A grocer wrote to me to make me aware of an aberrant and continuing situation. I guess this owner of a small grocery store endures daily comments from consumers exasperated by the price of food.
He explains to me an aberration that is playing out above his head.
This phenomenon has been occurring since the start of the inflationary surge. I am describing to you an aberrant combination in which the consumer is being fooled, the victim of a double scam.
A food production company notices that its product is becoming more and more expensive to manufacture and market. After a few price increases on shelves, the marketing team ended up fearing that it would scare away consumers. It is judged that reducing the quantity will do less damage than a new jump in price. The consumer would be less sensitive to it (or he will not even realize it).
You have noticed this strategy, called “reduflation“, seeing 960ml liters of juice, almost empty bags of chips and packets of bacon with two slices missing. Considering how many manufacturers have done this, for so many products, you have to imagine that this trick works.
Taxation in Canada
The problem is that the Canadian tax system does not treat all food purchases the same way. When the GST was implemented more than 30 years ago, we chose not to tax groceries. On the other hand, taxes are applied to food in restaurants.
It was therefore necessary to draw a line between the so-called individual portion, which is similar to catering, and a larger quantity which will be considered as groceries. A small yogurt is taxable, the large pot is not. A small ice cream is taxable, not a jar of 500g or more.
So what happens in a scenario where size reduction brings the product just below the non-taxable threshold? An aberration occurs which benefits the government.
Example: granola bars
Take the case of cereal bars, or granola bars. Several brands have reduced the quantity from six to five in the regular box.
I quote the rule from the Revenue Agency: “Cereal bars are taxable when they are sold individually and when they are sold in boxes containing less than six bars. Boxes containing six or more bars are zero-rated.”
Example: the box cost $4 for six bars. We lowered the quantity to five bars to keep the box at the same price. But it becomes taxable at checkout and now costs you $4.60. More expensive for less! Each bar goes from $0.67 to $0.92, an increase of…37%!!!
The manufacturers know this. The Revenue Agency has been warned for months. The Trudeau government says it is looking for ways to reduce grocery bills. And they let it go.