Two Democratic lawmakers in the USA have called on some food and beverage giants to stop the practice of 'shrinkflation,' which involves reducing product sizes while charging the same or higher prices.

Democratic lawmakers Elizabeth Warren and Madeleine Dean sharply criticized general mills, coca-cola, and PepsiCo in a letter, accusing them of profiteering through shrinkflation and tax evasion to increase company profits.

The letter cited an example where in 2021 general mills reduced the size of cereal boxes, 'including reducing the 'family-size' Cocoa Puffs from 19.3 ounces to 18.1 ounces, but keeping the price the same. Subsequently, from mid-2021 to mid-2022, general mills raised prices five times. In 2023, the North American Retail Group President of general mills boasted about the company becoming 'smarter' in 'pricing scrutiny.'

The lawmakers pointed out in the letter that coca-cola and PepsiCo also reduced product sizes, with coca-cola 'selling less soda at the same price' and PepsiCo 'replacing the 32-ounce Gatorade bottle with a 28-ounce bottle at the same price.' The letter emphasized that increasing the price per ounce by reducing product sizes is not innovation but exploitation.

PepsiCo denied changing bottle sizes for profit, with a company spokesperson telling CNBC that the 28-ounce Gatorade bottle has been around for over a decade, and altering bottle sizes is a long-term strategy, not a response to economic conditions. Coca-Cola explained that smaller bottles are intended to offer lower prices to budget-conscious consumers.

In the three letters, the two lawmakers also accused these companies of funding the 2017 Republican-led corporate tax lobbying efforts. These tax reductions were supposed to promote economic growth, but instead 'incentivized price fraud,' as lower corporate taxes mean they would earn more profit with each increased dollar in selling prices.

According to an analysis by the non-profit Tax Policy Center in February, in the five years following the 2017 tax cuts, the effective tax rates paid by general mills, coca-cola, and PepsiCo were much lower than many working-class individuals. General mills paid an average effective tax rate of 14.8% on its profits of $12 billion, Coca-Cola paid 13.5% federal income tax on its $13.4 billion profits during the same period, and PepsiCo earned $22.4 billion in profits, paying an average effective tax rate of 15% during those years.

Senator Warren said in a statement to NBC News:

"Consumers notice that their Cheerios cereal boxes and Doritos chip bags have become smaller, but the prices are higher. These large companies pay lower tax rates than the average American. We cannot allow them to deceive prices and evade taxes. This is completely wrong, we must fight back."

The phenomenon of downsizing and inflating is not limited to soda and cereals. MousePrint.org has found that many commodities such as razors and almond bags have reduced in size but maintained the same price. President Biden has criticized downsizing and inflating as deceptive practices, urging Congress in the State of the Union address to pass legislation categorizing it as unfair or deceptive practices to combat downsizing and inflating. Even Cookie Monster lamented on Twitter in March: "I hate downsizing and inflating! My cookies are getting smaller."

Nailya Ordabayeva, Associate Professor of Marketing at the Questrom School of Business at Boston University, points out that during periods of cost-driven inflation, manufacturers are more likely to increase profits by reducing product sizes rather than raising prices. Compared to increasing prices, reducing product volume is less likely to trigger strong consumer opposition, so manufacturers tend to choose downsizing.

However, when consumers realize they are paying the same price for less product, especially for items they frequently purchase, they become angry.

Despite consumer dissatisfaction, the phenomenon of downsizing and inflating has not stopped. A report from the Casey office found that compared to January 2019, unit prices of household products such as toilet paper and paper towels are 34.9% higher, with 10.3% of the price increase due to manufacturers reducing the size of rolls and packaging. Meanwhile, snacks like Oreos and Doritos have increased in price by 26.4% since January 2019, with 9.8% of the growth achieved by reducing product quantity.

Sarah Gallo, Senior Vice President of the Consumer Brands Association, defended the practices of large companies. The association is a trade group with members such as Coca-Cola, PepsiCo, and General Mills. She cited a inflation report for May from the San Francisco Fed to refute misleading attacks against the industry, showing that the overall markups in the past three years are not uncommon compared to the previous economic recovery. She emphasized that the industry focuses on providing the best products at the most competitive prices.

Senators Warren and Dean's letter requests companies to provide the average price per ounce of soda or per ounce of cereal since 2018, the amount of taxes not paid due to the 2017 tax reform that have yet to be implemented, and details of executive bonuses during periods of high inflation.

Dean stated that these letters are intended to alleviate the undue burdens imposed on consumers by the company. She emphasized that despite the economic recovery from the COVID-19 pandemic, people are still being harmed by the high prices at grocery stores. Reducing product sizes while raising prices is unfair to consumers, and large companies pay less tax than their fair share.