Shoppers beware: Products shrink but prices stay the same

— -- There's a reason why the tub of ice cream you bought last week looks a tad smaller than ones you bought last summer.

It is.

Many major ice cream makers, hit by higher dairy costs, have shrunk their standard containers to 1.5 quarts from 1.75 quarts, about 1 cup less. The industry downsized from the traditional half-gallon (2 quarts) five years ago. In both cases, only the package shrank, not the price.

"Downsizing is nothing but a sneaky price increase," says Edgar Dworsky, former Massachusetts assistant attorney general in the Consumer Protection Division, now editor of Mouseprint.org, a consumer website. "I'm waiting to open a carton of eggs and see only 11."

It's not that bad, yet. But as packaged goods makers' costs rise, they eventually have just two choices: raise prices or put less stuff in the package. While most are trying a price boost first, a growing number are shrinking the contents of their packages — from Frito Lay's chips to Dial soap to Dreyer's ice cream.

"We did not in any way try to hide this," insists Tim Kahn, CEO of Dreyer's Grand Ice Cream, which also makes — and has shrunk — Edy's. "The package-size change couldn't be any more visible."

Driving forces behind the downsizing: Commodity costs are way up. Egg prices rose 44.9% from April 2007 through April 2008, reports the Bureau of Labor Statistics. Corn costs rose 69.5%. And wheat rose 96.9%. Energy prices also are up. So are packaging costs.

Typically, shoppers are asked to pay more, but these are not typical times. Raising prices when strapped consumers are price-sensitive can be a formula for disaster. That's why there's often less in the box instead.

Few track this and those who do, such as The Nielsen Co., are tight-lipped about the data except to their clients, who pay big bucks for the proprietary stats. But Nielsen's executive for consumer insights says up to 30% of packaged goods have lost content over the past year. Some prices went down, others did not.

"I don't think we've seen anything like this since I've been in the industry," says Todd Hale, who has been with Nielsen for 29 years.

In an unscientific visit to a supermarket this month, Lynn Dornblaser, new-products guru at market tracker Mintel, looked at 100 products and found about 10% appeared to have shrunk in contents, but not in price.

Many were from the most familiar brands. Companies don't like to discuss it, but here are examples:

•Less crunch. Since January, Frito-Lay has cut the number of chips in bags across all brands from Lay's to Doritos, though not all product sizes, spokeswoman Aurora Gonzalez says. The biggest cut was to some 12-ounce bags of chips, which are now 10. Some Frito-Lay offerings got higher prices.

"These are common practices," says Gonzalez, who faulted rising costs of commodities, energy, production and distribution. "We determined the best actions based on the products."

•Hold the mayo. A jar of Hellmann's mayonnaise that was 32 ounces is now 30. "The price of our ingredients has gone up dramatically," says Dean Mastrojohn, a Unilever spokesman. "Manufacturing and transportation costs also have increased significantly."

•Spread thinner. Shedd's Spread Country Crock was shrunk from 48 ounces to 45, due to higher commodity and energy costs, Unilever's Mastrojohn says.

•Grain shortage. The price of grains has been rising for a while, in part due to increased demand for corn to produce ethanol. Kellogg downsized Frosted Flakes, Rice Krispies and Mini-Wheats in 2006. Boxes shrank from 24.3 ounces to 24 and from 19 ounces to 18. "I am not aware of consumer issues surrounding this downsizing," spokeswoman Susanne Norwitz says.

General Mills began downsizing cereals last June. Some boxes of Cheerios and Wheaties shrank as much as 1.5 ounces. "Prior to the change, our package sizes were larger, in many cases, than competitors'," spokeswoman Heidi Geller says.

Such reductions persuaded unemployed Aurora, Colo., resident Susan Kural to switch from top cereal brands to store brands. "Why should I buy 14 ounces when I can get 16?"

•Slippery soap. Early this year, Henkel of America downsized its Dial soap bath bar from 4.5 ounces to 4, says Scott Moffitt, Dial's Personal Care senior vice president.

The decision was primarily due to the skyrocketing cost of tallow, the natural fat from cattle that's a key ingredient in the soap.

•Less bountiful. This spring, Bounty cut the number of towels on a roll from 60 to 52. Procter & Gamble spokeswoman Celeste Kuta says the reduction was because the sheets are now "improved" and thicker.

