How Food Companies Hide Their Price Hikes

With apologies to the investment bankers and business majors out there, cash is not king. It is a pretender to the throne. More important than money, more important than anything else on the planet in fact, is water. That's the true king.

As California enters its third year of drought, the effect of the water shortage are starting to show its ugly head. I already went through how the drought is increasing prices at fast food chains, but that's only the start. Food companies are also being forced to raise their prices at the grocery store. Problem is, they're not always doing it with as much transparency as their fast food brethren.

According to the USDA, due to a combination of normal inflation and drought conditions, 2014 supermarket prices are expected to rise by 2.5 to 3.5 percent from their 2013 levels. Simplifying it, a product that cost ten bucks last year will now be $10.25. If you spend $100 for a normal grocery trip, there will now be an extra $2.50 added onto the receipt at the check-out line.

At least, that would be the case if companies played fair and simply changed the prices of their products. But instead, they tend to be a little trickier.

See, companies realize if they end up trying to sell the same item (say, a box of cookies) at a higher price (for $3.25 instead of $2.99), consumers will give it a second thought. It is no longer the automatic purchasing decision it once was. And that's how you lose business. The goal, then, is to sell the product at the same old price. And they do that by decreasing the quantity of the product.

While the same box of cookies may have had 15 cookies in the sleeve last year, it might now only have 13. A small difference, but if you're paying the same price, the product has certainly changed. (This is not a new strategy. A 2009 Consumer Reports investigation found that 50% of all food packaging is just empty space, caused at least partially by companies maintaining the same packaging while offering less and less food inside.) Make sure to keep an eye on that part of the packaging where it lists the amount contained inside.

Another method that food companies use to hide price hikes is by introducing what seems like an entirely new product. Something jazzed up and snazzier than the original, with phrases like "An all-new recipe!" and "For a limited time!" marked in explosive font on the front of the package. While these "new and improved" products may be slightly different, the reason they're changing up isn't because they have a better product to sell. By introducing a "brand new" item to the mix, consumers will (a) be interested in giving this new product a test-drive, which automatically generates a boost in sales; and (b) not be able to compare the amount in this package with the older version.

Food companies can decrease the amount of food inside, raise the prices, really do anything they want to because this item is a "new" product in the shopper's mind. (This concept is perhaps best explained in a short scene in the second season of "The Wire," which you can watch here, keeping in mind that plenty of the language in the clip may not be suitable for folks of a more delicate nature.) It pays to be skeptical of anything advertised as "new and improved." For the most part, the only thing that's truly improved is the company's bottom line.

These are just two of the most obvious examples. The fact is that if food companies pay more money because of the drought conditions, they will pass that cost onto consumers. So while it may seem like the price tag of the item you're getting is the same, it isn't.