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Chuck Jaffe
May 12, 2011, 12:01 a.m. EDT
By Chuck Jaffe, MarketWatch
BOSTON (MarketWatch) "” Economists are worried not only about inflation, but also deflation, and now it appears U.S. consumers need to worry too.
While prices for many goods are rising, in cases where prices are steady, the packaging frequently is smaller. It's an unmistakable trend for grocery shoppers these days: every other package seemingly has a "great new look" for the "same great price."
The problem is that the new look is a few ounces smaller than the old packaging. Or there has been some other creative way to have shoppers pay the same money as always without recognizing that they are bringing less home.
Barring a change in the way packaging is regulated, consumers need to change habits "” or at least be more attentive "” in order to make their dollars go farther and minimize the effects of this cost-inflation/product-deflation cycle.
It's been particularly noticeable to me of late because my family recently switched from our preferred grocery store to a nearby competitor. With the change, we noticed that it felt like our dollars were buying less and less.
Retail prices in the two stores are roughly the same, but we were buying less. For instance, a "half-gallon" container of orange juice from Tropicana is actually 59 ounces; a roll of toilet paper is shorter, the "new-look" salad dressing is four ounces smaller, and so on.
Mind you, the manufacturers aren't discussing the pricing/packaging change. Tropicana is running commercials saying that their packages have "16 fresh-picked oranges squeezed into each carton" "” a claim the company has made for years "” but there must be some orange deflation if the carton is about one glass of juice smaller. Tropicana cut its packaging size in response to last winter's freeze in Florida, according to Consumer Reports, after consumer research showed that people preferred to pay the same price even if it meant less juice.
That's part of the problem, because the grocery budget is not just about finances, it's about how far the products go.
"It's caveat emptor on aisle 3," said Donald MacGregor of MacGregor-Bates Inc., a Eugene, Ore.-based firm that does research into consumer judgment and decision-making. "Consumers must realize that, as a group, they are easily manipulated, and companies are counting on that. If a company reduces the price of something by 5% but gives you 10% less, you look at the price and think you are getting a bargain, but they have increased their profit margin by 5%. It looks good to you, but you're really paying more to get less."
The manipulation involves playing with different units of measure, a problem consumers allow because they get familiar with a certain size and then assume it stays the same. Ask people in the orange-juice aisle what, exactly, they are buying, and they will say "a half-gallon of orange juice," even if they are picking up a carton that holds less.
That's why people buy a "pint" of ice cream that is really 14 ounces; it may be the same sized container with more air in the product, or it might just be fancy new packaging that is a tad smaller. The issue is that the manufacturer sets up the unit price in ounces, where the competitor selling a true pint does its unit-pricing by the pint. That makes it hard for the average consumer to do a quick-look price comparison and know which is the better deal.
The same thing goes for, paper towels and toilet paper, where the unit can be the feet of toweling you buy, or it can be "sheets," a unit for which there is no standard measure. Cut the sheets smaller, but take a few feet of length off the roll, and you can still have more sheets "” but less product "” for the same money.
A few slices out of a package of cheese, one less hot dog in the pack or an ounce less of deli meat, all changes that the makers are hoping the average consumer misses so that they stick with the brand rather than shop based on price and value.
This is not a new problem. I don't know who decided that a coffee cup would hold six ounces, when we were all taught in school that a "cup" is eight ounces "” but check any china set and you'll see the difference.
At some point, the units of measure became units of packaging, where consumers ask for a "pound of coffee" but don't recognize that the package holds just 12 ounces.
I'm guilty of this myself. I'm tired of having to tell people how much weight I have lost since my heart attack last fall (it's a lot, but I have much more to go). I simply tell people that I have lost "one chin," putting me halfway to my goal of losing "two chins." How many pounds are in a chin? I'm not telling; but I won't be surprised if someone starts selling super-sized bulk-food packages and tries to say they are a chin's worth rather than making it easy for the consumer to figure out.
As consumers, we can hope federal regulators will improve the measurement standards, making it easier for shoppers to do their due diligence. If they can't define a "sheet" for toilet paper or paper toweling, they could at least require that unit prices for those products be shown by square foot.
Even if consumer watchdogs do create uniform standards, consumers still need to watch for product deflation, because it is a form of price inflation. While people may feel like they are staying within their budget, what matters ultimately is that they get sufficient value for those dollars.
"The consumer is slowly being duped," MacGregor said. "Products are thinner, smaller, the package has an ounce or two less than it did six months ago, but the average consumer doesn't really notice it because the bottles and packages are all different sizes or are shaped to feel the same," he said. "Then you have the manufacturers playing games with unit pricing, and it puts the average consumer at a disadvantage.
Chuck Jaffe is a senior MarketWatch columnist. His work appears in many U.S. newspapers.
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Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund investing in America. He also writes a general-interest personal finance column and the Stupid Investment of the Week column. Chuck does two weekly podcasts for MarketWatch, and frequently makes guest appearances on television, and on radio shows across the country. He is the author of three personal-finance books. His latest, "Getting Started in Hiring Financial Advisors," was published in the spring of 2010 by John Wiley & Sons.
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