Food and beverage companies receive demand letters from two Democratic lawmakers for engaging in "shrinkflation" practices, where they charge similar or higher prices to products that were quietly reduced in size.
The lawmakers, Sen. Elizabeth Warren and Rep. Madeleine Dean, demanded significant food and beverage companies to explain their side following investigations revealing that they engaged in shrinkflation to avoid their fair share of taxes.
Shrinkflation in Food and Beverages
For example, a CNBC report showed that companies like Coca-Cola, General Mills, and PepsiCo had cut their sizing subtly, that is almost unnoticeable but still charging a similar price. Specifically, Pepsi replaced its 32 oz Gatorade bottle with 28 oz, with the same amount.
In a letter, the lawmakers emphasized that such changes negatively impact customers who pay the right amount and get less. "Shrinking the size of a product in order to gouge consumers on the price per ounce is not innovation, it is exploitation," the letter wrote.
While the companies have yet to respond, Fortune previously reported that PepsiCo defended the 28 oz change, stating that it has been sitting on the market shelves for over a decade and was part of a long-term strategy to increase profits in case of economic challenges. Coca-Cola, on the other hand, remarked that smaller bottles are available at smaller prices, too, for budget-conscious customers.
Read More: Coca-Cola To Pay IRS $6 Billion in Back Taxes and Interest After Court Decision in a 20-Year Case
Tax Cut from Shrinkflation
The Senators, however, were unfazed by their defenses after these companies were found funding lobbying efforts for tax breaks in 2017. The CNBC report shared that this led to price increases instead of benefits for consumers and, therefore, allowed companies to raise prices without financial accountability. The letter cited that Coca-Cola only paid 13.5% on $13.4 billion profits, PepsiCo paid 15% on $22.4 billion, and General Mills paid 14.8% on $12 billion. All paid taxes are lower than most working individuals.
Warren calls it "tax evasion" and vows to fight against major corporations employing similar strategies. Dean calls these corporations to provide their average prices and how tax contributions would have differed without the 2017 tax breaks.
According to VCPost, outgoing US President Joe Biden shared the same sentiment and labeled shrinkflation a "rip-off," while urging Congress to regulate it and pass it as unfair or deceptive.
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