According to Ramon Laguarta, CEO of PepsiCo, some of the company’s products, like its unsalted tortilla chips or potato chips, are in need of a “value reset” as U.S. consumers feel the brunt of higher borrowing costs and inflation.
Due to the fact that consumers have openly become more and more “value-conscious,” PepsiCo has announced plans to lower prices for several of its most popular snacks.
PepsiCo, the food and beverage behemoth that overseas Doritos, Fritos, and, of course, its namesake cola, released a series of prepared statements for its second-quarter earnings, saying that ongoing inflation and higher borrowing costs have placed higher than-usual financial pressure on many U.S. households. Due to the additional constraints many people feel, numerous consumers have been forced to “become more value-conscious with their spending patterns and preferences across brands, packages, and channels.”
Laguarta spoke to analysts, saying many prices will likely need to be adjusted, including those for specific products such as unsalted potato chips or tortilla chips. The CEO suggested that failing to adjust prices may likely deter consumers who are seeking more attractive and affordable options. Of course, some offerings will also see elevated marketing levels. Simultaneously, other permissible offerings like PopCorners and SunChips are reportedly growing, and consumers who purchase these brands do not seem to be displaying any concern about value.
According to Laguarta, “There is some value to be given back to consumers after three or four years of a lot of inflation.” The CEO continued, “Some parts of the portfolio need value adjustments. I don’t think the overall portfolio needs a reset.”
While consumers continually seek ways to save money, many people have reportedly cut back on spending. The effect of more conservative wallets has trickled down to food and beverage companies, which are currently watching volumes decline just about across the board. During its most recent quarter, PepsiCo stated that organic volumes in Frito-Lay North America have dipped by 4%.
Numerous retailers, including Target, Kroger, and Aldi, have cut prices to attract consumers to their stores. This has made their products more enticing to many consumers.
Nevertheless, even though many recent improvements have been made in government inflation data, a report shows that groceries have increased and are 25% more expensive since 2021.
Laguarta stated, “For particular consumers, we need some new entry price points and probably some new promotional kind of mechanics.”
Analyst at TD Cowen, Robert Moskow, noted that PepsiCo management reiterated their view that fundamentals and salty snacks remain intact and that the current challenges are the result of “transitory value perception and difficult comparisons” to the prior year. Nevertheless, Moskow stated that the category will likely remain under pressure for several months.
In a research note, he stated, “Our view is that the volume slowed down is and broader snacks will last longer into 2025 due to consumer cutbacks and discretionary categories and continuous return in to in-office work patterns.”
