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