The Economic Side of an Oreo Package

Higher prices can bring us smaller packages.

Smaller Snack Packages

With inflation accelerating, food makers worry that we could erase pricier snacks and sodas from our shopping lists. Their solution is a smaller cheaper package. As a result, we can buy Pepsi’s Lays Potato Chips in six different size bags with prices that range from $.50 to approximately $5. Similarly, Mondelez International sells its Milka chocolate bars in sizes that cost us from $1 to $6. And if we are thirsty, we can always buy a 30-pack of Coke mini-cans for $24.99.

WSJ tells us that “price variety” lets producers retain buyers that might depart because of affordability. Their example was a reduced size option for Ritz crackers and Oreo cookies. Those smaller packages helped to bump Mondelez’s cookies and crackers numbers up by .3% compared to last year. Also, with cocoa prices tripling since 2023, Mondelez can give chocolate lovers a cheaper alternative that preserves profits.

When cocoa prices surged (now they are sliding but are still relatively high), producers responded:

Our Bottom Line: Price Pack Architecture

Package size has always echoed consumers’ needs. We are used to seeing smaller lunchbox sizes and larger party packaging. But now, more than ever, affordability, always critical in emerging markets, has become more important here.

Called price pack architecture, firms consider demand to select the optimal package size.

For Coke that meant multiplying the products it sold through package size. For a very small individual can (Coke minis), they might charge more per ounce than for their larger bottles. In addition, the tiny can lets them cater to people that want fewer soda calories and to others looking for a small kids treat. As a result, they achieve product differentiation without making anything new while, at the same time, boosting their pricing power.

It all sounds like typical oligopoly behavior.

Along a competitive market continuum, as we move to the right, firms become more powerful:

With just three or four but usually no more than eight competitors, oligopolies are very large firms that enjoy economies of scale, pricing power, and product differentiation. Furthermore, their size lets them compete through product size. So yes, Coke has distinguished its taste from Pepsi and Lays tries for the crunchier chip. But also, we see that package size is a competitive strategy.

My sources and more: Thanks to WSJ for reminding me that it was time to return to package size. Closely related, this article detailed other pricing strategies. And finally, returning to the supply side, JP Mogan gave us a closer look at cocoa price changes.

Please note that several of today’s sentences were in a past econlife post.