Buyer beware — of unit price

More than ever, Dornblaser says, consumers need to check the tags on the shelf that list price per ounce, the so-called unit cost, rather than just the total price. "When consumers find it tough to pay bills, one of the things they look at first is what they're paying for products," she says.

If consumers want to check to see if they still are getting now what they used to get for their money, self-dubbed supermarket guru Phil Lempert says the best way is to hold onto supermarket register receipts for several months and then compare them. Most receipts not only show prices, but sizes of items.

Lempert says packaged goods makers should have to put the word "new" on the label if they take away even 1 ounce and explain very clearly what was changed.

That's because a typical supermarket has 50,000 products, while the average shopper spends just 24 minutes getting groceries. "When you've got a screaming kid or two with you," Lempert says, you need a heads-up on product changes.

Few shoppers notice subtle changes in product contents, says Bonnie Tandy Leblang, the syndicated supermarket columnist. "Most just toss things in the grocery cart."

Some shoppers notice, talk back

But some shoppers are getting savvy, and vocal. When they spot a product that's downsized, they let the company know they don't like it. That leaves executives responding to loyal-but-angry customers.

Nielsen's Hale recently had dinner with the CEO of a major dessert maker — who he declined to name — that had downsized its product. "He'd received 800 calls from consumers," Hale says.

After receiving several thousand complaints for reducing the Dreyer's ice cream cartons, Kahn says he drafted a response that was sent to all the upset customers.

"I can understand why you may not be pleased with us right now," his letter says. "Our new carton is smaller and no one wants less for the same money."

The downsizing was the only way to avoid boosting the suggested retail price from $5.99 to $7. "We felt it was better to openly reduce the package size than to take the price of the package up and make ice cream unaffordable," he says.

Some critics, however, say they'd rather pay more and know what they're getting.

David Bookbinder is a chocolate ice cream lover. The computer technician from Peabody, Mass., took it personally when he belatedly noticed that his Breyers ice cream carton had shrunk. Breyers, which is owned by Unilever, is a key rival of Dreyer's, owned by Nestlé.

"It puts a very negative taste in your mouth," says Bookbinder, who says he's switched to store brands.

Unilever's Mastrojohn says "economic conditions" forced it to reduce the amount of ice cream in its Breyers brand.

Another shopper who didn't see a favorite product was downsized until she'd bought it is Kellie Branson.

The Boise resident has used Dial soap for 30 years. But after a recent trip to the supermarket, she was placing new bars of Dial in her cupboard next to the old bars and discovered the new ones were smaller.

"I felt cheated," Branson says.

Dial was only doing what many of its competitors had already done, Moffitt says.

That was the situation for yogurt kingpin Dannon five years ago when it cut the size of its container from 8 ounces to 6. It was following the lead of Yoplait, which was making a killing at 6 ounces. Dannon also sliced the price — but the cost per ounce still was 9% more.

"This was not done to grab more dollars from the same product" but to be competitive, says Juan Carlos Dalto, CEO of Dannon.

Since then, even more profitable 4-ounce Activia yogurt have become a hit for Dannon. Could the 2-ounce yogurt container be next?

"No, no, no," responds Dalto.

Pricing an art — and a science

There's a science to downsizing products, and few have studied it as closely as John Gourville, a marketing professor at Harvard Business School. He studied purchasing patterns for 157 ready-to-eat cereals in 2004 and concluded that consumers are far more sensitive to higher prices than to less product. "People are generally unaware they're getting less," he says. Most of those who are aware say they'd rather get less than pay more.

All this price and size confusion has created a new job market: recession consulting gurus. Last month, retail specialist The New England Consulting Group, created a "Recession Price/Profit Management Consulting Practice."

In other words, a group to advise companies on when and how to downsize products or boost prices.

The need for expert advice is keen, CEO Gary Stibel says, because the last cost-driven inflation of this scope was decades ago. "So you have guys running companies with zero experience in this."

He's advised many clients to make product size reductions, but also to slightly lower prices. Most consumers like smaller-portioned packages that cost less, even when they're paying more per ounce.

It's a consumer mind game that's not always logical.

"This isn't mathematical pricing," the retail guru says. "It's behavioral."