PepsiCo just admitted that snackflation might have gone too far
Hollis Johnson
- Rising snack prices might have finally peaked, PepsiCo's CEO said Thursday.
- Even high-income customers are feeling the impact from years of food inflation, Ramon Laguarta said.
- It's the latest sign that you could see some relief from high prices at the grocery store.
Snack costs might have finally hit a turning point after years of price increases, the parent company of Doritos and Cheetos said Thursday.
"Do you believe that the prices at Frito are too high given the increases over recent years?" Kaumil Gajrawala, an analyst with Jefferies, asked PepsiCo CEO Ramon Laguarta during a question-and-answer session after earnings on Thursday. Frito-Lay is a division that sells packaged foods like Cheeto's and Lays potato chips.
Laguarta responded that some products might need new price points to get consumers buying them again.
"Yes, there is some value to be given back to consumers after three or four years of a lot of inflation," he said.
One major reason: Sales volumes for many of PepsiCo's food and snack products within its Frito-Lay and Quaker Foods North America business have fallen during its last few fiscal quarters.
As food inflation rose over the last few years, companies like PepsiCo have been able to push through price increases to retailers and consumers — and then some. Last year, for example, the company's revenue rose 9% on an organic basis. The volume of "convenient foods" sold fell 2%.
But those days might finally be over, PepsiCo's top executive's comments indicated.
That'll be a relief for consumers battling overall inflation. Indeed, when Instacart user Crisman White tried to reorder a batch of groceries from five years ago, two of the biggest price jumps were from a 12-pack of Pepsi and a bag of pedigree dog food.
And it's not just customers on a budget who are feeling the pinch of high prices, Laguarta said later in the call. Even high-income consumers are looking to save money on food.
"This need for value or more value consciousness, I think, is impacting every household in the US," he added.
Food inflation has increased at a steady pace over the last few months. The food index of the Consumer Prices Index rose 2.2% year-on-year in June, according to the latest inflation figures released Thursday.
While PepsiCo is one of the largest food manufacturers in the world, it's far from alone in hiking prices.
At a time when the White House is sharply criticizing grocery stores for picking American households' pockets, top retail execs have been quick to point out the role of national brands in pushing prices of the products on their shelves.
"They're just making flat out more profit, so we think they actually have room to even further invest," said Rodney McMullen, CEO of Kroger, the largest grocery-only retailer in the US, of big food brands.
McMullen told investors last month he expects more discounts coming from national brands this year.
That might have already started. At Walmart, America's top grocery seller, CFO John David Rainey has said the company's discounts are "primarily vendor funded," meaning that the price cuts shoppers are seeing are being passed along from suppliers rather than Walmart bearing the cost itself.
And Target Chief Growth Officer Christina Hennington said when national brands see the Bullseye cut prices on its private label offerings, "they help us do that with their brand portfolio."
Of course, national brands have been bragging about strong profits in recent years, which would suggest they're now in a position to offer discounts and promotions without breaking the bank.