Rundown: Congress combats shrinkflation, NRF rethinks shrink and Halloween candy

0:03Hey, everyone. Welcome back to the Modern Retail Rundown. I am senior reporter Gabby Barco and I'm here again with Editor-in-Chief Kale Guthrie-Weissman. Hey, Kale. How are you? Welcome back. Thank you. How are you doing, Gabby? I'm doing great. I'm very excited about today's topics. I don't know about you. A lot of fun ones. We have a lot, and it's a smattering of different topics that are fun and interesting and very much about the industry. So we get to go deep today. Yes. Also, preview, there's candy involved. So I'm excited for that. And And we're talking about my favorite candy, which is, spoiler alert, not doing well.

0:43So I guess I need to buy more. Yeah, you have to stock up on them to save the company. All right, let's get started. So this week, Congress members have sent out a letter to food manufacturers, basically scolding them over shrinkflation. We will get into that for those not familiar. But it is a pretty darning letter, if we say so ourselves. So I'm excited to read that. After that, we're going to talk about the NRF's annual retail theft report, which is basically no more. I think they decided they're not going to be doing it. So for several reasons, we'll get into, which is an interesting turn of events.

1:25And then lastly, we're going to talk about Halloween candy. This year, there is a shortage of chocolate for several reasons again, but we will, yeah, we'll go over that and why you might not find as much chocolate on the shelf this year. But first up, let's talk about this Congress letter by Senator Elizabeth Warren of Massachusetts and Rep. Madeline Dean from Pennsylvania, who both issued a joint letter to the CEOs of a few big CPG companies that are practicing shrinkflation. inflation. So the big three that were, you know, they pointed this to were General Mills, Coca-Cola and PepsiCo, which is pretty much in line with a lot of the coverage from the last couple of years of them reducing the sizes of their products while at least keeping the same price or even increasing it in many cases.

2:24But yeah, what are your thoughts on this? I mean, I know Elizabeth Warren, this is, you know, sort of become her thing, you know, consumer advocacy, but I thought it was an interesting move. Yeah, no, I mean, this has been a long time coming. We wrote about shrinkflation, I want to say in 2022. So it's not like this is a new thing. So it's definitely interesting that it took this long for the letter to come out. Or maybe it's just lawmakers were waiting for the dust to settle to see if, you know, companies would change their course, which in Senator Warren's mind, they have not. Here's something that she said to NBC News in a statement.

2:59people have noticed that their box of Cheerios and bag of Doritos are smaller, but prices are higher. And at the same time, these giant corporations are paying lower tax rates than the average American. We can't let them get away with this price gouging and tax dodging. It's just plain wrong and we're fighting back. And so there's been an interesting sort of, I guess, storyline with it where this was definitely in response to the pandemic, where a lot of CPG, you know, people were cutting back on buying things. There was a lot of economic uncertainty. And so supply chain issues that they supply chain issues.

3:31Yeah, exactly. And so they started doing smaller sizes and around the same prices or a little bit higher prices. They called them more value oriented sizes. We'll get more into this in a few minutes, but it has persisted. There's even been some cases in which they went a little bit too far. And like the companies like Pepsi that were focusing on on these smaller sizes and trying to drive more volume began to see a little bit of backlash. And we've also seen over the last few years, which I think you've written about, but definitely we as a publication have written about, like private labels have been seeing major growth over the last year, probably as a result of the major brands raising their prices and also cutting back the size.

4:09So this is just kind of a lot of things reaching ahead and it takes government a long time to respond, but now we're seeing the government response. Yeah, it's definitely been a few years. And, you know, consumers obviously have also noticed that when I did that story, I talked to a bunch of very passionate people about the fact that their products that they've been buying for years have, you know, there's like side by side pictures that it is has, you know, there it's really documented very well. But I think the the other I just wanted to note that President Biden has also put out a statement about shrinkflation and told companies to not do it.

4:46I don't think that worked. But, you know, I think an official letter to the CEOs of the specific companies in this case, like the one Senator Orrin authored is a little bit more of a statement. They also accuse the companies of lobbying for these tax breaks that these Republican led corporate lobbyists were lobbying for. They're incentivizing price gouging. This was back in 2017, the previous administration. And I think their point is that it's sort of dovetailed with this shrinkflation practices that so just sort of padding their margins generally. You know, the companies have really pushed back on it.

