Price Pack Architecture

shoptalk

/prīs păk ärkĭ-tĕkchər/

A term corporate leaders have lately used as a euphemism for shrinkflation.

For a while now, consumers have noticed that brands have been quietly shrinking their bags of potato chips and pushing smaller cans of soda without reducing prices, a phenomenon widely known as shrinkflation.

But corporate leaders prefer another, more obscure term: “price pack architecture.”

Executives at large companies mentioned “price pack architecture” twice as often during events with investors in the first quarter of this year versus the same period last year, according to a search of transcripts for U.S. companies with market values of $10 billion or more on AlphaSense, a data platform.

Technically, price pack architecture refers to a strategy in which a company adjusts a product’s packaging — “portion control” snack sizes, for example, or stay-fresh features like zipper bags — to offer consumers more options. But companies have recently used the phrase almost exclusively euphemistically, to describe shrinking products, with price tags that are the same or higher than the ones they used to sell.

Companies sometimes do this to cover the rising costs of ingredients that go into their products. But as companies’ costs have moderated, they’ve bolstered profits by lowering prices slowly, if at all.

Lawmakers in the United States and abroad have taken aim at the smaller package, larger price-tag phenomenon (though they, like most people, call it shrinkflation).

Senator Elizabeth Warren of Massachusetts, along with a fellow Democrat, Senator Bob Casey of Pennsylvania, introduced a bill in February that would crack down on the practice. On Super Bowl Sunday, President Biden called it out in a video.

France has begun forcing merchants to put signs in front of products that have been reduced in size without a corresponding price cut.

Companies, on the other hand, tend to highlight the benefits of shrinkflation to their bottom lines, but without uttering the word. Utz Brands, which makes potato chips and other snacks, is one of several companies that has increased its profits even as it sells less food by volume.

As Ajay Kataria, chief financial officer of Utz, put it in a May 2 earnings call, “Pricing increased 40 basis points due to certain price pack architecture adjustments to be better positioned in the marketplace.”

In some cases the term is not so sinister. Clorox, for example, reported that it made its bottles of Pine-Sol cleaning solution smaller but more concentrated, allowing customers to get the same number of uses with less plastic.

“As we apply the principles of price pack architecture, we realized we could deliver a better consumer experience through compaction,” Linda Rendle, chief executive of Clorox, told analysts in a February earnings call.

Still, many companies have been using the term to describe how they’re giving customers less for more. James Quincey, chief executive of Coca-Cola, told analysts on a Feb. 13 earnings call that inflation “is pressuring certain consumer segments who are seeking value.”

His solution? “To keep consumers in our franchise,” Mr. Quincey said, “we are leveraging our revenue growth management capabilities to tailor our offerings and price pack architecture to meet consumers’ evolving needs.”

In plain English: Customers will probably pay more per sip of soda.