and buy based on value. You know, maybe even go for the store brand. Sometimes those products are very similar to what the name brand is, maybe even made in the same factory. At the same time, you can also -- if, you know, you're a Corn Pops guy, you really gotta have your pops, you -- in that transitional period, when they go from the one size to the other, you know, kind of look around on the shelves and maybe you can find one of the older sizes still on the shelf where you can at least, for that week, get a better value.
REHMAll right. Here's a great question on email from Deb who says, "This causes a problem that hasn't yet been discussed. It messes up recipes."
POPKENOh, yes. That is a problem.
REHM"Recipes call for a certain amount of an item, usually based on a can or package size. Just one of numerous examples is canned tuna. Almost all recipes call for seven ounces of canned tuna. Now, they're all five ounces. Yes, you can use one-and-a-half cans. But it's more expensive buying two cans as opposed to paying more for a little larger size. One of the most egregious downgrading of package size is ice cream. What used to be a half gallon is now getting perilously close to a quart." What do you think, Rebecca?
HAMILTONI think that's very true. And, again, the usage of the consumer makes a big difference. So for ice cream, you can say, well, maybe a smaller size is okay because I want to control my portions. I want to control my intake. It's okay with me if I get less ice cream or less of some other good that I'm going to eat by itself. But a recipe, I think that causes a lot of disruption to consumer routines and habits. And, certainly, that extra half can of tuna is annoying to consumers, yes.
REHMIt costs more, Scott Faber.
FABERWell -- and there's nothing sacred about the sizes of cans or packages or boxes that you might have used in the last few years. You know, when you think back to when we were younger and we would go to the grocery store, there might have been 6,000 or 7,000 different choices. Today, in an average grocery store, there are 40,000 or more different choices. And so it's just -- it's -- the story is always the same. Our culture is constantly on the move. How people shop is constantly changing.
FABERAnd our packaging is changing, too. A lot of it is being driven, as we have heard, to give people more control over portion size. There's been a huge revolution in the last decade in packaging to help people make -- manage their diets and make healthier choices. And so some of that is what's driving these changes as well.
REHMWhat do you think, Bob Young?
YOUNGClearly, and I don't think we'd make any bones about this that, you know, yes, we have seen a noticeable increase in prices at the commodity level, across all commodities. I don't care if it's copper or steel or corn or cotton. And I think, you know, clearly, the system needs to -- has to -- will adjust to those higher costs. I think the question becomes how you do that. Portion size, you know -- I'd also say that it hasn't been that long ago, and I don't know that I necessarily want to defend Scott.
YOUNGBut it hasn't been that long ago that, you know, we were on very similar programs talking about, you know, that we are providing too much food to Americans for too low a price, and that's where all the obesity is coming from. And we need to do something to take control of this. So, you know, it does seem to me that it's almost a damned if you do, damned if you don't situation for these folks.
REHMAnd you're listening to "The Diane Rehm Show." We've got lots of callers waiting. Again, we are not debating the fact that price has had to go up. What we are talking about is what some might consider the deceptive practice of downsizing packaging and...
RAMPELLWell -- and I would also argue that if you're talking about ice cream or other more indulgent type goods -- chips, you know -- then there might be consumers who want to have the packaging help them exert some self control. But we're not just talking about those types of goods. We're also talking about diapers, about toilet paper, about tissues, about lots of other goods that consumers buy that, you know, they don't have as much flexibility to exert self control...
RAMPELL...on how many diapers their baby needs.
REHMAll right. Let's open the phones to Palmetto, Fla. Good morning, Maury. (sp?)
MAURYYes. Good morning, Diane. I just don't know where to begin. The situation, I think, is so serious. But manufacturers are reducing the size of the packaging and the product and, in many cases, increasing the price. I don't see the price of the salaries of the corporate executives being reduced. I also don't see the dividends on the stock being reduced. A lot of this just comes from greed, I believe. I like -- if I could mention one product in particular. Could I give a brand name?
MAURYBumblebee tuna fish. I can remember, as a child, helping my mother open up cans of Bumblebee tuna fish in New England, and she would always buy solid white albacore. And when you open the can, which was, I believe at that time possibly seven ounces, it was solid. There was very little water or oil in there, and it was a solid. Today, they've come out a few years ago with a new brand of tuna fish. Now, my question is, has the tuna in the ocean changed in the last thousand years? I don't think so.
