PepsiCo’s Lower Snack Prices Dish Up an Earnings Win
If McDonalds struggled to sell $6 cheeseburgers, it’s no wonder Pepsi’s Frito-Lay brand struggled to sell $6 bags of Doritos.
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Now, PepsiCo knows: Charging people more money actually makes them buy less stuff.
In its first-quarter earnings call on Thursday, the soda and soft drink giant reported a revenue beat and a return to volume growth for its North American food business for the first time in two years. The company’s not-so-secret strategy? Slashing prices.
Lay It All out There
Cost-conscious consumers are long past their foodflation breaking point. If McDonald’s struggled to sell $6 cheeseburgers, it’s no wonder Pepsi’s Frito-Lay brand struggled to sell $6 bags of Doritos, which became the recent going rate for large-sized bags in many major markets. After two years of declining sales across its Frito-Lay and Quaker Oats North America division, push came to shove in February, when Pepsi announced it would slash prices on packaged food by as much as 15%. The decision came after a successful push for lower prices by activist Elliot Investment Management late last year.
As it turns out, affordability has its appeal in the new era of penny-pinching. Sales volume for the unit increased 2% for the quarter, while companywide revenue climbed 8.5% to $19.4 billion, beating Wall Street’s expectations.
Next up? Turning around its core soda business, which is losing some of its pop:
- Sales volume in Pepsi’s North American beverage business fell 2.5% from a year ago, as consumers snubbed high prices.
- Still, the dip is an improvement from the previous quarter, when beverage sales had fallen 4% year-over-year. The company has been chasing growing beverage markets amid shifting consumer tastes; last year, the company acquired healthier soda line Poppi and invested in fast-rising energy drink brand Celsius.
Health Makes Wealth: The health-consciousness extends beyond Poppi, too. The company noted in its earnings call that its Gatorade and Propel brands are strong players in the growing sports drink market, and it’s moving to replace artificial colors as it toes the MAHA culture line. In the snack space, the health-conscious push has manifested in a new marketing strategy proclaiming classic Lay’s potato chips are “Made with real potatoes.” We had always assumed they were, though the fact that Pepsi is boasting about it now gives us some doubts.
