An open book on smaller packages

Articles
December 23, 2011

An open book on smaller packages

How to make price hikes more palatable? Be honest about them with retailers and consumers.

CPG brands have limited price elasticity before people switch, buy less, or begin to ignore an item entirely.

Hikes in ingredients and transportation costs have tested manufacturers’ resourcefulness the past few years. How much to absorb or pass along to retailers and ultimately consumers? How to manage everyday price points and promotional events? How to maintain price gaps between alternate brands and private label?

Manufacturers in many categories throughout the supermarket have quietly raised prices by (a) shrinking package sizes, or (b) more subtly by keeping package dimensions the same but including less content. Half-gallons of ice cream have gone to 48 ounces, and half-gallons of orange juice have gone to 59 ounces, for example. Consumers often deride such moves – though they can do little about it if competing manufacturers follow suit.

Now, Heinz, known for understanding consumers pretty well, is openly celebrating its move to smaller package sizes. Rather than be coy with consumers about price hikes, Heinz offers an honest take: smaller-sized, lower-ticket items can help households stick with their brand while cutting overall costs. 

According to Forbes, Heinz will launch several products priced at 99 cents and $1.99 to target households with less than $50,000 annual income, who buy week-to-week to stretch their food dollars. For example, U.S. products will include a 10-ounce pouch of Heinz Ketchup, a 9-ounce pack of yellow mustard, and cans of Home Style Beans, all at 99 cents retail. In the process, Heinz should earn higher percentage margins on each smaller item.

By comparison, a recent price check by The Lempert Report showed a small sampler of Heinz products priced at:  $3.59 at Amazon.com for a 36-ounce squeeze bottle of Heinz Tomato Ketchup; $1.59 at a ShopRite store on Long Island, NY, for a 16-ounce can of Heinz Premium Vegetarian Beans; and a two for $3 promotion at a Bi-Lo store in Greenville, SC, for 12-ounce jars of Heinz HomeStyle Gravy (compared with a $2.29 per jar everyday selling price).

In our view, price hikes are painful enough for shoppers today. At least honesty and transparency makes them more palatable.