< What's with all the tiny soda cans? And other grocery store mysteries, solved.

SYLVIE DOUGLIS, BYLINE: This is PLANET MONEY from NPR.

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JEFF GUO, HOST:

You know, Amanda, I feel like everybody these days is talking about the same thing - that thing being shrinkflation.

AMANDA ARONCZYK, HOST:

Ah, yes, shrinkflation. That, of course, is the idea that companies maybe are trying to trick customers by making the packages of their products smaller but charging the same price.

GUO: And you know who apparently really hates shrinkflation?

ARONCZYK: Who?

GUO: Cookie Monster.

ARONCZYK: Cookie Monster?

GUO: Yeah, he had this tweet earlier this year. He was like, (imitating Cookie Monster) me hate shrinkflation. Me cookies are getting smaller.

ARONCZYK: Oh, Jeff, I hope you didn't spend too much time on that imitation.

(LAUGHTER)

ARONCZYK: So another person who has been talking about shrinkflation, maybe a little less famous than Cookie Monster?

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PRESIDENT JOE BIDEN: Some companies are trying to pull a fast one by shrinking the products little by little and hoping you won't notice. Give me a break.

ARONCZYK: Give me a break. Who's the president around here? Let's call that guy.

GUO: (Laughter) Yeah. Everyone loves to complain about shrinkflation. There was this poll last year. Like, 80% of Americans have noticed shrinkflation, and they are mad about it.

ARONCZYK: Which kind of makes you wonder. Like, if shrinkflation makes people so mad, why would companies still do it? Like, do they think they can get away with it, or is there something else going on?

GUO: Now, the government actually does keep track of package sizes, and that data over the past decade reveals something surprising. Every year, some packages do get smaller, but at the same time, other packages - they're getting bigger.

ARONCZYK: So what is going on with package sizes? We went looking for answers, and we found this whole behind-the-scenes industry that helps big brands decide on things like - I don't know - how many peanut butter pretzels should go in a bag, and what is the optimal price to charge for that bag of peanut butter pretzels?

GUO: Yeah. It sounds like an amazing job, actually (laughter).

ARONCZYK: Yes, very delicious job. That would be good.

GUO: And all of these experts, they're like, shrinkflation? Like, that is not even half the story, guys. You're just scratching the surface of a much larger, much weirder revolution that has been sweeping through the aisles of our grocery stores. It's a revolution that has been hugely profitable, that's turned into a major new way for companies to get us all to buy more stuff and pay more for it.

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GUO: Hello, and welcome to PLANET MONEY. I'm Jeff Guo.

ARONCZYK: And I'm Amanda Aronczyk. Over the last 15 years, basically every major company that sells stuff at the grocery store has become obsessed with creating new package sizes, from chips to soda to laundry detergent to toilet paper.

GUO: All these companies have realized that they can make a lot of profit just by taking the same products and offering them in different packages.

ARONCZYK: It's all become this very complicated but very lucrative 4D chess game. The industry term for it is price-pack architecture.

GUO: On the show, we're going on a field trip to the grocery store. One of the leading practitioners of price pack architecture is going to show us exactly how this strategy works, why it's been so successful and how it's caused our store shelves to look totally different than they used to.

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GUO: To understand the quiet revolution that's been happening on the shelves of our grocery stores, we had to go see it in action, so we met up with Ellen Kan.

ARONCZYK: Ellen is a pricing and packaging consultant at Simon-Kucher. She's one of the partners there. And she specializes in telling companies how to market their products, how to set prices - and especially, these days, how big or small their package should be.

GUO: It's great to meet you. Hey.

ELLEN KAN: Yeah, it's great to meet you, Jeff. How are you?

GUO: Good.

ARONCZYK: Ellen met us at a Stop & Shop in Brooklyn. It's a pretty typical grocery store. You've got your produce and meat along the outside perimeter - the technical term is the fresh perimeter. Milk is in the back. But center stage are the aisles and aisles of packaged goods - the sodas and shampoos and the mayonnaise and the soup cans.

GUO: (Laughter) This is Ellen's playground. It's her secret garden.

KAN: So my friends are always - when I go to the grocery store with my friends, they're always like, where in the world did you wander off to?

GUO: (Laughter).

KAN: And, like, I'll usually be, like, down some aisle, like, studying a particular category that's, like, top of mind at the moment, like, trying to see what's going on.

GUO: You've been grocery store-pilled.

KAN: I have. I have. It's a problem.

GUO: Ellen has worked behind the scenes for some major household brands. Chances are that you have bought something that she has secretly come up with the strategy for - for instance, like this item that we came across in the snack aisle.

