PepsiCo, after years of price hikes, sounds an alarm on consumer spending
Summary
Sales volume for PepsiCo’s Frito-Lay North America business dropped 4% in the latest quarter.
Inflation-weary shoppers are finally cutting back on potato chips.
For the past few years as prices soared, many consumers kept buying affordable treats like Doritos and Lay’s in lieu of bigger-ticket splurges such as restaurants, concerts or travel. But now, they are limiting their spending in all areas, said Jamie Caulfield, PepsiCo’s chief financial officer.
Sales volume for PepsiCo’s Frito-Lay North America business dropped 4% in the latest quarter, the company said.
“There is a cohort of consumers that have become more price conscious," Caulfield said. “They’re looking for more deals to get more for their money."
The snacks-and-soda giant reported a 1% increase in revenue and 2% drop in sales volume in the June quarter globally. Sales volume for its North America beverage business fell 3%.
The results were weaker than Wall Street expected and shares of PepsiCo slipped in pre-market trading.
Inflation in the U.S. is moderating but consumers are feeling the cumulative impact of years of steep price hikes, particularly in their grocery bills. Consumers in recent months have been pulling away from big brands like Starbucks, Chips Ahoy and McDonald’s.
PepsiCo is offering products and package sizes that offer greater value for consumers, such as a new 10-item variety pack of snacks that is selling well, Caulfield said.
Shoppers are now less interested in buy-one-get-one-free promotions and want lower price points for single items, Caulfield added.
Yet even as some consumers search for lower-priced products, PepsiCo’s healthier snack and soda options remain popular, Caulfield said. Those include Pepsi Zero Sugar, PopCorners and the Simply line of snacks. PepsiCo will increase its marketing spending on those products, he said.
PepsiCo has also been coping with a recall of granola bars and granola cereals in its Quaker Foods unit that began in December of last year. The company permanently closed a factory in Illinois and has been shifting production to other facilities. The division reported an 18% decline in revenue in the most recent quarter. Caulfield said he expects the impacts to subside as the year progresses and that production will return to normal by December.
Write to Nicholas G. Miller at Nicholas.Miller@wsj.com
