My String Cheese Just Got Downsized

Everyday we hear report after report from our government and the Wall Street gurus that inflation in the United States has been and remains tame. In fact, according to the most recent report just published by the Bureau of Labor Statistics shows that inflation rates as measured by the Consumer Price Index was a mere 2.0% in April 2014. Of course, the figures for the CPI do not take into account energy prices nor food costs. Two segments that every strata of our population depend on and spend on. Without getting into too much detail, everyone reading this post knows that it takes a lot more dollars these days to fill up our gas tanks and our shopping carts. We realize the hidden tax that inflation really is on our income and savings. That’s one of the reasons we are dividend growth investors as we try to combat the eroding effects of inflation on our nest eggs. But I’m here to tell you about another sinister tax placed upon us. One type of tax that is rarely discussed in the media, yet we are all victims of it. This “tax” is called ‘shrinkflation.’

 

Now what pray tell is shrinkflation? Shrinkflation is one of the methods corporations use to maintain consumer loyalty to a brand by not increasing prices of their foods rather, instead, shrink their product. In other words, you will still pay the same price at the register, just get less for your money. Let’s tale a closer look at some of the incredible shrinking items in your shopping cart.

 

First up, Häagen-Dazs ice-cream from dividend stalwart General Mills, Inc. (GIS). As a long time holding in my portfolio GIS has been a great dividend payer and grower yielding a solid 3.00% with a reasonable PE of 19.71. Unfortunately, it seems that the larger the dividend payment becomes the smaller their packaging of the ice-cream gets. In 2009, 16 ounce cartons shrunk to 14 ounces and their larger 32 ounce size became 28 ounces. Yet prices remained the same.

 

GIS also shrunk another of its famous brands, Betty Crocker cake mix. In order to remain affordable for its consumers GIS had to modify its cake mix boxes while keeping prices the same. Again, pay the same price, get less.

 

Next up, Cadbury’s chocolate which is now owned by Mondelez International, Inc. (MDLZ) reduced the size of its six-chunk Cadbury Dairy Milk bar from 1.75 ounces to 1.61 ounces. MDLZ is another long term holding of mine having recently been spun off from Kraft Foods Group, Inc. (KRFT) to focus on the growing snack food business and free itself from the lower growth grocery business of KRFT. MDLZ currently offers a lower yield for you dividend investors at 1.50% but has an enticing forward PE of 18.72 which is nice in this high valuation market.

 

Moving down the grocery aisle we find Kraft String Cheese which has reduced its famous cheese brand packages by 17%. Again, all these modifications have been made by the corporations in order to address their rising commodity prices. It’s pretty simple really. As input costs rise the end product must retail for more money or reduced product size. In order to maintain consumer loyalty the aforementioned companies opted for giving us less product. KRFT offers yield hungry dividend investors a healthy 3.60% yield with a low PE of 12.5 which is well below its industry peers. It’s a great current high yield stock but I wouldn’t count on high forward dividend growth.

 

You can’t place blame squarely on the corporations for shrinking our food. Prices for almost all commodities, such as milk, eggs, beef and pork have shot up tremendously in the past year. Milk prices, for example, which have been rising since the end of 2013, are up 4.8 percent since last year. Hard to keep making those chocolate bars, ice-cream and string cheese with that type of commodity price increase. Egg prices are up 9.9 percent year-over-year. Pork prices are up 5.3 percent on the year. Beef and veal prices are up 7.4 percent over this time last year. This must be what “tame” inflation looks like.

 

What about your shopping cart experiences? Have any of your favorite food items shrunk recently?

 

Disclosure: Long GIS, MDLZ, KRFT

16 thoughts on “My String Cheese Just Got Downsized

  1. Funny how that works, it’s it DivHut. As an investor, I’m glad the companies are hitting their price point (while maximizing profits). As a consumer, I’m annoyed that portions have gotten small as prices have climbed. I know that Americans are notorious for eating too much (quantity), but cutting two ounces from a yogurt cup…..come on!
    -Bryan

    • Hi IS,

      I know what you are saying. It’s tough being on both sides of the fence. We all want our investments to keep rising and the corporations to keep raising their dividends, on the other hand, who is really paying for these corporations to maximize their profits? In the end, it’s us.

