PepsiCo to Increase Prices on Select Snacks and Drinks Amid Disappointing Quarter
Company reverses recent strategy to lower costs for consumers, citing soft soda sales and rising expenses.
PepsiCo announced Thursday that it will raise prices on several of its chip and soda brands, including Doritos, Ruffles, and SunChips, following a disappointing third quarter. This marks a strategic shift after the company recently attempted to lower prices to attract consumers.
The price increases, which will be in the single-digit percentage range, come as PepsiCo faces challenges with soft soda sales and difficulties executing its turnaround plan. The company stated that prices on these items will still remain lower than at the beginning of the year.
PepsiCo cited rising costs for fuel, aluminum, and agricultural supplies, exacerbated by global conflicts and tariffs, as reasons for the price adjustments. This is a reversal from its strategy earlier in the year, when it slashed prices on brands like Lay’s and Doritos by up to 15% before the Super Bowl, aiming to win back customers impacted by inflation.
PepsiCo CEO Ramon Laguarta acknowledged that while the earlier price reductions helped bring back some customers, the third-quarter earnings in the North America division fell short of expectations, and the turnaround is progressing more slowly than anticipated. Frito-Lay snack volumes remained flat compared to the previous year, while beverage volumes saw a 2% decline.
"We don’t feel good about the beverage business," Laguarta said during a conference call, noting that the company's soda offerings have underperformed relative to competitors. He emphasized that PepsiCo will focus its efforts on improving performance in its soft drinks sector.
To address this, the company plans to cut costs and reallocate those savings to invest more in brands like Poppi, a healthy probiotic soda acquired last year, as well as Mountain Dew and its flagship Pepsi brand. This strategic pivot follows a period of significant price hikes that occurred for eight consecutive quarters through 2022 and 2023, as PepsiCo sought to offset high inflation.
The company has observed sluggish demand for sodas and snacks, attributing it partly to consumers reducing non-essential purchases and the growing popularity of GLP-1 weight-loss drugs impacting sales of snack foods. In the third quarter, PepsiCo's North American bestsellers included snacks with simpler ingredients and hydration or energy drinks. The company intends to expand its high-protein product lines to cater to consumers on high-protein, high-fiber diets.
Despite domestic challenges, PepsiCo's international business proved strong, contributing to better-than-expected third-quarter revenue. Global snack food volumes increased by 4%, bolstered by demand for Lay’s snacks related to the World Cup. The company reported adjusted earnings per share of $2.34, exceeding Wall Street's estimate of $2.29.
Looking ahead, PepsiCo has lowered its annual earnings forecast, now projecting adjusted earnings per share growth between 2.5% and 3.5%, down from its previous estimate of 5% to 7%. However, it maintains a positive outlook for full-year revenue, expecting 6% growth, aligning with the higher end of its initial forecast range. Shares of PepsiCo saw a 2.6% increase on Thursday.