KAN: We can't say this, but I launched this product.

GUO: (Gasping).

KAN: Yeah.

GUO: Oh, my God, but super, super secret.

KAN: Yeah.

ARONCZYK: Super secret? Jeff, Jeff, Jeff, Jeff, Jeff, Jeff, Jeff.

(LAUGHTER)

ARONCZYK: Tell me what it was. Tell me. Come on. You can trust me.

GUO: Look. I'm sorry. She has signed so many NDAs. All I'm allowed to say is that it's crunchy.

ARONCZYK: Crunchy. OK. I will guess again later.

GUO: (Laughter) Now, it used to be that there was, like, one size of jam - right? - maybe two sizes of ketchup. Soda would come in the bottle or the can. That was pretty much it.

ARONCZYK: But these days, the same stuff comes in a bajillion different sizes. Take the peanut butter aisle.

KAN: You have the very, very biggest packs - right? - which is these huge jars of 40-ounce peanut butter. Oh, actually, this - even bigger, 64 ounce.

GUO: Oh, my God.

ARONCZYK: That is half a gallon of peanut butter. I could literally get in there and swim around if I wanted to.

KAN: And then on top of that, you have these multipacks, right? It's two shrink-wrapped packs...

GUO: Oh, gosh. It's heavy.

KAN: ...Of 40 ounces.

ARONCZYK: We have a medium-size 28 ounce jar, a 16 ounce jar. We also walked by the paper towels and counted...

GUO: Seven, eight, nine, 10

ARONCZYK: ...11 different package sizes in this one store.

GUO: It was wild.

ARONCZYK: You also see this in the chips and dips aisle.

GUO: Yeah. This is queso in a can.

KAN: Queso in a can.

GUO: But also queso in a jar.

KAN: Yeah.

GUO: Also queso in a small jar.

KAN: It's a lot of queso.

ARONCZYK: Ellen says this explosion of different package sizes, there is one place in the supermarket where it is particularly noticeable, the place where many say the trend actually got started.

KAN: So we're in the soda aisle.

GUO: The soda aisle. See, when you're talking about this strategy of selling the same stuff in different sizes, there is one company whose name always comes up - Coca-Cola. People say Coke kind of led the way.

DUANE STANFORD: It's soft drinks. It's bubbles. People love bubbles, you know? But it's actually a very complex business when you really dig into it.

ARONCZYK: This is Duane Stanford, and he's the editor and publisher of Beverage Digest, which is this publication that basically everybody in the beverage industry reads. And he's been covering this stuff for, like, two decades. You used to actually be the Coca-Cola reporter at The Atlanta Journal-Constitution. Atlanta, of course, is the global headquarters of Coca-Cola.

GUO: I feel like you must have been a celebrity in Atlanta at the time - right? - being the Coke reporter.

STANFORD: You know, maybe - I don't know. I think a lot of people in Coke circles certainly knew who I was and, by extension, you know, the industry as a whole.

GUO: Duane says in the mid 2000s, the soft drinks industry in the U.S. was facing a crisis. People were drinking less and less soda. And when the executives at Coke looked around for a solution, they noticed that the Coke bottlers in Latin America, this hyper-competitive market, they were doing something really different.

ARONCZYK: Back then, in the U.S., you pretty much just had three sizes of Coke, the big two-liter bottle, the 20-ounce bottle and the 12-ounce can. But in Latin America?

STANFORD: Have you ever seen a four-liter bottle of Coca-Cola?

GUO: (Laughter) No. No.

STANFORD: Well, you would have seen that in Mexico.

GUO: What? Who was buying a four-liter bottle of Coke?

STANFORD: A family, you know?

GUO: OK, so it wasn't quite a four-liter bottle. It was actually a 3.3-liter bottle, but you get the idea. That jumbo bottle, it was part of an aggressive strategy the Coke bottlers in Latin America had pioneered to flood the market with bottles and cans in all different shapes and sizes. In Mexico alone, you had, like, a dozen different varieties.

ARONCZYK: Now, a version of this strategy has been around for a long time. Economists call it product differentiation, where you tailor your product to different types of customers. This lets you reach more customers and sell more stuff.

GUO: But the kind of surprising thing they discovered in Latin America is that you can differentiate your product without actually making a new product. You could just pour the same soda into different-sized bottles or cans.

ARONCZYK: Like, those giant 3.3 liter bottles, they were, like Duane said, aimed at big families that wanted to buy in bulk. Then you had smaller premium bottles aimed at the rising middle class - the kind of thing, you know, you'd drink in your car. And they had, like, every size in between.

