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shrinkflation
Corporate Profiteering Schemes That Drive Inflation Detailed at Senate Hearing
"At every turn, companies are cutting corners on the path to record profits, and American consumers are paying the price," one expert testified.
May 02, 2024
Progressive policy experts took aim at corporate greed and profiteering during a Thursday U.S. Senate hearing on "shrinkflation," the process of reducing the size or quantity of a product while selling it at the same price.
At the Senate Committee on Banking, Housing, and Urban Affairs hearing—entitled "Higher Prices: How Shrinkflation and Technology Can Impact Consumers' Finances"—Chair Sherrod Brown (D-Ohio) began by acknowledging that "prices today are far too high, and families are having a harder time finding a fair price, seeing more of their paycheck vanish into thin air."
"All of this is happening while corporate profits hit record highs," the senator continued. "Let's be clear: The fact that prices and corporate profits are going up at the same time is no coincidence. A study by the Kansas City Fed found that corporate profits drove half of the price increases in 2021."
Bilal Baydoun, director of policy and research at the Groundwork Collaborative, testified that "in America today, a fair price, let alone a sweet deal, is harder and harder to come by. In the age of corporate concentration and high-powered algorithms, pricing is in the midst of a troubling transformation, and the price tag as we know it may become a relic of the past."
"At every turn, companies are cutting corners on the path to record profits, and American consumers are paying the price," he continued. "In a practice known as 'shrinkflation,' companies discreetly reduce the size or volume of common household items—everything from jars of peanut butter to bars of soap—to charge consumers more for less."
"For some essential goods like household paper towels, shrinkflation accounted for roughly 10% of the price increase consumers experienced over the last four years," Baydoun added. "Indeed, big profits increasingly come in smaller packages."
Accountable.US president Caroline Ciccone and other executive members of the group submitted a statement for the record asserting that "the American people are fed up with corporate greed and price gouging."
The statement continues:
Even as inflation has gone down, prices remain too high. Americans understand that corporate greed is a major driver of costs that make it difficult for their families to make ends meet.
Corporate profits have exploded since 2020, and a recent study by our partners at the Groundwork Collaborative found that for much of 2023, corporate profits drove 53% of inflation. Comparatively, over the 40 years before the pandemic, profits drove just 11% of price growth. In the final three months of 2023, corporate profits reached an all-time high of $2.8 trillion, according to Commerce Department data.
"From Big Food to corporate landlords to Big Pharma, CEOs across industries keep raising prices despite bragging of bigger and bigger profits and stock rewards for wealthy investors," said Liz Zelnick, director of Accountable.US' Economic Security & Corporate Power program. "These executives clearly didn't need to raise prices so high, but they did it anyway because they could."
"Yet one by one," she added, "conservative Senate Banking Committee members today gave a free pass to their corporate megadonors and instead disingenuously blamed the Biden administration's actions against junk fees and price gouging that are actually working to lower costs for everyday families. They should get their priorities in check."
Earlier this year, Brown and Sen. Bob Casey (D-Pa.) introduced a bill "to crack down on companies shrinking their products and raising their prices."
The Shrinkflation Prevention Act would:
- Direct the Federal Trade Commission (FTC) to promulgate regulations to establish shrinkflation as an unfair or deceptive act or practice, prohibiting manufacturers from engaging in shrinkflation;
- Authorize the FTC to pursue civil actions against corporations who engage in shrinkflation; and
- Authorize state attorneys general to bring civil actions against corporations engaging in shrinkflation.
"We need members of Congress to grow spines and stand up to more of these corporate lobbyists," Brown said during Thursday's hearing. "We need our colleagues to join us in efforts like this, to lower prices and stop these tactics that distort the market, stifle competition, and make it harder for Americans to afford the cost of living."
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Biden Praised for Plan to Tax Billionaires and 'Take on Corporate Greed'
"The president's commitment to improving the lives of working people and families stands in sharp contrast to lawmakers looking to protect excessive corporate profits and deliver another tax break to the rich," said one advocate.