FABERWell, it goes back to something that Bob said, which is that a lot of the costs of making food is not tied up necessarily in the cost of raising the crop or catching the fish. All of the costs that affect every manufacturer -- whether they're health care costs, energy costs, all of the costs that we're wrestling with because of this extraordinary shortage of basic crops -- as well as extraordinary demand for the same products in places like China and India --are contributing to really extreme volatility in the price of these basic goods.
FABERAnd so I think the challenge here is how do we have a sort of an all-of-the-above strategy for food production in the same way that people talk about energy production? How do we make sure that we are going to be able to feed nine billion people in 2050, many of whom -- billions of whom will be enjoying the same sorts of lifestyle that you and I enjoy, Diane? That's -- that is -- you know, this problem could go significantly worse if we don't get serious about investing in agriculture and energy development.
REHMAt the same time, Maury raised the question of the salaries of top executives. They don't seem to have come in smaller packages.
FABERWell, I'll tell you, none of these executives will be able to keep their jobs very long if they are not trying to find ways to absorb these costs, and that's what they're trying to do every day.
REHMAll right. And we'll take a short break here. Scott Faber is vice president of the Grocery Manufacturers Association. More of your calls, comments. I look forward to hearing from you.
REHMLet's go right back to the phones to Bedford, Ohio. Good morning, Marley. You're on the air.
MARLEYGood morning, Diane. You know, the comment I wanted to make is everybody -- food manufacturers, politicians -- they all treat us, the public, as we're stupid, you know? Food prices go up, fine. Be honest about it. We know -- we're living this life. We know prices go up. You know, they're using deceptive message to get one over on us. And even here on the show, the presenter can't be honest that this is advertisement. This is a method that works, and that's why it's used.
MARLEYIt has nothing to do with helping customers who are using healthier ways of eating, people want to eat smaller portions. That is disingenuous. That has nothing to do with us, the public. It has to do with the food manufacturers waiting to pull one over on us, and it's ridiculous. Everybody treats us like we're stupid.
FABERWell, Marley, I can't imagine that we could ever pull one over on you. It sounds like you're a pretty educated consumer. And I think what we found -- and we listen to consumers every day -- is that people are able to use the information at the point of sale. It's on the packages to make choices for themselves. Not everybody wants to simply see that cost passed on -- the cost of higher corn prices or wheat prices passed on in the form of a higher price. But at the end of the day...
REHMBut you are passing it on. You are passing it on.
FABERWell, in some ways, you know, the bottom line for any business, when the cost of your commodities goes up, whether it's energy or labor or, in our case, food ingredients, is that you've got to find a way to absorb those costs as long as you possibly can.
REHMCatherine Rampell, what do you think about consumer wisdom?
RAMPELLConsumer wisdom. Well, as I said before, I do think that the whole point of this is that consumers won't notice or at least they won't notice when they first buy the package, but they might later on when they run out sooner of their cereal than they thought they might otherwise, you know, when they had previously bought the good. But I think that, to be fair to these different grocery manufacturers, you have to consider the fact that most consumers aren't going to look at per unit prices.
RAMPELLAnd if your competitors are shrinking this -- their product size and you're not, and you're just passing on the price -- the higher commodity prices that you're getting in the form of higher headline costs with the same package, then consumers may not notice that they're getting a better deal for your product than your competitor's product because they're just looking at the headline price. They're not looking at the per unit price.
RAMPELLSo, you know, I think that in some ways we can criticize these companies for doing this, but they have to be mindful of what the other products on the shelf look like. And if they assume that consumers don't notice that there would -- they would be getting a better deal per ounce for their jar of peanut butter versus, you know, the competitor's jar of peanut butter then, yeah, they're going to have to shrink the size of their container as well so that they can come at that same price point and consumers will buy their product instead.
HAMILTONI think astute brand managers should think of this as a long-term relationship between consumer and the manufacturer, where they're not just thinking about putting one over on the consumer the first time they buy this packaged good at the grocery store, but also how they're going to consume the product, which may be affected by the size of the container it comes in and whether they're going to repurchase. So consumers have much more time to interact with a product when it's in their own home, when they're using it, and that's when they may notice this change in size of the package and...
REHMWell, here is a person who notices little sooner than that. Robert in St. Louis, Mo., says, "When I -- what I noticed regarding deceptive product pricing is when a store has a large new lower price sign for a product. If the consumer looks very closely, they know the package is smaller. In the end, the price per weight unit, per ounce, per gram is actually higher. I noticed this on several products, but first on my favorite brand of ice cream -- package went down from one gallon to .75 gallon. The object of the stores is to make it appear the price is lower, but the price has actually increased." Ben Popken, you must be hearing lots from those folks.