GUO: By using package sizes to divide up the market into all these little segments, Coke could also do a little bit of price discrimination. It could charge more to people who they thought were willing to pay more.

ARONCZYK: This strategy was a huge success in Latin America. In the mid-2000s, Coke executives realized you could apply this strategy to the whole world. Up to then, soda companies, especially in the U.S., they had been used to competing against each other on brand or flavor. That's how they differentiated themselves.

STANFORD: You know, at one point, you had the blue Pepsi; you had the clear Pepsi. Coca-Cola several years back did the orange cream Coca-Cola, I think it was, that made a big splash, you know, various cherry iterations. I mean, there're endless amounts.

ARONCZYK: But then, going forward, Coke decided that new package sizes would become one of their top strategies for boosting Coke sales.

GUO: In the U.S., Coke tried a bunch of different sizes, until in 2009, they finally found a hit product. You've probably seen this one before. I'm talking about the mini can.

STANFORD: It's almost shocking because suddenly you've got these little - you know, cute little cans of these little mini cans of Coke, and it immediately makes sense.

GUO: Yeah. These, like, half-size cans of Coke were perfect for people who were counting calories, or parents looking for a little treat they could give their children, or millennials who just needed a splash of Coke to mix into their cocktails.

ARONCZYK: This cute little can triggered a huge revolution. Duane says it showed how new package sizes in the U.S. could unlock new market segments, new types of Coke consumers. Somehow, they managed to find a way to sell more soda to people who wanted to drink less soda. And best of all, if you're Coca-Cola, they could sell the cans at a premium. People seem to be happy to pay extra for the convenience of the mini can.

GUO: And look, the mini can was just the beginning. Look on the shelves these days. You'll find Coke coming in all different sizes of bottles - two-liter bottles, 1.25 liter bottles, six-packs of 16.9-ounce bottles, eight-packs of 12-ounce bottles, 12-ounce cans...

ARONCZYK: Jeff, get it. We get it. We get it. Coke basically adapted their Latin American strategy for the U.S. market.

GUO: Right. And this became so fundamental to the way that Coke does business that they came up with this catchy name for their strategy.

STANFORD: You start hearing about this OBP - OBPPC. You know, It's funny...

GUO: What is the acronym?

STANFORD: You know, it's funny because, you know, it's kind of one of those acronyms that you still have to kind of - is it OBPBC, OBPPC? You know, you're constantly trying to remember it.

GUO: OK, OBPPC. It stands for occasion, brand, price, package and channel. Those are all supposed to be different ways for you to segment your market. But OBPPC is obviously a mouthful. So pretty soon, people in the industry, they're just calling it price pack architecture.

ARONCZYK: Like, a company won't just have one package at one price. They'll build an entire architecture, a whole portfolio of packages and prices aimed at different consumers and their desires. And price pack architecture quickly becomes one of the hottest ideas in the world of consumer goods.

GUO: After the break, we're going back to the grocery store with Ellen, and she's going to share some of the secrets of how companies use package sizes to get us to all buy more stuff, and we figure out where shrinkflation fits into all of this.

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GUO: Right around the time that Coke was having its breakthrough with the mini can, all these other companies started to realize a scary demographic truth, which is that the U.S. population was no longer growing as fast as it used to, which made it harder and harder to sell more and more stuff to people. Ellen says they needed to try something new.

KAN: And so you have this question of, like, how am I, as a brand, going to grow? I can no longer rely on the growth of the U.S. population to fuel my business, so I need to get very creative about how I can get more people to buy my stuff more often for more money.

ARONCZYK: So all of these companies followed Coke's lead, got aggressive about offering different package sizes. Now, doing this stuff is not cheap. Coming up with new package sizes often means you have to change up your entire manufacturing process. If the new package is a flop, that is a really expensive mistake.

GUO: But over time, manufacturing has gotten a lot more flexible, and even more importantly, companies are now collecting a lot more data about what we want and how we buy. And all of this data means that companies can now get really smart about how they're targeting us with new package sizes.

Back at the grocery store, Ellen points out a couple of the main strategies here. Now, one traditional time-honored way to divide up the market is by customer type. This is pretty obvious, right? Families will prefer larger jars of peanut butter; people living alone want smaller jars. But these days, companies have taken it a step further. They've realized that it's not just about who is buying your product, but how they are using it. The same customer might want something different depending on the occasion, depending on the scenario.

KAN: Is it a meal occasion; is it not? Is it a snack? Am I relaxing? Am I alone? Am I with other people? Am I with a family? Like, there's just...

GUO: Is Mercury in retrograde?

