PepsiCo’s Price Hikes Affecting Snack Sales

PepsiCo executives may have delayed too long in reducing prices on their $7 snacks—think Doritos, Cheetos, and Lay’s. This could cost the company billions.

Back in February, PepsiCo announced it would lower prices on some of its popular junk foods, following a series of price increases that pushed costs up by nearly 50% since 2021.

However, this decision came after PepsiCo had already fallen short of internal revenue goals by over $1 billion for two years straight. Retailers like Walmart were also noting declining sales.

Reports suggest that internal discussions about price cuts had been ongoing since at least 2024, particularly as sales in the Frito-Lay division started to drop. Management seemed hesitant to take the short-term profit hit that would come from lowering prices.

In the meantime, retailers like Walmart started reducing shelf space for Frito-Lay products in favor of cheaper options, which further pressured sales.

By the time PepsiCo finally decided to cut prices, much of the damage was already done. Sales and market share were feeling the strain.

Instead of reducing prices right away, PepsiCo leaned on promotions and other strategies to attract shoppers back, but those efforts fell flat.

Government data indicates that snack prices have risen significantly in recent years. Specifically, the average price for a 16 oz bag of potato chips surged about 27% from 2021 to 2024. Double-digit increases were noted in both 2022 and 2023 before stabilizing last year.

Branded snacks appeared to get even pricier, with some larger bags seeing nearly 50% price hikes, pushing them above $7 at major retailers, which turned away many customers.

Frito-Lay has historically been a strong revenue source for PepsiCo, achieving stable growth for over a decade. Analysts believe it commands a substantial share of the U.S. salty snack market.

This potent market position has allowed PepsiCo to apply significant price increases during the pandemic, as consumers were still willing to spend.

Between 2021 and 2023, Frito-Lay leaned heavily on raising prices to boost growth, with the “effective net price” rising by 17% in 2022, despite flat sales volumes.

However, by 2023, sales volumes had started to decline by 1%, even while prices kept climbing.

This pricing strategy began to unravel in 2024. With weakening pricing power and falling trade volumes, sales accelerated to a decline of 2.5%, and revenue took a slight dip while operating income dropped sharply.

This shift indicated a pivotal moment for the snack giant, revealing the consequences of relying on price increases as demand softened.

What began as modest price increases to offset rising costs swelled into double-digit hikes, with net prices reportedly rising about 20% by late 2022.

Consumers eventually started pulling back on purchases, hesitating to pay over $7 for a bag of chips, as inflation tightened their budgets.

By 2024, revenue for Frito-Lay turned negative for the first time in more than a decade, a significant shift for a business that had previously enjoyed 53 straight quarters of growth.

The Post has reached out to PepsiCo and Walmart for comments.