Why Davis Baking Powder Put in a 23% Stealth Price Hike

So they used the exact same size canister and just put less stuff in it? And charged the same price?? Buttheads!

This was Laura's reaction after I brought home a new can of Davis Baking Powder, pulled the old can out of our cupboard and set them both in front of her. Here's what she saw:


Note the discrepancy in net weight. The canister on the left contains 10 ounces, while the one on the right contains 8.1 ounces.

Ladies and gentlemen: this is a textbook stealth price hike. That vanishing 1.9 ounces may not seem like much, but if you sit down with your calculator and do the math, this equates to a twenty-three percent price increase.

That's right, twenty-three percent. I've railed against stealth price hikes before, but this is one of the biggest and hairiest ones I've seen.

Look, I come from Wall Street, so I'm the first person to raise the free-market argument that this company has the right to charge whatever it wants. Further, long-time CK readers know that if a company does something we don't like, it's pointless to whine, complain and give our power away.

This is why I write so forcefully here about how we consumers must empower ourselves, when necessary, with absolute brand disloyalty--especially when we see this kind of stealth price increase. We have an important obligation to call, write or otherwise give vociferous feedback so companies clearly understand our views.

After all, how can consumer products companies give us what we want if we won't tell them?

So I decided to walk my talk by writing a blunt and somewhat, uh, caustic email to the parent company of Davis Baking Powder, which is a family-owned, Indiana-based food products firm named Hulman & Co. And to my great shock (and to Hulman's immense credit), the company's executive director of marketing, Lori Danielson, spent half an hour on the phone with me explaining the company's decision.

I'm still not happy about this price hike, but I'm going to share with you the company's side of the argument. And I'm going to share it not only because it's only fair to hear them out, but also because it gives a fascinating sneak peak at the pricing and marketing strategies behind the products on our store shelves.

Essentially, there were two key reasons behind this price hike:

1) The company says customers wanted smaller cans of baking powder.

Based on feedback from customers, a full 10 ounces of baking powder was simply too much to use before it goes bad (according to the company, baking powder will keep for two years in an unopened can, and for just 6-8 months once opened). They consider an 8.1 ounce can to be a better fit for the average home baker's needs.

(Readers, there are two--maybe three--holes in the logic behind this "reason." If you can identify them, share in the comments).

2) Second, the company faces raw material cost increases.

I think most of us are aware, thanks to our country's horrendously misguided ethanol policy, that the price of corn has increased significantly in recent years. Furthermore, corn proliferates throughout our food chain in everything from animal feed to HFCS to corn starch. And guess what? Corn starch happens to be the single biggest ingredient in baking powder. Worse, prices have also increased for two other key baking powder inputs, sodium aluminum sulfate and monocalcium phosphate.

(It's understandable that the company would want to find a way to pass these price hikes on to their customers. Fair enough.)

This is the company's viewpoint, and on some levels, it's reasonable.

But there's one more thing that I've learned while researching this piece: The competitive landscape of the baking powder segment is about to change. And whether this is good or bad depends on whether you're a company selling baking powder--or a consumer buying it.

Until recently, the baking powder segment has been a quiet and uncompetitive little corner in our grocery stores. Hulman & Co.'s Davis and Clabber Girl brands dominate the segment, although there's some desultory competition from store brand products, as well as from Kraft, which owns the Calumet brand.

Now, however, a new player is looking to enter the marketplace, and reportedly, it's a new offering from Argo, the maker of the familiar cornstarch brand. This means consumers may soon be witness to ... a baking powder war.

(Put your investor's hat on and you can see that Hulman chose a brilliant pre-emptive pricing strategy: put in a huge stealth price hike now, and create some breathing room to offer price cuts down the road if necessary. You never know if Argo will come in and bomb pricing to gain market share--but if they do, Hulman can now respond by cutting prices from a much higher starting point. Well played.)

I'll summarize. The company feels justified making this stealth price hike--although they prefer using the more euphemistic phrase unit volume reduction. They've earned a ton of my respect for reaching out to me to explain their position. Further, they took great pains to make me understand how carefully they considered this decision and how they tried to balance the needs of their customers with the needs of their company's bottom line.

I understand the logic here, and I respect it. As I've said already, we live in a free market, and Hulman has the right to charge any price they want for their products.

But here's the thing: we consumers also exist in a free market, and we have the right not to be separated from our money, especially by stealth pricing techniques. And being an empowered consumer means we must exercise yet another of our rights: to find substitutes whenever the price of a product exceeds its value.