KAN: Exactly. So there's so much you can do with that.

ARONCZYK: One scenario that's been extremely profitable for companies is the on-the-go or the travel scenario. With the rise of price pack architecture, those kinds of products have really taken off.

KAN: There are some Walmarts where you go in, and there are actually on-the-go aisles.

GUO: Oh, yeah.

KAN: So it's not even the chip aisle anymore. It's actually a whole aisle full of on-the-go products.

GUO: Oriented around...

KAN: Yes, exactly.

GUO: And even within one scenario, companies will create different gradations of sizes. Like with Pringles. Ellen pointed out that just at this one store, Pringles had two slightly different on-the-go packages. You've got your mini tubes. They're like short little cans of Pringles. They hold 1.4 ounces of chips.

And then you also have these.

KAN: These, which are more like 0.7-ounce tubs.

GUO: Slightly smaller tubs.

KAN: Right, slightly smaller tubs.

GUO: It's all Pringles. It's all the same Pringles.

KAN: It's all Pringles. And so you ask yourself, like, why do they need these two varieties?

GUO: The answer is that the 1.4-ounce tubes, those are for adults on the go, while the little 0.7-ounce plastic tubs, those are supposed to be for children on the go.

ARONCZYK: Children on the go - you know, they're commuting. They're wearing suits. They've got a suitcase full of little tiny cans of Pringles.

GUO: (Laughter).

KAN: Like, same occasion, but very, very purposeful in, like, the serving size and all of that.

ARONCZYK: Sometimes a company will imagine, like, a dozen different scenarios and usage occasions, each of which might call for a slightly bigger or a slightly smaller package size. They'll even label their products with exactly the scenario they're targeting. So the next time you're in a store, you might notice what is a party-size bag of chips, versus a snack-size bag of chips, versus the on-the-go size bag of chips? Chances are each bag size has been fine-tuned to contain the right number of chips for each scenario, according to data.

GUO: Now, beyond segmenting the market into different scenarios, companies have also realized that they can use package sizes to change how we use a product. Ellen says she often thinks about something she calls the cookie jar effect.

KAN: I mean, if you just take the M&Ms, for example...

GUO: Yeah.

KAN: ...These are new. Like, I mean, they're not new new, but these are what I would call, like, pouches of M&Ms.

ARONCZYK: Ellen pointed to this enormous bag of M&Ms. It's, like, more than half a pound of M&Ms.

KAN: People always think about stuff going smaller. This has actually got bigger.

GUO: Yeah.

KAN: Whereas if you think back to, like, when we were growing up, the only M&Ms you would have would be that, like, single pouch.

GUO: Yeah, and it was - you'd open it, and then it would just, like, go everywhere.

KAN: Yeah, exactly. It would, like, all, like fall out everywhere.

ARONCZYK: But these new, larger package sizes are also resealable. The idea is you just leave it on the counter like a full jar of cookies, and it's there all day, like, calling to you and inviting you to snack. You are going to eat more.

GUO: The cookie jar effect is a powerful reason for companies to make larger and larger package sizes, and it's not just about snacks. For instance, you'll often see Brita water filters and electric toothbrush heads sold in these large multipacks. That's in part because manufacturers know that people forget to change those things, but if they can get you to stock tons of Brita filters in your closet, maybe you'll change them out more often.

ARONCZYK: The more you have, the more you will use, and the more you'll have to go back and buy more.

GUO: Exactly.

ARONCZYK: Now, there are some products where the cookie jar effect doesn't work. Ellen pointed this out as we walked past a display of paper towels.

KAN: So it's not necessarily one of those things where you're going to use more paper towels just because you have them at home.

ARONCZYK: Paper products, people tend to use the same amount every month, same amount of toilet paper, same amount of paper towels.

KAN: So I can't really grow consumption of paper towels in that sense.

GUO: Oh, it's kind of like a zero-sum game.

KAN: It's a zero-sum game.

ARONCZYK: So with paper towels, one package size strategy is to super mega up-size us. The idea is that if Bounty can get us to buy, like - I don't know - six months worth of paper towels in one trip, then for the next six months, we have already bought that Bounty. We're not going to go buy more from their competitors.

GUO: Yeah. Call it the flood-the-zone strategy, offering jumbo sizes to box out your competition. Ellen says, in recent years, that has spread from warehouse stores like Costco and Sam's Club to online shopping. Online retailers have become major sellers of these mega jumbo ultra packs because people don't have to schlep any of that stuff home anymore. That becomes the delivery driver's problem.

