The lawmakers called on the companies to elaborate on their “pattern of profiteering off consumers” from shrinkflation practices and paying reduced taxes from the alleged price gouging. Price gouging continues to drive corporate profits while driving “over half of inflation,” they wrote in a statement.
“All three of these companies have shrunk the size of their packaging to squeeze profits out of their customers, and then paid a very slim federal income tax on their billions of dollars in profits,” Warren and Dean wrote.
The pair cited Coca Cola’s executives’ “concerted effort” to reduce packaging sizes during previous earnings calls. Last year, these efforts promoted the company’s plans to “stretch out the pricing ladder” and “leverage[e] … greater pack diversity,” which has contributed to 30% of gross profit growth, according to the company’s Q4 2023 earnings report cited by Warren and Dean.
Further, Warren and Dean highlighted Coca-Cola’s candidness with its shareholders about its pricing strategy with particular attention to last year’s earnings call where executives expressed they had “earn[ed] the right” to increase prices for consumers given the company’s market status.
With increased profits from reduced packaging sizes, Coca-Cola is also paying less taxes from those profits, Warren and Dean stated. Based on data from the nonprofit Institute for Taxation and Economic Policy, Coca-Cola made $13.4 billion between 2018 and 2022 paying an average effective tax rate of 13.5%. According to the lawmakers, PepsiCo’s taxes were also a result of the 2017 corporate tax cuts with the company paying 15% in federal income taxes in $22.5 billion in profits in the same period as cited by the Institute of Taxation and Economic Policy. In the same period, General Mills paid 14.8% in federal income taxes on $12 billion in profits. The policymakers pointed out that the companies’ tax rate is lower than the corporate tax rate that fell from 35% to 21% by former President Trump and Congressional Republicans in 2017.
“The 2017 Republican corporate tax cuts were sold with ‘trickle down’ arguments about benefits to consumers, but these tax breaks actually incentivized price gouging. After the tax cuts passed – thanks in large part due to a lobbying blitz funded by corporate interests – business investment fell, and then corporations raised prices to pad their profits, knowing that lower corporate tax cuts meant they would get back more on each dollar of price increase,” Warren and Dean wrote.
Warren and Dean requested that the executives provide the average price that their respective companies charged per ounce of soda or cereal, in addition to separate figure for different sizes of the same product between 2018 and 2024. They also requested a response over how much the companies would have had to pay in taxes between 2018 and 2023 if the Tax Cuts and Job Act had not been in effect.
Similarly, PepsiCo’s executives were also called out on selling reduced product sizes at the same price. Warren and Dean cited the company’s pricing and mixing strategy (e.g. Gatorade’s 32-ounce bottle replaced with a 28-ounce bottle for the same price) as a way to accommodate consumers’ varied portion preferences.
The lawmakers also requested details on whether executives received “bonuses or other incentives during periods of high inflation.”
FoodNavigator-USA contacted Coca-Cola, General Mills and PepsiCo for comment, however, no response was given at the time of publication.
Consumer Brands Association: ‘There remains market discipline on price”
"America’s household brands are attuned to their consumers, understanding the financial strain that inflation is placing on families,” Sarah Gallo, senior vice president of federal affairs, Consumer Brands Association, told FoodNavigator-USA.
Companies are offering a wider range of product sizes and pricing to meet evolving needs, despite absorbing costs in other areas, she said.
“Even as companies continue to absorb the economic realities of inflation, such as the rising cost of ingredients, packaging and other input costs like labor, transportation and supply chain disruptions, there remains market discipline on price,” Gallo said.
While food prices have spiked within the last three years, these markups “are not unusual compared with previous economic recoveries, countering the misleading attacks on the industry,” Gallo said.
A report released by the Federal Bank of San Francisco, as cited by Gallo, found that profits are an unreliable measure of pricing power. Rather, lower business taxes and higher subsidies from pandemic-related government assistance can contribute to a rise in corporate profits.
Coca-Cola, General Mills, PepsiCo reported price increases, volume declines in recent earnings
In recent years, General Mills struggled in part as it implemented price increases before its competitors to offset inflation, which contributed to challenging year-over-year comparisons. The company faced unexpected competition as private labels and smaller brands returned to shelves sooner than anticipated. Additionally, they struggled with difficult year-over-year comparisons due to the expiration of emergency benefits from the Supplemental Nutrition Assistance Program (SNAP), which had been available during the pandemic.
PepsiCo reported volume declines for its PepsiCo Beverages North America during its second quarter 2024 earnings, ending June 30. In an effort to stay ahead of inflation and supply chain expenses, the company raised prices for a number of its products by 5% in Q2 2024. While PepsiCo Chairman and CEO acknowledged that broad price cuts are not the answer to increasing volume across certain brands, rather a granular approach will create “some value to be given back to consumers after three or four years of a lot of inflation.”
In Q2 2024, Coca-Cola’s revenue grew 3% to $12.4 billion, exceeding the projected $11.8 billion by analysts. Earnings per share grew 7% year-over-year to 84 cents vs 81 cents. The increase was driven by a combination of price hikes, including an average global rise of 9% in the quarter, following a 13% overall increase in the previous quarter, along with a 2% growth in unit case volume.
In North America, Coca-Cola’s volumes fell 1% while the average price of products sold in the region increased 11%. The company’s CEO James Quincey acknowledged the value of AI and other digital technologies to streamline marketing, innovation and price-pack architecture to justify “a reasonable level of pricing.”