PepsiCo, General Mills and Coca Cola called out for shrinkflation: Is hidden price gouging fueling inflation?

On October 7, 2024, US Senator Elizabeth Warren (D-Mass.) and Representative Madeleine Dean (D-Pa.) sent letters to the CEOs of PepsiCo, General Mills and Coca-Cola, accusing them of allegedly practicing unfair practices related to shrinkflation.

Specifically, they allege these companies are “profiteering off consumers, both through ‘shrinkflation’ and dodging taxes on those price-gouging profits.”

Shrinkflation represents a significant step in the broader debate about corporate responsibility amid inflation. Even President Joe Biden weighed in earlier this year, urging snack companies to halt the practice, labeling shrinkflation as ‘a rip-off’.

The lawmakers argue that shrinkflation – or the practice of reducing product sizes while maintaining or increasing prices – is nothing short of ‘consumer exploitation’.

“Shrinking the size of a product in order to gouge consumers on the price per ounce is not innovation, it is exploitation,” the lawmakers wrote to Ramon Laguarta, chairman and CEO of PepsiCo.

They highlighted this practice is allegedly contributing to inflation while driving up corporate profits: “A new analysis shows that in the first five years following the 2017 Republican corporate tax cuts, PepsiCo paid just 15 percent in federal income taxes on its $22.4 billion in profits.”

Furthermore, the letters underscore the companies’ low federal tax payments, stating: “American families are paying more for less, while those same companies are paying less than their fair share in taxes.”

Smaller products, same prices

Shrinkflation is no secret in the bakery and snacks sectors, with major brands increasingly adopting the practice.

General Mills made headlines when its Cocoa Puffs family-size box shrank from 19.3oz to 18.1oz, with no price reduction. Similarly, PepsiCo came under fire for reducing its Gatorade bottles from 32oz to 28oz, amounting to a 14% price increase per ounce. Even Frito-Lay's family-size Lay’s chips dropped from 10.5oz to 9.75oz, while Doritos now contain about five fewer chips per bag than just a few years ago.

But these aren’t isolated cases – shrinkflation is widespread. Mondelez International downsized Ritz Crackers and Oreo packs by 10-15%, with no corresponding price cut. Hostess Brands has quietly reduced Twinkies portions, while Pringles saw a 14g reduction per can under Kellanova, driving up the cost for each hyperbolic paraboloid chip for consumers. Additionally, Walkers, a UK-centric savory snack brand owned by PepsiCo, reduced the size of its crisps bags from 32.5g to 30g, while maintaining prices. General Mills also reduced the size of Nature Valley granola bars, cutting down the weight per bar but keeping the cost the same​.

The practice is becoming a common tool for companies to navigate rising costs while maintaining profit margins, often leaving consumers paying more for less.

A closer look at corporate taxation

The letters from Warren and Dean do more than criticize shrinkflation; they specifically focus on the companies’ low tax rates. According to data from the Institute for Taxation and Economic Policy, from 2018 to 2022, Coca-Cola made $13.4bn, but paid an effective tax rate of just 13.5%. Similarly, General Mills paid 14.8% on $12bn in profits, while PepsiCo paid 15% on $22.4bn in profits​.

These tax rates are even lower than the corporate tax rate that was reduced from 35% to 21% by former President Trump and Congressional Republicans in 2017. This reduction, they argue, has allowed large corporations to keep more of their profits while continuing to raise prices for consumers. Warren and Dean called this a “corporate tax giveaway” that further incentivizes price gouging.

For example, to Laguerta, they wrote: “PepsiCo’s shrinkflation practices, coupled with the low effective tax rate it pays on its record profits, have the effect of squeezing consumers two times over. First, PepsiCo gives consumers less product for each dollar they pay; and second, the company keeps more of those profits and contributes relatively less to running the federal government than working families do. This disparity is extremely troubling.”

The history of shrinkflation: Not a new concept

Shrinkflation – though recently more visible – has a long history. The practice dates back to the post-World War II era, when inflation caused companies to reduce product sizes without altering prices. This strategy became more common in the 1970s and 1980s, particularly during periods of high inflation. Candy bars, for instance, became smaller as companies sought to offset rising costs of ingredients like cocoa and sugar.

In the 2000s, globalization and volatile commodity prices triggered a resurgence of shrinkflation, particularly in the snack and beverage sectors. Following the 2008 financial crisis, companies like Nestlé and Mondelez responded by downsizing product portions on a global scale, while maintaining stable price points, as part of a strategy to manage rising costs without directly increasing prices.

More recently, the pandemic and subsequent widespread supply chain disruptions, sparked a new surge. Manufacturers have faced soaring raw material costs, labor shortages and transportation delays, forcing them to protect profit margins by reducing product sizes rather than raising prices​

However, the reality is shrinkflation has become an unavoidable strategy for many food manufacturers, and while it’s hard on the consumer pocket – often without even realizing the changes – companies argue it’s necessary to survive. But consumers trust is at stake, so it’s a delicate balance for producer to maintain this loyalty while managing these pressures.

Brands must focus on transparency, communicate any changes clearly and find ways to add value through product quality or innovation.

Sarah Gallo, senior VP of Federal Affairs for the Consumer Brands Association (CBA), told FoodNavigator USA that recent price increases align with past economic recoveries. She explained that companies are simply trying to balance rising costs with market realities.

Gallo added, “America’s household brands understand the financial strain inflation puts on families,” noting that producers are offering a variety of product sizes to help meet consumer needs while managing costs.

But as consumers continue to face higher prices for smaller products, the ongoing debate between policymakers and corporations will likely intensify. Though it has moderated compared to previous years, we’re still in the grip of inflation – meaning shrinkflation doesn’t appear to be going away anytime soon – making it essential for brands to balance profitability with consumer perception.

Warren and Dean have requested that PepsiCo, General Mills and Cocoa Cola provide additional information about the shrinkflation practices and tax liabilities “to more clearly understand the consequences for consumers.” They have also asked if executives “receive bonuses or other incentives during periods of high inflation.”

Comment from PepsiCo, General Mills and Coca Cola had not been received at the time of publication.