One final piece of disturbing news for any of you who claim Davis or any other brand of baking powder is superior: baking powder is a commodity. It is a standardized mix of four ingredients: corn starch, sodium bicarbonate (a.k.a. baking soda), sodium aluminum sulfate, and monocalcium phosphate. That's what makes your cornbread rise, people. Other than a heartwarmingly familiar label, there is little to differentiate this product from any other baking soda brand.

Punish all stealth price hikes. As an empowered consumer, you must let a company know, by word or by wallet, that you will not tolerate a price increase of this magnitude. Companies must compete for your hard-earned money, not take it away by stealth.

Readers, what's your reaction?


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20 comments:

Katie Mack said...

As an employee of the food industry, I see this all the time. When we have raw material hikes, we go to the stores and give them two options: raise the price or lower the weights. They usually choose to lower the weights because it is "blind" to the customer. Even though I consider myself jaded when it comes to stuff like this, as a consumer it rattled me to discover that a pound of my favorite pasta is no longer a pound - it's 14 oz!! Talk about messing up my favorite recipes...

K said...

One of the worst stealth hikes I've seen was on the store brand #2 cone coffee filters (yeah, I know, I should be using a permanent filter...).

They used to be $3.49 for 100 filters.

Now, they are $3.49 for FORTY filters.

That is more than twice the cost. I asked the store manager about it, he had no answer - so I went to the store right beside his, and bought the brand name filters there (which are actually now cheaper than the store brand).

Amanda said...

We've already got the Argo baking powder here. It comes in a 12 oz, cube-ish container, and it was cheaper unit than Clabber Girl. I dig the square shape, I don't know why--I find it easier to hold and measure from.

I was out of the country for two years and was amazed at how sizes dropped when I was gone. Pasta, as mentioned, and around here the boxes are usually 13.25 oz.

Amanda Again said...

Oh, and one more thing--recipes are baking powders aren't standardized. For example, your Davis powder has aluminum in it, but Argo doesn't. There's actually a pretty good breakdown of baking powders on The Fresh Loaf. (http://www.thefreshloaf.com/node/12997/baking-powder)

Daniel said...

Good comments so far. A few reactions:

Katie and K: What's also going to be interesting is what happens when stealth price hikes go too far. Let's say a company takes 10-15% of the weight out of a product every couple of years--does this mean we'll be buying 1.5 ounce boxes of pasta in a decade? And a half a rotini in thirty years? Clearly this isn't a sustainable business practice.

Amanda, happy you have the new option already. And I should clarify: yes, there are different types of baking powder. Single acting, double acting, aluminum free, etc. I was speaking of the standard baking powder available in most grocery stores, which is double-acting, is built around the same primary chemicals and must have--across brands--essentially identical chemical and leavening properties for bakers to have any confidence in using them.

If any reader truly thinks one baking powder brand is superior to another, please at least try a comparison to see if you can tell the difference. Don't assume and blindly give away your consumer choice.

What are other readers' reactions? And can anyone identify the holes in Hulman's logic justifying this price hike?

DK

Anonymous said...

I love your blog! I'm a new reader. These stealth price increases are fascinating. If the consumer wants a smaller container of baking powder, then why not make a smaller container instead of adding less to your larger container? Although I'm sure they would say it's cheaper to print new labels than make new containers. Also, if consumers wanted less baking powder, you'd think that all the brands would have smaller containers. I think we all know manufacturers are hoping we won't notice.

On a little aside, I have been using the Argo brand baking powder. I'm about halfway through with my first tub. I had a great coupon and I payed maybe $.30. I have used Rumford baking powder for years. I have noticed that my buttermilk biscuits rise significantly higher with the Argo brand. I think I'm an Argo fan!

Christy

Milehimama @ Mama Says said...

The Consumerist website tracks this - they call it the Great Grocery Shrink Ray. The latest example on their site is Dawn dish soap - went from 400mL to 300mL.

I see this all the time because I keep a loose price book. I actually *do* remember when a pound of coffee was... a pound (it's 11 oz., now). A pound of pasta, a 16 oz. bag of frozen veggies are now 13-14 oz and 12 oz. Peanut butter went from 18 oz to 16 oz for many brands and styles.

A lot of people buy aluminum free baking powder- they aren't necessarily all the same. You can make your own baking powder, but I'm not sure it's cheaper. It's 2 parts cream of tartar, 1 part baking soda. 1/2 tsp. cream of tartar + 1/4 tsp. soda = 1 tsp. baking powder.

martha said...

You said the two brands on the shelf were Davis and Clabber Girl...did anyone else notice who owns/makes the Davis product ??? Talk about competition....

Alex Wu said...

It seems quite a leap to conclude that, since the average consumer doesn't use 10oz of baking powder in time, therefore he wants to buy a smaller size and pay the same price.

