PepsiCo will cut prices on core brands such as Lay’s and Doritos by up to 15% after a consumer backlash against several previous price hikes, the snacks and beverage maker said on Tuesday after it topped fourth-quarter results.
As US consumers struggle to afford essentials due to inflation and delayed food stamp benefits, companies such as Procter & Gamble (P&G), Coca-Cola and PepsiCo have lowered entry price points to safeguard market share.
“We’ve spent the past year listening to consumers, and they’ve told us they’re feeling the strain,” said Rachel Ferdinando, CEO of PepsiCo Foods US. The new prices will be on shelves this week.
Packaged food companies are also in for a reckoning this year as the adoption of appetite-suppressing weight-loss drugs increases and brands look for ways to keep consumers interested in snacks and soft drinks.
Portion control was the way to keep PepsiCo’s categories relevant, said CEO Ramon Laguarta, adding that more than 70% of the company’s US food product line was in the single-serve capacity.
“We are betting a lot on portion control. Our multipack, in foods and beverages, is going to be a critical lever for us to grow,” Laguarta said.
PepsiCo is also refreshing its key brands such as Lay’s and Tostitos to focus on low sugar or no artificial ingredients to attract younger households with children to buy snacks and cereal.
Still, affordability was “the biggest cause for friction” against higher spending in the snacks category for low- and middle-income consumers at this time, PepsiCo said. It expects its “surgical” price cuts to help return the North America snacks category to volume growth this year.
The company is also in the middle of an aggressive strategy to cut costs across its business after pressure from activist investor Elliott Management and several quarters of weak sales in the key North America market.
“The quarter was pretty strong and probably signals that trends may be headed in a better direction for Pepsi,” said David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, which holds PepsiCo shares.
“But for the stock to really get working, there needs to be execution that relies on several drivers such as innovation, price cuts and productivity.”
Reuters
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