Two prominent Democratic legislators, Senator Elizabeth Warren (D-Mass.) and Representative Madeleine Dean (D-Pa.), are publicly denouncing corporate giants Coca-Cola, PepsiCo, and General Mills for their controversial use of “shrinkflation” and tax avoidance.
The legislators accuse these companies of capitalizing on inflationary pressures by reducing the size of their products without adjusting the price, while also benefiting from favorable tax rates.
In letters dated October 6, 2024, Warren and Dean requested a detailed explanation from the CEOs of these companies regarding their pricing practices and federal tax obligations over the past seven years. The letters also raised concerns about executive bonuses awarded during periods of record-high inflation.
Shrinkflation: What’s the Issue?
Shrinkflation, a term used to describe the practice of reducing the size or volume of a product while maintaining the same price, has become a familiar frustration for consumers. From smaller cereal boxes to reduced soda sizes, shoppers are paying more for less. While shrinkflation is not a new phenomenon, it has surged in prominence amid the current economic climate, where inflation has driven companies to seek ways to protect their profit margins.
In their letter, Warren and Dean highlighted several instances of shrinkflation. PepsiCo, for example, replaced its 32-ounce Gatorade bottle with a 28-ounce version, yet continued to charge the same price—a 14% price increase in disguise. Similarly, General Mills reduced the size of some of its Family Size cereals from 19.3 ounces to 18.1 ounces, while Coca-Cola leveraged “package innovation” to offer less soda for the same cost.
Warren and Dean argue that these practices represent not only a failure of corporate ethics but also an unjust burden on consumers already struggling to make ends meet in an inflationary economy.
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The Tax Angle: Double Burden on Consumers?
In addition to shrinkflation, the legislators took issue with the low effective tax rates paid by these companies. Under the Trump-era tax cuts of 2017, the corporate tax rate was reduced from 28% to 21%, yet the companies reportedly paid far less. According to Warren and Dean, Coca-Cola, PepsiCo, and General Mills had an average effective tax rate of 15% or lower from 2018 to 2022.
This tax avoidance, the lawmakers contend, places a double burden on American families, who are left paying higher prices for smaller products while shouldering a disproportionate share of the country’s tax burden. Citing a report by the Institute of Taxation and Economic Policy, the legislators pointed out that hundreds of large corporations, including these three, have used the tax code to minimize their contributions.
Why Is Shrinkflation on the Rise?
The surge in shrinkflation comes at a time when companies are under pressure to maintain their profit margins in the face of rising costs. Rather than increase prices outright—a move likely to provoke consumer backlash—many have opted to reduce the quantity of their products. This approach, while less immediately noticeable to shoppers, has drawn increasing ire as consumers realize they are getting less for their money.
Labor Department data shows that shrinkflation has become more prevalent in the post-pandemic economy than during the pandemic itself. As inflation continues to rise, companies are more likely to use this tactic to avoid the optics of price hikes.
Vice President Kamala Harris has called for a federal ban on price-gouging practices, including shrinkflation, which has also become a focal point for the Biden administration. In his 2024 State of the Union address, President Joe Biden pushed for the passage of the Shrinkflation Prevention Act, a bill proposed by Senator Bob Casey (D-Pa.) aimed at curbing these practices.
Consumer Sentiment: Shrinkflation as a Political Issue
While inflation may not generate the same kind of media attention as other hot-button issues like immigration or crime, consumer frustration with rising prices and shrinking product sizes has made shrinkflation a potent political topic. According to recent polls, nearly 80% of respondents are aware of shrinkflation and view it as a major concern.
This growing frustration has created a rare opportunity for political leaders to tap into a widespread sentiment of dissatisfaction. By taking a stand against corporate greed and tax avoidance, Warren and Dean are positioning themselves as champions of the everyday consumer.
The timing of their letters is also notable, as it comes just weeks before the 2024 midterm elections. With many key races hanging in the balance, consumer anger over shrinkflation could be a deciding factor in how some voters cast their ballots.
A Long-Term Solution?
As shrinkflation becomes more prevalent, the question remains: What can be done to protect consumers from this subtle yet frustrating form of inflation? Legislation like the Shrinkflation Prevention Act represents a potential step forward, but it will likely face opposition from corporate lobbyists and lawmakers sympathetic to business interests.
In the meantime, consumer education and awareness are key. As more people become savvy to shrinkflation tactics, companies may find it harder to quietly reduce the size of their products without facing backlash. Until then, the fight against shrinkflation—and the broader battle over corporate accountability—will likely continue to play out both in the marketplace and on the political stage.