Not to mention all the consumers who aren't average.

Daniel said...

Bingo Alex. Exactly.

Heck, they could have charged a slightly lower price, and split the difference with the consumer--everybody wins. Uh, or at least the consumer loses less.

Instead they kept the price exactly the same.

There's still at least one more hole in Hulman's logic here. Anybody see it?

DK

Anonymous said...

I don't keep a lot of white sugar in my house, but with the holidays heremI did the math on price per pound and grabbed the name brand in what I thought was the standard 5# bag.
It wasn't until I was home talking to my mother about visualizing weight loss as 5# bags of sugar strapped to your body that I realized the trusty pink bag was now a 4# bag.
It's back to the bulk bins at the discount grocery for me.

Eleonora said...

Comments from Old Europe! (but I'll be back soon). I was astonished when I first saw baking powder tubs in the US. The only two forms of baking powder I knew were: small 16 grams bags (0,56 oz), sold singularly or in larger bags containing 4/10 small bags each.
Now, why not equally splitting the contents (and the price) using smaller packages? How much baking powder can you use - provided it's a home use?
The second option is bulk, in some (rare) small shops where all the chemical ingredients are available. You buy what you need and mix everything at home.
In both cases you can also recycle the bag, which I'm not sure applies to the US canister.

Diane said...

This is the reason that for the first time ever I am considering developing a price book. I am a darned frugal shopper, and I menu plan and do good comparison shopping. But this trickiness is making everything more complicated. I need to develop a method to outsmart them.

Sarah said...

Is the other issue that if exposure to air makes the product go bad, they should have shrunken the can to fit the ingredients? I'm racking my brain on those last 1-2 logic holes :)

Nathalie said...

The average consumer wouldn't see the difference in weight at first glance, since most rely on package size rather than read the weight. The argument that it is for the consumer doesn't hold up if the consumer doesn't notice the difference.

Daniel said...

We've nailed a couple of key logic holes in the company's argument, plus a reason I hadn't even thought of (Nathalie's comment).

Here are the logic holes as I see them:

1) Just because consumers want a smaller can doesn't necessarily mean they want a smaller can at a 23% higher per-unit price. This can could--and probably should--be sold at a lower price. This goes to Alex's point.

2) Nathalie's point: If the company is telling the truth that customers really wanted a smaller can, why aren't they promoting that smaller can? Why doesn't the can say, "Now in a new smaller size!" Ah, but then they wouldn't be able to have a "stealth" price hike, would they?

3) The other logic hole that I haven't seen anybody raise: If baking powder supposedly often goes bad before consumers use the whole container, why have they been selling 10 ounce cans for the past 20 years? Why make the unit volume cut now? And why cut down the volume by just an incremental 1.9 ounces? If this is a real reason, why don't they sell half-size cans, or quarter size cans?

4) Finally, there's this: When does baking powder really go bad? Seriously. It's a mix of ingredients that--let's face it--is highly chemically stable. I'm sure at some point the stuff will lose some efficacy, but I have repeatedly used baking powder that's been sitting in my cupboard for years (and I mean years) with no problems whatsoever. Do people really find that baking powder goes bad in 6-8 months, or is it merely in the company's interest to recommend this?

If anyone has any other thoughts, please share them!

DK

Nathalie said...

I thought about the expiry date, but to tell the truth I don't really know how much time I keep products like that in my pantry. If it works, it's still good! I don't think I ever wasted baking powder because it was too old, and I don't bake all that much (a dozen of muffins per week, but other than that only holidays and birthdays). Out of curiosity I checked my baking powder; the only brand I can get here sells in in 200g and 450g and it says it will keep for 2 years (no distinction between open or not). I usually buy the 450g (less plastic waste) and probably use it over a year or so, though again, I have no idea how much time this type of products stays in my pantry.

Alex Wu said...

Agreed Daniel, there's something fishy about the way they simply snuck it in. Even the can looks like it's the same size as before (but with less contents), as though they're hoping no one notices. Unless of course you read the label ;)

Daniel said...

I've got a can that has to be eight years old sitting in my cupboard and I've been using it all along without incident.

I think it's time I did a test, and compared a batch of Cornbread made with the old and the new baking powder. It'll be interesting to see if there's any difference.

DK

Anonymous said...

Every time I visit my parents I make a few things that require baking powder. They haven't bought a new can in YEARS. I didn't realize that my biscuits should actually RISE until I splurged on a fresh can upon returning home and finding out what was wrong with my tried-and-true recipe. Conclusion --- their baking powder wasn't "good" any more. My biscuit recipe still rocks!