U.S. Companies Shrink Packages as Food Prices Rise

April 4th, 2011

Daily Finance

By: Douglas McIntyre

U.S. food prices have been rising in the last year, but it seems the growth is only just beginning. A sharp jump in commodities’ prices this year will soon result in sticker shock for American consumers.

Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.

Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don’t notice that they’re getting less of the product for the same price.

Food companies have no obligation to tell customers about the smaller packages, but may suffer a backlash from consumers who notice how the packaging trick works. Here are some of the shrinking products that you might notice in your grocery aisles:

Kellogg Cereal
Company: Kellogg (K)
Commodities: corn, wheat, sugar
Size Reduction: roughly 15%, or 2.4 ounces, on average
Kellogg, which makes cereal such as Apple Jacks and Corn Pops, has passed higher grain costs on to consumers. In 2008, the company reduced the amount of cereal in its boxes by an average of 2.4 ounces. And in February, the company announced that it will raise the price of its cereals 3% to 4%. According to a U.S. Agriculture Department report in March, “higher wheat commodity costs should begin to affect cereal and bakery product prices over the next few months, causing prices to rise 3.5% to 4.5% overall in 2011.”

Snickers Bars
Company: Mars
Commodities: cocoa, dairy, nuts
Size Reduction: 11%, or 0.41 ounces
Supposedly in response to pleas from obesity activists, the Mars Company split their “King Size” Snickers bar in half so that it could be more easily shared between two people. What calls the nobility of the company’s intentions into question is that, in addition to making the cut, Mars also reduced the total amount of candy in each package from 3.7ounces to 3.29 ounces — an 11% decrease — while keeping the price the same.

Tropicana
Company: PepsiCo (PEP)
Commodities: frozen orange juice concentrate, gasoline
Size Reduction: 8%, or 5 ounces
A series of prolonged frosts last year sent citrus prices up 11.5% and drove up the price of frozen orange-juice concentrate to several-year highs. Meanwhile, the cost of transporting the concentrate has gone up as gas prices have increased. In response, Tropicana has made two adjustments: It increased the price of its gallon jugs by 5-8% and stealthily reduced the size of its half-gallon cartons from 64 ounces to 59 ounces. This 5-ounce reduction represents nearly an 8% decrease in size.

Haagen-Dazs
Company: General Mills (GIS)
Commodity: dairy, sugar, cocoa
Size Reduction: 12.5%, or 2 fluid ounces
The luxury-ice-cream company reduced the size of its standard container to significantly less than a pint, cutting it 12.5% from 16 fluid ounces to 14 fluid ounces. To make the smaller package less obvious, the company cleverly kept the top the same size, so it looks identical from above, but tapers dramatically in the middle. Haagen-Dazs’s cheaper brands, Edy’s and Breyer’s, have cut their portions as well. Daily prices increased just over 1% in 2010, but are expected to rise as much as 5.5% in 2011.

Chicken of the Sea Tuna
Company: Thai Union Group
Commodity: tuna
Size Reduction: 17%, or 1 ounce
Chicken of the Sea’s albacore tuna, previously sold in 6-ounce cans, now comes in 5-ounce cans. Rising tuna prices amid a worldwide shortage of the fish are partly to blame. Other tuna brands also have shrunk their can sizes, a trend which has been going on for years. Just over a decade ago, tuna was most commonly sold in 7-ounce cans.

Frito-Lay Chips
Company: PepsiCo (PEP)
Commodity: wheat, corn, potatoes
Size Reduction: 12.5% – 20%
With all the air included in chips packaging, it is easy for manufacturers to reduce the amount of chips in the bags without drawing attention. PepsiCo reduced the Lay’s “Family Size” potato-chip bag from 16 ounces to 14 ounces in 2009. Bags of Doritos, Tostitos, and Fritos now contain 20% fewer chips than they did in 2009, according to The New York Times. Even smaller bags have been reduced by a quarter of an ounce. Rising gain prices have driven the changes.

Click here for the full report from DailyFinance.com

Pepsi Faces Steep Input Price Inflation

March 14th, 2011

FinancialTimes.com

By: Jonathan Birchall

PepsiCo faces the highest levels of input price inflation in many years, underlining the broad pressures confronting global food companies amid steep rises in the price of oil and agricultural commodities.