  2. I often wonder how they account for shrinkflation in the measurement of inflation, or if it’s even relevant based on the basket of goods they measure. I guess when they start making the milk bags smaller for the same price we’ll have to find out. 😉

    • Hi DD,

      I can assure you ‘shrinkflation’ is not accounted at all. Whenever the government reports their CPI figures it never accounts for food and energy costs let alone ‘shrinkflation.’ It’s nothing new… any fiat based system since the beginning of time has their currency erode in value. At least, as dividend growth investors, the extra payments we receive should help combat these rising food costs and shrinking food packages. Thanks for stopping by.

  3. I agree, shrinkflation is popular among businesses. It’s interesting to compare with the US dollar. The value has been shrunken so much that the government can afford to cut the social security checks for now.

    • I don’t know what else to say about ‘shrinkflation’ other than it’s just sad. It seems that the more you try to get ahead you have these phenomena that just eats any value you might have saved up.

  4. So its not just UK and Europe that heavily massage inflation numbers then 🙂 Same here, food,fuel,mortgages,rent,house taxes are not included yet 99.99% of the population use these, shrinkage is also true, I can remember a “Mars bar” from 50 years ago, it was so large and heavy you could use it as a weapon or fend off attackers wielding bone crushingly large chocolate bars, today these same products are mere baubles one could hang on a Christmas tree 🙂

    • Hi Travels,

      It’s sad but true. You know every country fudges the numbers regarding inflation. You gotta look good 🙂 for the people. It’s funny how you recall the larger candy bars of yesteryear and what they have become. Unfortunately, this is the world we live in. Pay more/same get less. Thanks for stopping by.

  5. Shrinkflation is definitely annoying and it’s hard to be on both sides of the fence. As an owner I like it because it’s not forcing customers to make the decision, very few recognize that the price is the same but the volume is lower. As a consumer, I hate it because I’m one that recognizes “shrinkflation”. What really sucks is that rarely will the sizes increase back once the commodity price pressure eases. Usually it just becomes the new normal until the next commodity squeeze and then we get more “shrinkflation”.

    • Hi PIM,

      You hit it on the head! “rarely will the sizes increase back once the commodity price pressure eases,” and that’s part of the problem for consumers. It seems that with inflation/shrinkflation we are only headed in one direction, less product for more money. Thanks for commenting!

  6. Haha, I had actually noticed Cadbury in New Zealand had done something similar with their family size chocolate. This is so sneaky. I think people would probably be a lot less likely to notice a minor change to the product size vs a dollar change. The small changes would certainly add up to a lot of savings for the respective companies. Sneaky!

    • Hi WWO,

      Welcome to the world of “shrinkflation.” Trying to be frugal and live in a responsible manner seems more and more difficult as our wages struggle to keep up with real world prices or in this case product sizes. Any way you look at it, it’s inflation’s ugly head coming to take food and energy out of our hands despite what government reports say about inflation. As you say, “sneaky” but a good way for the corporations to keep their lights on. Thanks for stopping by.

  7. I was discussing the exact same issue with a friend of mine a couple of weeks back. As a consumer, this is really frustrating. Even though the official inflation figures stay very low, the cost for the common grocery items like you have mentioned have gone up by several % in some cases by reducing the quantity of the products. Another example that I have noticed is a the bag of chips. A few years (maybe 2-3) back, it was 11oz. Then it was reduced to 10.5oz with the same price. Now it is just 10oz. Not sure what the sizes will be in 5-10 years time 🙂

    • Hi DGJ,

      Unfortunately, there is little that we can do to fight “shrinkflation.” This is just a reality of life today and going forward. Government numbers are meaningless and utter rubbish when looking at real world living conditions that we all must live in. I wish I could say that going forward our dollar will be buying more but as with any fiat currency the trend goes only in one direction. Thank you for commenting.

  8. DivHut,
    First, your site is the third that I have added to my daily reading on the topic of dividend investing. Nice work. 😉

    Second, I noticed that Ocean Spray cranberry juice had “new and improved packaging” on the label the other day. I told my wife that I bet it just meant less juice. Turns out the content was reduced from 64 to 60 ounces. New and improved indeed!
    Thanks,
    KeithX

    • Hi KeithX,

      Thank you very much for adding DivHut as one of your daily reads. It means a lot to me and gives me incentive to continue writing articles about dividend investing, dividend themes as well as my continued progress regarding my own dividend stock portfolio and income.

      Regarding shrinkflation, “new and improved” often means new and improved for the corporations. This phenomena doesn’t get the full attention it deserves but should as it’s just another example of how our fiat currency has increasingly less purchasing power. Thank you for your comment.

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