ARONCZYK: Sorry, delivery driver. Now, there's one final strategy that we have to talk about when it comes to price pack architecture. This is a big one. It is about the price in price pack architecture. So a major benefit of offering lots of different sizes of packages is that you get to offer lots of different price points. And that is another way to attract new customers. Some people, they want a good deal. They want those jumbo value packs. Others, they just want to spend as little money as they can.

GUO: Like, when we were in the ketchup bile, Ellen pointed out these cute, tiny little bottles of Heinz. They were like the size of a soda can. These are for people who don't want to spend that much money on ketchup if it's just going to, you know, sit in the fridge, people who back in the day, maybe just wouldn't have bought ketchup.

KAN: Or you might say, I'm going to go to McDonald's and get some of their little ketchup packs, right?

GUO: Oh, I've done that. I've done that.

KAN: But, like, at this point, you're kind of like, I can pay $3 for this, like, tiny little bottle that I'm going to use one time. So what have they done? They've basically grown, like, consumption.

ARONCZYK: So that's one reason you see a lot of smaller package sizes these days to attract customers who just want a low price point.

GUO: You might have also noticed that fancier products tend to be sold in smaller sizes. That's because companies want to keep their prices accessible. Ellen says craft beer is a great example.

KAN: So you see these four packs of beer?

GUO: Oh, yeah.

KAN: Historically...

GUO: They were six packs.

KAN: ...They used to be six packs, right?

GUO: Ellen's pointing to a four pack of this really fancy craft lager. She says, because craft beer costs a lot more, companies don't want to scare customers away with a high price.

KAN: You don't want to show up on shelf with six cans that's, like, crazy expensive relative to more of a mainstream beer, right?

GUO: So there's like a price point that they don't really want to exceed.

KAN: Yeah, there's a price point element to it as well.

ARONCZYK: What the craft beer companies have realized is that people cannot bring themselves to spend 20 bucks on a six pack of beer. They'd just rather buy less beer. And that brings us to the elephant in the room - shrinkflation. Ellen says shrinkflation is part of price pack architecture. And most of the time, that has to do with price stuff.

GUO: Right, so you'll often see companies turning to shrinkflation when they really want a package to stay at a particular price point. So they'll just make that package a little smaller in order to keep the price accessible, maybe keep it below some magic number like 4.99.

ARONCZYK: But something about shrinkflation still feels like a scam, right? Like, playing games with us. Like, if you want to raise the price, just raise the price. Be transparent about it. Don't shrink my beloved Reese's peanut butter cups.

GUO: Right.

ARONCZYK: They're smaller. I know it. They're smaller.

GUO: Right. Sometimes with shrinkflation, it really does seem like the company's trying to trick us or something. But Ellen says a lot of companies are aware that people don't like being tricked. You know, companies do have data on this stuff. And sometimes that data shows that even if shrinkflation makes some customers mad, many other customers actually would prefer a smaller bag of chips over a more expensive bag of chips.

And you got to hand it to them. There is kind of this economic logic here, right? Like, if the price of gasoline goes up, a lot of people will try to drive less to spend less money on gas. And the same goes for chips, except chips are sold by the bag. So if people want to buy fewer chips, you might want to give them a smaller bag.

ARONCZYK: It's hard to know how to feel about all of this price pack architecture stuff. On one hand, this is a story about companies bending over backwards to give us what we want in exactly the right quantities in exactly the right packages, which sounds like a win for consumers. But on the other hand, price pack architecture has also been one of the main ways that companies over the last decade have been able to squeeze more and more profits out of us, just by putting the same old stuff in a different package.

GUO: Yeah. Walking through that grocery store with Ellen, it really makes you realize how much companies really are getting in our heads about this stuff.

KAN: No, it's funny because I always say, like, after this job, I will never walk through a grocery store in the same way ever again. Like, you can't unsee it.

GUO: Yeah. I will say this stuff has opened my eyes to something that kind of sounds obvious when you say it out loud, which is that most of the things we buy at the store these days, whether it's sodas or paper towels or laundry detergent, they come in packages, in discrete quantities. You can't just go to the store and buy 14.8567 ounces of coke. And just that simple fact alone, that has deep economic implications. It means that package sizes matter a lot. This is why package sizes have become part of this competition at the grocery store - to give customers exactly what they want and exactly the portion sizes they want it in.

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GUO: This episode was produced by Sam Yellowhorse Kesler and edited by Meg Cramer. It was fact-checked by Sierra Juarez and engineered by Valentina Rodríguez Sánchez. Alex Goldmark is our executive producer.

I'm Jeff Guo.

ARONCZYK: And I'm Amanda Aronczyk. This is NPR. Thanks for listening.

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