The snacks and soft drinks company, whose food business includes Frito-Lay and Quaker, expected an additional $1.4bn to $1.6bn in extra input costs in its 2011 financial year, equivalent to cost inflation of 8 to 9.5 per cent.

“There aren’t many years in my 23 years at PepsiCo that I remember seeing that range,” said Hugh Johnson, chief financial officer, as the company issued its fourth-quarter results on Thursday. “That type of inflation has a pretty strong impact.”

Inflation concerns contributed to a lowered forecast for earnings growth in its 2011 financial year in the range of 7 to 8 per cent, down from a previous forecast in March last year of low double-digit percentage growth.

It also said it expected earnings growth in the lower range to continue after 2011, in spite of its $7.8bn investment acquiring its largest bottlers in 2010, and purchasing a controlling stake in Wimm-Bill-Dann, the Russian dairy company, for $3.8bn.

Indra Nooyi, chief executive, defended the company’s strategy, telling Wall Street analysts that “had we not had the macroeconomic sluggishness and this extraordinary commodity inflation, we’re a solid double-digit [earnings growth] player.”

She also emphasised the “considerable uncertainty” that had led to the decision to lower earnings guidance.

“We have no idea what the commodity markets are going to look like in 2012 and beyond,” she said.

“We have no idea what the developed market economic situation is going to be, whether it is going to improve robustly or whether the current sluggishness is going to continue.”

Coca-Cola, Pepsi’s main rival, earlier this week reported sales growth across leading markets during the fourth quarter for the first time since 2003, supported by strengthening consumer demand and gains in market share from investments in marketing and distribution.

Muhtar Kent, Coca-Cola’s chief executive, said: “At best the recovery is still mixed around the world … But I think there’s more stability and less concern about a major upheaval.”

Mr Kent said he believed Coca-Cola’s strong results reflected its own efforts to improve its global business performance.

PepsiCo’s food brands account for over 50 per cent of its revenues. Several other leading global food companies have warned of the impact of commodity price inflation in the coming year. John Bryant, chief executive of Kellogg’s, the cereal company, said last week that he expected pressure on grain prices to continue “for several years to come”.

PepsiCo has said it expects to pass on some of the price increases to consumers, but would seek to minimise sudden price moves.

For the fourth quarter, PepsiCo reported core earnings per share – excluding the impact of its takeover of its two largest bottlers – of $1.05 per diluted share.

Sales volumes rose 9 per cent across its worldwide business, while net income, lifted by the bottling deals, rose 37 per cent to $18.1bn. Net earnings fell 5 per cent to $1.36bn, again reflecting the costs of the bottling acquisitions.

In North America, soft drinks sales volumes rose by 1 per cent against the same quarter last year, trailing the 3 per cent growth reported on Wednesday by Coca-Cola

Click here for the full report from Financial Times

Major Producers to Ditch BPA From Packaging

November 2nd, 2010

The Independent

By: Martin Hickman

Some of the world’s biggest food companies are removing the chemical Bisphenol A from packaging, amid growing concern it is causing a wide range of human illnesses including heart disease and breast cancer.

Nestlé, the world’s biggest food manufacturer, says its will stop putting Bisphenol A (also known as BPA) into US products within three years, while tinned giant Heinz is at “an advanced stage” in removing it from UK baby food, and is funding research by one of the chemical’s leading critics. General Mills, the US giant behind the Green Giant tinned brand, has already ditched BPA from its Muir Glen tomato range, while Campbell Soups says it has done “hundreds” of tests exploring alternatives. Several other firms, such as Coca-Cola, have declined to disclose a timetable for its withdrawal, saying that BPA is safe.

BPA toughens the packaging of many tins, glass jars and plastic bottles, and the casings of electronics gadgets such as TVs, mobile phones and laptop computers.

Dozens of scientists say it is an endocrine disruptor that affects hormones and could be causing breast and prostate cancer, heart disease, brain retardation, impotence and infertility.