Mar 08, 2024
Directly addressing some of the practices wealthy corporations increasingly use to line their pockets while working Americans face rising costs of living, U.S. President Joe Biden on Thursday night won praise from economic justice advocates for presenting "a clear and compelling vision" that contrasted sharply with Republicans' push to further cut taxes for the rich.
The president's State of the Union address came days after The Washington Post reported that progressive U.S. Sen. Bernie Sanders (I-Vt.) pushed Biden in a private meeting last fall to acknowledge Americans' continuing economic struggles during his reelection campaign and tell voters what he plans to do to help.
Instead of focusing only on his accomplishments, the president directly called out corporations' unfair practices and the Republicans who have ensured some of the richest companies pay nothing in federal income taxes.
Biden noted that the Republican Party joined former President Donald Trump in pushing through a $2 trillion tax cut for the wealthy and is currently working to make those cuts permanent.
Instead, said Biden, "it's time to raise the corporate minimum tax to at least 21% so every big corporation finally begins to pay their fair share."
According to a recent analysis by the Institute on Taxation and Economic Policy (ITEP), 342 of the country's most profitable companies paid an average effective tax rate of just 14.1% from 2018-22—the first five years of the Trump-GOP tax law.
ITEP called Biden's proposal to raise the minimum tax for corporations "an important step forward from the status quo" that could "raise substantial revenue."
The president added that he would end tax breaks for CEOs, and as he delivered his address the White House released a fact sheet on his plan to "invest in America by making big corporations and the wealthy pay their fair share," including by:
- Raising the corporate tax rate to 28%;
- Denying corporations a tax deduction when they pay any employee over $1 million in order to crack down on tax breaks for exorbitant CEO pay;
- Quadrupling the stock buyback tax from 1% to 4% to disincentivize companies using their profits to lavish their shareholders instead of paying their employees;
- Requiring billionaires to pay at least 25% of their income in taxes, up from just 8% currently; and
- Protecting the Internal Revenue Service's ability to crack down on tax avoidance by wealthy people.
Roughly 1,000 American billionaires pay "far less than the vast majority of Americans pay" in taxes, said the president. "No billionaire should pay a lower federal tax rate than a teacher, a sanitation worker, or a nurse."
Raising billionaires' income taxes to 25% would raise $500 billion over the next decade, he said, allowing the government to guarantee affordable childcare, paid leave, and other programs that already exist in other wealthy countries.
"Imagine a future with affordable childcare," said Biden. "Imagine a future with paid leave because no one should have to choose between working and taking care of a sick family member."
Biden made clear to Americans watching that he would "create the kind of America we all want to see" by ensuring that "large, profitable corporations and the wealthy pay their share," said Amy Hanauer, executive director of ITEP. "As the president's tax agenda makes clear, we can strengthen this country's communities, care for all our people, and restore balance to our tax system. Our lawmakers just need to find the will to do it."
Republicans appeared to acknowledge the unpopularity of their own plan to slash Social Security and permanently cut taxes for the rich when they groaned and booed at Biden's mention of their agenda.
"You guys don't want another $2 trillion tax cut?" Biden asked, drawing applause and laughter from Democrats. "I kind of thought that's what your plan was. Well, that's good to hear."
In addition to taking aim at corporate tax dodging, the president pointed to a corporate practice that's become increasingly common since the coronavirus pandemic: "shrinkflation," which involves companies reducing the size of a product while charging the same amount.
With a White House "strike force," Biden said his administration is "cracking down on corporations that engage in price-gouging and deceptive pricing, from food to healthcare to housing."
"Tonight, President Biden detailed a clear, decisive plan to take on corporate greed in order to reduce costs and to reestablish a progressive tax system where the wealthy and corporations pay their fair share," said Lindsay Owens, executive director of Groundwork Collaborative and the author of a report on shrinkflation that was published this week.
"The president's commitment to improving the lives of working people and families," Owens said, "stands in sharp contrast to lawmakers looking to protect excessive corporate profits and deliver another tax break to the rich."
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'Shrinkflation' Playing Crucial Role in Rising Prices, Corporate Profits: Analysis
"While shrinkflation is not new, it is arguably the most deceptive pricing practice companies use," reads the report.
