If you’re done paying $5 for a bag of chips (that also seems suspiciously smaller than it once did), you aren’t alone — and big snack makers are starting to take notice.
What happened: In its earnings call last week, PepsiCo reported falling revenue and shrinking demand for its snack products, many of which you’ll find in the supermarket under the Frito-Lay label.
- PepsiCo's CEO said North American shoppers are cutting back on snack purchases or moving to cheaper store-owned brands.
Why it matters: For almost three years now, PepsiCo and other food companies have grown profits by raising prices. These earnings were a clear sign that strategy is no longer working.
- Prices for chips and other snack foods have increased faster than overall inflation, jumping by 24% since May 2021 compared to a 15% average increase in the Consumer Price Index.
Zoom out: PepsiCo isn’t the only food business signalling that it’s done raising prices. McDonald’s, Wendy’s, Starbucks, and Burger King have all recently launched aggressive sales and deals to lure priced-out consumers.
- In June, Whole Foods said it would cut prices on a quarter of its products.
What’s next: After raising prices for three years without much consumer pushback, some businesses have exceeded their ability to charge more and will now have to win back customers. For PepsiCo, that will include more sales and lower prices on some products, execs said.—TS