5:29But then at the same time, like I always say, it's like we listen to their earnings and they're kind of boasting about the fact that even though spending like technically unit volume is down, but because they they're able to improve the margins so much that they're still profiting from it. So like it is an open secret at this point. But yeah, let's look at some of the examples. Maybe you can give us some, Kale. Yeah, sure. So in 2021, General Mills reduced the size of many cereal boxes, like its family-sized Cocoa Buffs. It went from 19.3 ounces to 18.1 ounces, and then the price got increased by 5x.

6:06The company bragged that it was getting smart about how we look at pricing. Similarly, Pepsi changed the 32-ounce Gatorade bottle with a 28-ounce bottle for the same price, and Coca-Cola has also shrunk its sizes. So we're seeing this across the board with the major CPG players. when asked specifically about shrinklation by the press, these companies will say we're not doing it. These sizes have been here for forever or we're trying to cater to customer needs. But then if you read what the CFOs are saying or the CEOs are saying in earnings, it's a much different story. Yeah, like in July, PepsiCo denied that they changed the bottle sizes of the Gatorade that you just mentioned.

6:47for profits with a spokesperson saying that actually the 28 ounce has been around for over a decade and it's sort of like part of their long term strategy or I don't know, I guess, yeah, catering to people who want smaller sizes. So and it's not in response to the economic environment. And then Coca-Cola has claimed that it offers smaller sizes now as a way to appeal to more value seeking customers. I think we also saw a little bit of that with the whole ozempic wave that's you know trickling down to like these to-go or smaller portions so there's a lot of yeah factors that they can kind of point to that help obfuscate the strategy a little bit but yeah still you know it the companies have told shareholders that shrinkflation is pretty much helping with the profit so for example in 2022 this was like when it was really still when it was coming to prominence, at least in the post-COVID era.

7:45Coca-Cola did report that, like I mentioned, that both unit case volume and net revenue grew. The quote by CEO James Quincy was that one of the recession behaviors tends to be to try and reduce the dollar outlay of the basket. And therefore, the price point becomes even more important than the price per leader. So it's that thing where I think most of us are grabbing something off the shelf and And we just, you know, you see the sticker, the price, and you grab it based on that. And you don't really see the, you know, per unit value, I guess, of end. So he says, so around the world, that's absolutely what we're pursuing, whether it's in the U.S.

8:23having smaller bottles or smaller multi-packs. I guess I'm not sure what this letter is going to do. I mean, you know, obviously it's a starting point, but I just don't see the portions going back up once the toothpaste is out of the tube kind of thing. Yeah, a strongly worded letter is one thing. The question is if you can get some teeth behind it and what sort of government apparatuses you can use to either try and control the prices or, you know, make these companies go back to offering better value for their products. So that's really the big question is what sort of impact it could have beyond, you know, senators issuing a letter saying they're angry.

9:02And that'll be something that we'll definitely have to watch out for. But, you know, we'll have to wait and see what they'll do. Yeah, I think at this point, you know, the actual packaging, there's been a lot of investments to tweak it. So like I said, I, I personally don't see that changing. But at the very least, the prices may start to come down. I, you know, we're already seeing that like a lot of discounting, because people, I think, just were fed up and we're like, just moving on to private label or switching to other brands. So I think the companies in the last few months have seen that, hence all the price slashing that's happening on the retail side.

9:38Yep, exactly. All right. Well, next up, yeah, let's talk about that NRF report. I think this is a topic both of us have spoken about on the podcast before, which is retail shrink, another shrink topic. The NRF, the National Retail Federation, every year puts out this report that basically talks about what's going on in retail shrink, which is everything from theft to damages to losses. It's kind of been blown out of proportion over the last couple of years, and we've written about it. Kel, why don't you give us a little bit of a preview of what they said? Sure. So pretty much the Federation said we're not going to publish this annual report.