Mar 06, 2024
Executives in corporate earnings meetings call it "price pack architecture," but economic justice advocates, Democrats in Congress, and in recent days, Cookie Monster of "Sesame Street" have a different term for companies' practice of reducing the weight or size of a product while charging the same amount for it: shrinkflation.
Major corporations like PepsiCo and Utz have not only kept prices high even as pandemic era supply chain and labor issues have eased—a practice recognized as "greedflation"—but have also increasingly been reducing the size of products like snacks, drinks, and even essentials like toilet paper rolls, a new analysis from Groundwork Collaborative shows.
"While shrinkflation is not new, it is arguably the most deceptive pricing practice companies use and has come under renewed scrutiny as Americans face grocery prices 25% higher than prior to the pandemic," reads the report, titled Big Profits in Small Packages. "We find that as much as 10% of inflation in key product categories can be attributed to shrinkflation."
Companies have claimed to customers that shrinking goods is for the public good, with General Mills telling NPR that reducing its "family size" cereal boxes from 19.3 ounces to 18.1 ounces without reducing the cost would allow for "more efficient truck loading leading to fewer trucks on the road and fewer gallons of fuel use, which is important in... reducing global emissions."
To investors, though, executives made no mention of wanting to reduce fuel use or emissions from transportation in a 2021 earnings call, saying the strategy was simply aimed at managing the company's "list pricing" and "promotional optimization," according to Groundwork's report.
"In quarterly earnings calls with investors and analysts, corporate executives are candid about their future plans to downsize product quantities by playing with 'price pack architecture', as well as the profits they plan to derive from doing so," reads the report.
One French grocery chain pulled PepsiCo's snack and drink products from its shelves in January due to its pricing practices after having issued a warning to companies about shrinkflation. In the U.S., however, the company told reporters in 2022, "We took just a little bit out of the bag so we can give you the same price, and you can keep enjoying your chips."
"During this period of high inflation, where rising prices are putting a squeeze on household budgets, shrinkflation just adds insult to injury," said Lindsay Owens, executive director of Groundwork Collaborative and author of the report.
Former Labor Secretary Robert Reich recently pointed to a number of examples of shrinkflation in popular products, including the shrinking of PepsiCo's 32-ounce Gatorade bottle to just 28 ounces for the same price and Nabisco's decision to provide 12% less product in its family size box of Wheat Thins.
The report identified Kimberly-Clark, the maker of diapers, sanitary products, toilet paper, and other personal care products that are essential to millions of families, as a "repeat shrinkflation offender."
CEO Mike Hsu reasoned on a 2023 earnings call that the company can easily get away with shrinking their products since customers have no choice but to use them.
"If the price goes up on bath tissue, generally doesn't mean you're going to use the bathroom less, right?" Hsu said regarding its decision to provide smaller rolls in its Cottonelle toilet paper packages and to make its Scott toilet paper, as Groundwork found, "thinner and rougher with 20% less paper fiber."
Shrinkflation, along with greedflation and the use of algorithms to determine pricing, have made it "increasingly clear that prices are untethered from market fundamentals and instead largely reflect a company's market and pricing power," Owens said late last month.
The group called on Congress to pass the Shrinkflation Prevention Act, which was introduced last month by Sen. Bob Casey (D-Penn.) and would require the Federal Trade Commission (FTC) to classify shrinkflation as an unfair or deceptive practice and regulate it as such. The FTC and state attorneys general would be authorized to confront companies' use of shrinkflation in civil actions.
Groundwork also urged lawmakers to reform the tax code in order to disincentivize companies from using shrinkflation and other "aggressive pricing strategies."
The Institute on Taxation and Economic Policy found in a recent report that some of the biggest companies practicing shrinkflation paid "incredibly low effective tax rates" between 2018-22, thanks to former President Donald Trump's Tax Cuts and Jobs Act.
"Companies will have less incentive to overcharge customers," said Groundwork, "if they have to ship a greater share of the spoils to the Treasury Department."
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