PepsiCo CEO sees lower prices across parts of its snacking portfolio

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PepsiCo plans to lower prices for some of its snacks as consumers have increasingly become “value-conscious.”

The food and beverage giant, which oversees Fritos, Doritos and its namesake cola, said during prepared remarks for its second-quarter earnings that ongoing inflation and higher borrowing costs have put financial pressure on U.S. households. PepsiCo noted this has forced consumers to “become more value-conscious with their spending patterns and preferences across brands, packages and channels.”

Ramon Laguarta, PepsiCo’s CEO, told analysts that prices for certain products, like unsalted potato chips or tortilla chips, will likely need to be adjusted to make them more attractive to consumers. Some offerings also will see increased levels of marketing. At the same time, other permissible offerings, such as SunChips and PopCorners, are growing and consumers who purchase these brands aren’t concerned about value.

“There is some value to be given back to consumers after three or four years of a lot of inflation,” Laguarta said. “Some parts of the portfolio need value adjustments. I don’t think the overall portfolio … needs a reset.”

As cash-strapped consumers look for ways to save money, many people have cut back on spending. This has trickled down to food and beverage companies that have seen volumes decline nearly across the board. During its most recent quarter, PepsiCo said organic volumes in Frito-Lay North America declined 4%.

Several retailers, including Target, Kroger and Aldi, have cut prices to get consumers into their stores and make their products more enticing to purchase.

Still, despite recent improvements in government inflation data, groceries are 25% more expensive since 2021, according to Fortune.

“For particular consumers, we need some new entry price points and probably some new promotional kind of mechanics,” Laguarta said.

Robert Moskow, an analyst at TD Cowen, noted that PepsiCo management reiterated their view that fundamentals in salty snacks remain intact and that the current challenges are the result of “transitory value perception and difficult comparisons” to the prior year. Still, Moskow said the category will likely remain under pressure for several months.

“Our view is that the volume slowdown in broader snacks will last longer into 2025 due to consumer cutbacks in discretionary categories and continuous return to in-office work patterns.,” he said in a research note. “As a result, we forecast [low-single digit] growth for FLNA in [the second half of 2024] and 2025.”