POPKENYeah, definitely. People notice that, and they get ticked off. And what we're talking about is not simply just the size of the product and the price. We're also talking about what's inside the product and how much good products you're getting. This has been a big problem with ice cream, like your reader mentioned. In addition to the packages getting smaller, it's also of lower quality. There is an ongoing battle between the ice cream makers to see who can pump in more air, more filler, give you less milk and less quality ice cream for that bigger price.
POPKENSo, definitely, you know, people are not happy about the fact of, you know, getting ice cream that doesn't taste as good anymore. And, you know, I think the whole idea that somehow manufacturers are helping us make healthier decisions by downsizing the products, you know, we -- our readers, really, they don't want to hear that. They're not really interested. They want to be able to make their own decisions. We don't need manufacturers to be hurting our pocket books and pocketing the difference for themselves.
REHMCatherine Rampell, are they noticing more air in ice cream?
RAMPELLNobody I've spoken with for this story or others has specifically mentioned that or at least I don't know that they would take a look at the list of ingredients and really be able to compare or remember what it was in the past. I do think that consumers notice almost immediately when the quality changes. And, for that reason, many manufacturers, if they're going to have to figure out a way to increase their profit margins, are not going to skimp on quality. Rather, they're going to figure out a way to shrink the package and raise the price that way as opposed to, you know, reducing the cost (unintelligible) themselves.
REHMAll right. To Staten Island, N.Y. Good morning, Scott.
SCOTTGood morning, Diane. Thank you for having me.
SCOTTMy experience, and from what I'm hearing over and over this morning, is deception in packaging. My experience came in Costco Wholesale, a nationwide chain, where I bought a large box of Post Raisin Bran, brought it home, poured myself a bowl and found out it had nothing to do with the product that I had been buying for years and years. I wrote an email to Post, and they informed me that this was a product that Costco had a recipe that they had come up with and that Post was making for them, yet they were using the same packaging and labeling on the brand. And so it was clearly deceptive. I wonder how many of the products that are in Costco are going through the same type of pattern, in other words, making it just to save money.
POPKENWell, that's a new one, and I definitely would want for us to check more into that. But, yeah, I mean, I kind of have to wonder if Scott and his buddies are talking to -- they say they talked to a lot of consumers. It seems like every consumer that we're hearing on the show and writes into our website seems to actually be having a problem with this practice.
FABERWell, I think your website in this show and the story that the Times does demonstrates that people are seeing this information, and they understand that there are changes being made, both in terms of the price and in terms of the amount that they're purchasing. And so, in a sense, people are noticing. They're noticing because the unit price is at the point of sale. They're noticing because we're required to put the net weight on the package.
FABERYou know, the fact -- I understand that people are frustrated. We're frustrated. We don't want to have to pay record prices for basic food ingredients, and we're trying to find ways to avoid passing those costs along to consumers. But I think that the very fact of a website like Ben shows that consumers are a little bit smarter than we're giving them credit for.
HAMILTONAnd coming back to a point Catherine made earlier, consumers do have choices when they make these purchases. So they see one brand like Dannon has decreased the size of their yogurt from eight ounces to six ounces, they can turn to (unintelligible) to Breyers. But these decisions are made by brand managers in a competitive context, so, often, we see a copycat behavior on the part of, you know, a brand with a little bit lower market share. Like Breyers, they'll copy the reduction in size from these containers, so then the consumer can go to the store brand. And I think consumers can make their views known by the choices they make in the supermarket.
REHMAll right. To Pierson, Fla. Good morning, Cindy.
CINDYHello. How are you?
CINDYGood. My comment is that, that man -- I think his name is Scott Faber from the packaging association.
REHMHe is from the Grocery Manufacturers...
CINDYRight. He keeps making the comment that it's up to the farmers and that we are the ones who dictate the packaging and that our commodities are the ones that are raising the prices. He is not -- I don't know if he doesn't know anything about the farming industry, but we are in the farming industry. We have oranges, citrus, and we have fern. And what's causing our prices to rise is not because we get more profit. It's because the chemical companies are charging us three times and five times more for our products that we have to put out on our -- the chemicals that we have to put down on our orange rows and our ferns than ever before. I mean, just in a couple of years, they raised three times, three times the original price that we were paying before.
CINDYAnd their -- a lot of their costs are coming from petroleum companies. So this just all goes way back to petroleum and chemicals. And not only that, but you can even go farther than that, and you can go to the environmentalists who are keeping us from getting any petroleum that these products need. You know, they keep saying, you know, solar and wind, let's get all these products. But you know what? There's some things you can't get from the sun.