While the US says it has “some concern” about the chemical’s potential effects on the brain, on behaviour and on the prostate glands of foetuses, babies and young children, the European Food Safety Agency recent reiterated its view that the substance does not pose a risk to the public.

In a survey for a new report, Seeking Safer Packaging, the US investment fund Green Century Capital Management surveyed 26 food companies for their policy on BPA. Half said they were committed to ending use of the substance, double the 23 per cent found last year.

Emily Stone, of Green Century Capital Management, said: “Companies are actually moving faster than regulators in phasing out BPA from food and beverage packaging.” Some firms, such as Del Monte and Hain Celestial, have begun warning investors of a potential risk from tougher regulation of BPA use.

However it is possible that UK subsidiaries of some firms may take weaker action in Europe than in the US – where consumer awareness is much higher. While saying it was phasing out BPA in baby food, Nestlé told The Independent: “As a global food manufacturer and marketer, Nestlé takes into consideration local needs, cultural differences and consumer preferences as well as attitudes concerning the use of certain materials. This may well result in different solutions in various regions of the world…”

More than 20 US states have introduced legislation to restrict BPA use, Canada has listed it as a toxic chemical and several European countries have refused to accept the European Food Safety Agency’s latest position, released on 30 September.

Scientists are divided. While many endocrinologists, experts in hormones, believe low doses of BPA can harm humans, general toxicologists say evidence from large industry-funded studies suggests this is not the case.

Henrik Høegh, food minister in Denmark, which has has banned BPA in products for children up to three years old, said: “Our ban is based on a study which, according to Danish experts, shows uncertainty about the effects of even small doses of Bisphenol A on the learning ability in young rats.”

Where BPA is Used

* Tinned Food

BPA resin sprayed on the inside of tins prevents metal from contaminating food. The Independent found this year that BPA was present in 18 of the UK’s best-selling tins, including Heinz baked beans, Princes sardines, right, and Napolina tomatoes.

* Drinks cans

Some fizzy drinks, including Coca-Cola, are lined with a BPA resin. Pepsi has not said if its cans are lined with BPA.

* Glass jars

Some glass jars have BPA in the lid. Campaigners want firms such as Nestlé and Heinz to remove BPA from their baby and toddler food ranges because of fears over its impact on babies.

* Electronics

BPA is in the casings of electronics products including CDs, and DVDs, phones, TVs, laptops, personal computers, printers, cameras, shavers, hairdryers, irons, food mixers, microwaves and kettles.

* Plastic bottles

BPA is found in polycarbonate bottles designed to carry water or baby milk. Several manufacturers such as Tommee Tippee have phased out BPA.

* Sports equipment

Sports helmets, ski goggles, binocular housings and golf and tennis equipment contain the chemical.

* Till receipts

BPA is used to make ink visible on thermal till receipts. Concern arises about shoppers handling the paper and then touching their mouths or food.

* Medical equipment

BPA is found in the casings of dialysis machines, dentists’ operating lamps and blood sample reservoirs. It also toughens the lenses of spectacles.

Going BPA-free…

Heinz

“Heinz remains committed to moving to alternatives. Our plastic Heinz Beanz Snap Pots and Heinz Beanz Fridge Pack contain no BPA. All Heinz plastic baby food and juice containers, as well as packaging for our snacks and cereals, are BPA-free.

“Our baby food cans also contain no BPA and we are already at an advanced stage of phasing out the minute amounts of BPA used in the lids of jarred baby foods to ensure seal integrity, even though the BPA is coated and does not come into direct contact with the food at any time.

“Heinz continues to advance research into alternative coatings in response to consumer opinion but safety remains our first priority before making any changes.”

…and sticking with it

Coca-Cola

“The consensus repeatedly stated among regulatory agencies is that current levels of exposure to BPA through food and beverage packaging do not pose a health risk to the general population. BPA is found in the linings of our aluminium cans. Our bottled water and plastic soft drink containers are made from polyethylene terephthalate (PET) plastic, which does not contain BPA.

“While we are confident about the safety of our aluminium cans, we are always looking for ways to improve our packaging. We are working closely with several suppliers who are seeking alternatives. Any new material … also would have to meet our safety, quality and functional requirements.”