10:20They're going to do something a little bit differently. But here's what one of the NRF's media spokespeople said to Retail Brew and asked about it. Quote, over the last several years, as the nature of retail loss has evolved, it has become clear that a broad study about retail shrink is no longer sufficient for capturing the key challenges and needs of the industry. And so this is, it's a kind of funny way of tweaking it because we'll get into this, but the NRF received a lot of flack over the last year because in some previous reports, it had a lot of conflicting stats that seemed to overblow the problem of retail theft and organized retail crime, which we'll describe in a second.

10:56So pretty much instead of trying to do better analysis, the NRF now seems to be like, actually, we just won't publish the report. We'll publish a different report. So kind of an interesting move. And they're saying that they need to more sufficiently capture the key challenges and needs of the industry. So that's what's going on. Yeah, I mean, as an example, you know, this was really this really ramped up in the last couple of years. But in April of 2023, the NRF claimed that year's report that retail crime accounted for nearly half of the estimated$94.5 billion that retailers said they lost to shrink in 2021.

11:33And that was attributable to organized retail crime. I mean, that is a lot of money to just assign to theft. And it would be kind of hard to go unnoticed if you actually do the math. So but yeah, you know, because it's the NRF, obviously, a lot of people take it at face value. But there was pushback over the last couple of years over that. And that's why now they're they're deciding against it. But that number actually contradicted the organization's own shrink report, which showed all external theft, not just incidents related to organized groups, but, you know, just all theft accounted for just 37 % of those losses in 2021.

12:12So 37, 50%, not really that close. And then at the time, NRF attributed its claim of nearly half to its research partner, K2 Integrity, which attributed to a 2021 CVS executive's testimony to Congress. So this loop back to the retailers, of course. But it's really interesting here because this is one of the big problems with shrink and retail theft and organized retail crime as a whole is that a lot of it is based on just people seeing things and writing stories about it. And it's very hard to find actual data. And then when there is data written about it, it's hard to actually pinpoint exactly where that data came from.

12:53And this hubbub over these reports shows where in 2021, the NRF said 37 % of net losses was attributable to external theft, not just organized retail theft. But we don't know exactly where that 37 % came from. But then a few years later, it said a completely different thing, not attributing where it came from. Now it was nearly half. And it just shows that in a lot of these reports, it seems like you can kind of make things up or sort of find something that seems to confirm a belief that you have. And I think a lot of the headlines and a lot of the storylines around retail theft is just around people's feelings and discomfort and videos that they see.

13:31And it's very hard to get actual real data about how big or small the actual problem is. And that's where this backlash is really coming from, is that we don't actually know. And it's all very, very shaky ground and shaky data that people are using. Yeah. And then, you know, going back a couple of years again, you know, when we're talking about executives from the retailers that, you know, it was everybody from Walgreens to Nordstrom, Foot Locker that did cite these reports in their earnings and talking about how theft was actually a major problem. and, you know, again, just blame their financial performance on the theft.

14:09And of course, you know, like shrinkflation, I feel like they kind of, it's not that they're similar, but I do kind of think of them sort of dovetailing, I guess, at the same time happening where retailers were just blaming external factors on their own performance. But the reality is that, you know, sales slowed down. I mean, that's just what happens. But yeah, this led some companies, You know, we started seeing the locked up products, security cameras, security guards, all of that popping up at the retailers, although that's also seems like to be easing up a little bit lately. Yeah, it's definitely easing up.

14:45And we're seeing a lot, especially with the locked up products, we're seeing a major backlash to that because the pharmacies and the bigger companies that are doing it are realizing that when products are locked up, fewer people are going to buy those products. And so there's a really interesting quote. It's been cited a lot, but I like to bring it up because it really shows the wishy-washy nature of how retailers are thinking about it. But Walgreens chief financial officer James Cahoe said in an earnings call a few years ago, maybe we cried too much last year, referring to how Walgreens a year prior said that growing merchandise theft was a really big issue and that it needed to up its security practices.

15:21He said at that same time that the company likely went overboard when it added private security to certain locations. So we're seeing this really sort of big shift where first it was retail theft is a huge problem. We need to act quickly. We're going to up security. We're going to close stores because there's too much theft there. And now they're saying, oops, we're not selling enough stuff. And actually, maybe the problem was completely overblown. So that's where we're at in the sort of backlash area right now. Yeah. And I think it's a very, I guess it's a balance that you have to strike between security and actually needing to move products, aka making them accessible.