YOUNGWell, you're absolutely right that the input cost for the agricultural sector for Ag inputs have gone up, and it gone up substantially. In fact, we've got testimony going on today on the Hill that focuses on input cost and what input cost have done. Fertilizer costs, you know, are up. We went for a number of years where fertilizer costs, energy costs were relatively constant. And, again, it is this whole adjustment to a new energy cost scheme that the whole economy really, I think, is kind of coming to grips with one way or the other, either through packaged sizes or whatever. But, yes, the commodity costs have to go up because the input costs have gone up as much as they have. The input to suppliers aren't making any bones. They're just charging us more for the input.
FABERAnd let me be clear. You know, farmers are not -- their net cash returns aren't going through the roof simply because corn is selling $7 a bushel or -- and the things that are driving this extraordinary volatility in commodity prices, and the price of food ingredients are certainly input cost, but also there's been some poor weather in parts of the world, there's been some real restrictions on how we trade in these commodities, and there's just demand. People -- more and more people are eating more and more food, and that's driving up the cost of everything.
REHMScott Faber, he's vice president of the Grocery Manufacturers Association. You're listening to "The Diane Rehm Show." And to Chris, who's in Baltimore. Good morning, you're on the air.
CHRISHi. Thanks for taking my call.
CHRISUnfortunately, in the time that you put me on the air, I couldn't find the name of the apple cider that I called about. There was a brand of apple cider -- and I apologize for not remembering. I'm having a senior moment today. My partner and I used to buy a particular apple cider, you know, every year but, you know -- and we'd noticed that the change, the name -- the quality had changed quite a bit. So we called the customer service number on the carton, and the woman told us and asked us, actually, where did we buy it. We said, well, I think it was Safeway or whatever. Well, she told us something very interesting.
CHRISShe said, grocery store manufacturers or grocery stores like Walmart, some of the larger box stores pressure them to water down the particular cartons that they send them -- water down and still sell it at the same price. And we found out that, you know, even the type of packaging -- one brand they send that has a different plastic, one has a different this or that that they send to each different store, but they're selling it all at the same price.
REHMAll right. Ben Popken.
POPKENYeah, I mean, that goes back to what I was saying about the ice cream. There's been other products out there that people have noticed that there's a lower quality. Even though that might be sort of the last thing that manufacturers want to do, it's still another place where they can look to absorb costs and pass them on to us in the form of a lower product. Mac and cheese, there's been cases where, you know, it actually has less butter and milk than it used to years ago. I've also heard complaints from readers who are talking about the cans of tomato paste, you know, being more watery. We heard from the guy with the tuna, and just, basically, it looks like, you know, everywhere you turn, there's some option for us getting less products for our paycheck. And that really burns consumers. And I wonder how far it's going to go.
REHMThat's a good question, Scott Faber.
FABERYeah, your question about retailers, you know -- retailers will certainly prescribe that things be made a certain way...
FABER...or to a certain size in some cases.
REHMSo the big-box stores...
FABERIn some cases and for some products. But the...
REHMBut using -- excuse me -- using the exact same box or the exact same can or whatever it's made differently?
FABERAnd, certainly, for store brands, they'll be made to certain specifications...
FABER...that might be different than the brands you're familiar with. Absolutely.
REHMSure. If I'm buying Campbell Soup, I am assuming that Campbell Soup is Campbell Soup.
FABERAnd it is.
REHMAnd what you're telling me is that Campbell Soup at the Safeway may be different from Campbell Soup at Walmart?
FABERCampbell Soup is always Campbell Soup, and it's always delicious, of course. But there are some cases where you'll have pressure from retailers for a variety of reasons to change how products are made. And that's been a change generally in the industry in the last few decades that retailers have played a bigger role in shaping what you see on the shelves.
POPKENWe don't see this just with food products. You know, with large big-box retailers, we hear tales of how they tell manufacturers, actually, you need to make a crappier version of that, you know, riding lawnmower or other home or garage appliance. And...
REHMAll right, Ben.
POPKEN…people go to stores thinking that they buy a certain name brand. They think they're going to get a certain quality, but they actually get less.
REHMAnd you've had the last word, Ben Popken. He's managing editor of the consumer affairs website, consumersist.com. Catherine Rampell is economics reporter for The New York Times. Scott Faber, vice president of the Grocery Manufacturers Association. Rebecca Hamilton of the University of Maryland. Bob Young of the American Farm Bureau Federation. Thank you all. Thanks for listening. I'm Diane Rehm.
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