Click here for the full report from The Independent

People Consume Up to 46 Teaspoons of Sugar a Day!

April 21, 2010

Telegraph.co.uk

Researchers say food companies have been consistently increasing the sugar content of their products to make them more enticing to customers.

And they warn that a high-sugar diet is just as deadly as a high-fat diet when it came to increasing cholesterol and adding to the risk of heart disease.

The study, published in the April edition of the Journal of the American Medical Association, found many people were unaware of how much sugar they were eating.

Assistant Prof Miriam Vos, from the pediatrics unit at America’s Emory School of Medicine, said the high-sugar diet was a silent threat because so much sugar was hidden in foods.

“Just like eating a high-fat diet can increase your levels of triglycerides and high cholesterol, eating sugar can also affect those same lipids,” she said.

“Total consumption of sugar has increased substantially in recent decades, largely due to an increased intake of added sugars, defined as caloric sweeteners used by the food industry and consumers as ingredients in processed or prepared foods to increase the desirability of these foods.”

The study looked at nutritional data and blood results of 6,000 adult men and women between 1999 and 2006.

The study subjects were divided into five groups according to the amount of added sugar and caloric sweeteners they consumed daily.

Prof Vos said: “The highest-consuming group consumed an average of 46 teaspoons of added sugars per day. The lowest-consuming group consumed an average of only about three teaspoons daily.

“It would be important for long-term health for people to start looking at how much added sugar they’re getting and finding ways to reduce that.”

The study was the first study of its kind to examine the association between the consumption of added sugars and lipid measures, such as HDL-C, triglycerides and low-density lipoprotein cholesterol.

The study did not look at natural sugars found in fruit and fruit juices, only added sugars and caloric sweeteners.

Click here for the full report.

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Salmonella Found in Food Additive Sparks Recall

March 8, 2010

Wall Street Journal

By Jared A. Favole and Alicia Mundy

The Food and Drug Administration has asked a variety of food companies to recall more than 30 products, from vegetable dips to soups, that contain a commonly used food additive that has tested positive for salmonella.

There have been no reports of people getting sick from eating foods with the ingredient, a flavor enhancer called hydrolyzed vegetable protein, or HVP. Some batches of the ingredient that tested positive were shipped from a Las Vegas-based company.

FDA officials couldn’t determine how many products might need to be recalled but noted that HVP is used in thousands of products across the U.S. Products being recalled include some prepackaged foods made by Earth Island, tortilla soup mix made by Homemade Gourmet and chicken soup base made by Castella Imports.

Jeffrey Farrar, associate commissioner for food protection, said the risk to consumers of getting sick is “very low.” HVP generally represents just 1% of the total ingredients in a product.

Some products that received HVP from the Las Vegas company, Basic Food Flavors Inc., won’t need to be recalled. These include most foods that are cooked. Cooking generally kills salmonella. Basic Food Flavors didn’t immediately respond to comment.

The recall comes as the FDA and consumer groups are urging Congress to pass food safety legislation that would give the regulatory agency more power to police the industry.

In a conference call with reporters, FDA officials said multiple times that the recall underscores the need for lawmakers to pass a food safety bill that has stalled in the Senate.

The legislation would also allow the FDA to force companies to recall products, require better record keeping and boost inspections of food facilities, especially those handling risky foods.

Joshua Sharfstein, the deputy commissioner at the FDA, said “we would like not to have episodes like this in the future.” He said the legislation would help shift the focus “towards prevention.”

In recent weeks, the FDA has announced several initiatives related to food safety, and on Wednesday slapped more than a dozen companies with warnings for how they market their foods and beverages.

Trader Joe’s, a grocery store, posted a statement on its Web site about one recalled product, its Organic Creamy Ranch Dressing Dip. It noted that products with a use-by-date of June 13, 2010, in their stores in the southwestern U.S. may contain an ingredient contaminated with salmonella. As a precaution all of the product has been removed from store shelves and has been destroyed, the company said. Trader Joe’s hasn’t received any reports of illness related to that salad dressing and dip.

Click here for the full report.

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