Soda Pop & Snack Price Cuts

Investment Analysis Clubs Macro Economic Trends and Risks
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PepsiCo is cutting prices on Lay’s, Doritos, Cheetos and Tostitos chips this year to win back customers exasperated by years of price hikes.

“For some consumers, low- and middle-income consumers, the biggest friction they have today in our category… is affordability,” PepsiCo Chairman and CEO Ramon Laguarta said Tuesday during a conference call with investors. “So we have been testing multiple ways to give them affordability.”

PepsiCo has leaned on price increases as the cost of packaging, ingredients and transportation rose. In the fourth quarter, PepsiCo hiked prices by 4.5% globally. Prices for PepsiCo beverages rose 7% in North America, while prices for the company’s snacks ticked up 1%.

But the price hikes have also weakened demand, and consumers have begun swapping out brands they are familiar with for cheaper versions or cutting back altogether.

Not me Ramon. I am a loyal Fritos muncher. LOL

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That’s why they were seduced into raising prices so much: people are incredibly loyal to their brand when it comes to snacks. Used to be the same way with cereals until they got ahead of themselves.

Price increases always gives a nice jolt to revenues at first, as people are reluctant to switch brands in some categories: snacks, soda, cereal, etc. But over time the prices grate, and some portion starts to fall away, and another price increase makes it worse until the company realizes “Oh crap, they’re moving to generics and liking them . Then it’s “We’re search for ways to create value for our customers” instead of “Boy did we screw up, and we’re bring prices down to where they should have been if we hadn’t been greedy and needed to juice the numbers so we could get bonuses last year.”

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