15:59We've talked about that before. I wish there was more data on that, the sort of like standing in front of the locked case and how much, I don't know, it's just a personal passion of mine, how much time people are waiting and whether it's hurting sales. I'm sure anecdotally speaking, these retailers are seeing that. Yeah. And it's like, I have not bought products because it was locked behind a shelf. And it's, it's almost like you have, you need to have a personal shopper because you have to wait for someone to come and then open it for you. And, you know, you can look at overall sales, but then it's hard to, you know, suss out what is from things being locked up, what is from waning demand for these predominantly drug stores.

16:38But, you know, it's something definitely to look into. And it shows that now many of these players are being like, maybe we need to rethink how we're going about this. But in terms of the NRF, it seems like they're not going to stop talking about shrink. This is a major talking point for them. But the way they're going to be looking at it a little bit differently now. And so I thought this was an interesting quote. The organization told Retail Brew when asking what's next. NRF's 2024 research report will examine the issues and trends related to shoplifting violence and organized retail crime activity.

17:08The report will provide a pre-pandemic benchmark to measure retail theft and violence activity against current levels. Additionally, it will outline the numerous initiatives and investments retailers have made to reduce theft and loss and how these actions have evolved with a changing retail landscape. So essentially, the NRF is saying the conversation has shifted and it's no longer just about specifically organized retail crime and shrink and how that's increasing and instead trying to look at a bigger picture of what's going on. So I'll be really interested to read that report and see exactly how it's changed, the claims it's making, and specifically what data it's citing and how it got that data.

17:43Yeah. All right. On that note, let's move on to some spooky news. So there's some scary news for trick-or-treaters that are excited for chocolate this Halloween. Okay, let's talk about it. So what is going on with Halloween candy this year? Basically, what's happening is that there's really high cocoa prices. They've been on the rise the last few years with the supply chain and all of that. But that's making chocolate really expensive to produce, especially for these big mass producers like Hershey's and Mondelez. So this is data that's coming from research firm Surkana, where Reuters cited that this fall candy companies are actually going to ship out less chocolate to the stores.

18:30And instead, they're actually pushing like gummies and licorice and all of these other sweets that don't involve chocolate. But yeah, what are your thoughts? I mean, Hershey's is doing it. There's some new products we'll talk about that they're trying to promote over it. But yeah, I think it just seems like an interesting strategy because candy has been struggling in the last couple of years. Yeah, candy's been struggling. It makes me sad. I love chocolate. I will probably still shell out for more expensive chocolate. You know, a lot of this makes sense because the prices are getting higher. And also, I don't know, I don't necessarily associate Halloween specifically with chocolate.

19:05I associate it more with, you know, other things like you can get a little hard candy, they're a Jolly Rancher, things like that. And also we've been seeing the rise of Nerds, what is it called, gummy clusters, which is like one that has bucked the trend. Like that has been actually really popular while other companies have been sort of flailing. And so I feel like we're at this weird inflection point where certain tastes are going a certain way and chocolate is becoming more expensive. And so we're seeing kind of a rejiggering of what people are buying and what's being marketed to customers. Yeah, I mean, I think with the success of the nerds clusters, we should really we should learn the name of it.

19:45Hershey's actually just introduced the Jolly Ranchers ropes and shackle-licious gummies. It's inspired by shack. So they're kind of, you know, trying to really lean into this, the gummy ropes trend. But yeah, like you said, I mean, I guess you're right that the, you know, Halloween is not necessarily a chocolate holiday. But I think most people are thinking of like the, you know, Reese's and Kit Kat and Snickers, like that sort of mix. The fun size box. Exactly. Yeah. So that's the stuff that maybe they're having a hard time producing with decent margins. But yeah, Hershey's and Mondelez say that they're also focusing on like limited edition releases this Halloween.

