PepsiCo Announces Price Hikes for Chips and Beverages
On Thursday, PepsiCo revealed that it will be increasing prices on several chip and beverage products following a disappointing third quarter. This move represents a shift from its previous strategy aimed at providing relief to consumers, as the company faces challenges with weak soda sales and difficulties in executing its turnaround plan.
Specifically, brands like Doritos, Ruffles, SunChips, and some soda varieties will see single-digit percentage increases. Nonetheless, these prices will remain lower than they were at the beginning of the year.
The company cited the need to raise prices to counterbalance rising costs related to fuel, aluminum, and agricultural supplies, which have surged due to factors such as the Iran conflict and tariffs.
This decision marks a significant change from February, when PepsiCo reduced prices on Lay’s, Doritos, Cheetos, and Tostitos by as much as 15% right before the Super Bowl to attract cost-conscious consumers affected by inflation.
According to CEO Ramon Laguarta, while lower prices did help regain some customers, the third-quarter earnings from the North America division fell short of expectations, and the company’s recovery is taking longer than anticipated.
Sales volumes for Frito-Lay snacks remained flat year-over-year, and beverage volumes dropped by 2%.
“We’re not satisfied with the beverage business,” Laguarta mentioned during a conference call, admitting that the company’s sodas, including the flagship Pepsi, are lagging behind its competitors.
He emphasized that PepsiCo will focus on improving performance in the soft drink sector with urgency.
PepsiCo is facing challenges that include intense competition and increasing input costs. Analysts have also pointed out that the rise of weight-loss medications and a wider variety of beverage alternatives are affecting soda sales.
The company aims to cut expenses and will reinvest those savings into brands like Poppi, a healthy probiotic soda acquired last year, along with Mountain Dew and Pepsi.
PepsiCo began its turnaround efforts last fall after activist investor Elliott Investment Management acquired a $4 billion stake and urged the company to lower its prices.
In recent quarters, PepsiCo had raised prices by double digits, citing the need to cope with soaring costs that followed the pandemic’s inflationary pressures.
Despite the price reductions made earlier this year, there’s been a noticeable decline in demand for both sodas and snacks, as consumers tend to limit discretionary spending and increased GLP-1 drug use impacts junk food sales.
In the third quarter, PepsiCo reported that its top-performing products in North America included snacks made with simpler ingredients, like Doritos without artificial additives, as well as hydration drinks like Gatorade and energy drinks such as Celsius. The company plans to broaden its high-protein options to meet the needs of users of weight-loss medications, who typically require high-protein, high-fiber diets.
PepsiCo also announced that it outperformed revenue expectations in the third quarter, driven by strength in its international markets, which constitute 41% of its total revenue. The company’s global snack food volumes increased by 4%, aided by demand related to the World Cup.
It reported adjusted earnings per share of $2.34, surpassing Wall Street’s prediction of $2.29.
However, the company revised its annual outlook, now predicting adjusted earnings per share growth of 2.5% to 3.5%, down from a prior estimate of 5% to 7%. On the upside, full-year revenue is now expected to grow by 6%, at the higher end of the last forecast range of 4% to 6%.
Following this news, PepsiCo’s shares rose by 2.6% on Thursday.