20:23So like Mondelez is doing Sour Patch Kids in Apple Harvest and Cherry Flavors. That sounds kind of fun, actually, maybe. But yeah. Yeah, and then Hershey's plans to introduce more of these sort of gummy sweets, non-chocolates in the next few months. So it seems like this is a really heavy topic with their R &D right now. Yeah, and I thought this quote was interesting from Dan Sadler, the principal of client insights at Serkana. He said, chocolate candy, there's just not as many items per retailer on shelf. We're seeing double digit increase in non-chocolate items. And this brings up a really important question for me personally, which is there was always is one house in the neighborhood that was giving away king-sized candy bars, and those were always chocolate bars.

21:06So if you're that family that is giving out the big candy, are you still going to be doing chocolate or are you going to be doing something else that's non-chocolate and bigger? And I don't know what the answer is. Yeah, because I think in some cases, I think the actual average unit prices on chocolate are up like 40%. So I think I saw like the, you know, the big fun size mix, the like hundred something pieces is like$19.99 at Target. I don't know. I remember them, I don't know, as a kid, I remember them being like maybe $8.99 and that seemed like a lot of money. And now it's like almost double and it seems, I guess, pretty normal.

21:42So yeah, if you need a few of those, that is a lot. But let's talk about, you know, the fact that cocoa prices, because it's this agricultural commodity and it's, an ingredient that they have to basically stock up on throughout the year. It's making chocolate outpace the inflation of just all general food, which I thought was interesting. Seasonal chocolate prices are up 7.5 % since last year. That's not to say that the non-chocolate sweets are that cheap either. I know it's a little contradictory here, but the gummies and all of that, they're still more expensive than they were a couple of years ago.

22:20It's just that production-wise, are a little bit easier. They did something similar with Easter actually going like light on chocolate, which to me, I'm like, Easter is very much chocolate heavy, right? What about you? Yeah, yeah, Easter is chocolate heavy. I also feel like Valentine's Day. And so it'll be interesting to see, like, are we going to be seeing more pushes towards non-chocolate during these very heavy chocolate times? I don't know. Right, exactly. And but yeah, I mean, Halloween, you know, just to kind of wrap up, you know, since COVID, like I said, these companies have really faced lumping sales.

22:53So they're really trying to do all of these, you know, limited editions and fun flavors to help sales. But Halloween is actually a really important time for sales. Like last year, this period was the biggest holiday for candy sales for 2023. And I think they're expecting that this year. That is actually why we saw Halloween themed candy hit shelves earlier than ever. Apparently, like this year that that was a report so we had like summer ween and augtober as in august yeah so i think candy is kind of you know part of that bigger trend so it's interesting it was weird i you know going to stores and seeing all of that and realizing it's not even october yet yeah no we're definitely pushing it up and it was a way to push more product as almost always is so i don't know, it'll be interesting to see what the makeup of Halloween, like if you have a kid in your life, have them dump out the candy.

23:49Like there's always that moment where you dump out the candy and see what you got. Will it be less chocolate this year? Because it seems like it probably will. And that means, you know, with like my nieces and nephews, I always try to steal at least one or two pieces of chocolate. And I don't know, it might be harder this year. And that's sad for me. Yeah, it is sad. I mean, anecdotally speaking, my niece has been really into Dubai chocolate, the pistachio chocolate bars and those are very expensive i just got my hand on a bar i don't want to say how much it costs but uh yeah so i i mean obviously that's that's going to be interesting to see how they manage that but we'll we'll check the numbers after halloween yep can't wait to see all right so on that note yeah that is our show for today you can write and review us on apple podcast or spotify or anywhere else you're listening today you can listen to the modern Retail Podcast on Thursdays with Kale.

24:41He does these interviews with the retail executives. I don't know if you have a preview for us for next week, Kale. I do. I speak with the brand Made by Gather, which has been around for a very long time. But it's best known as the company behind Drew Barrymore's homewares products. Beautiful. I'm sure many people have seen her talk about it. And so we talked about that. We talked about Drew. They're working with Demi Lovato right now. Just the overall state of being like in celebrity and commerce and being an older player. It was a really fun conversation. Oh, I'm excited for that one. Okay. And yeah, you can follow us on social.

25:16We're at Modern Retail. And yeah, you can come back next week for more Modern Retail Rundown. Thank you.

25:34Thank you.