PepsiCo has announced significant price reductions on its popular snack brands, including Lay's, Doritos, Cheetos, and Tostitos chips, in a strategic move to win back customers who have expressed frustration over sustained price hikes in recent years.
Consumer Backlash Drives Pricing Strategy Shift
The decision comes after a flood of consumer complaints and a noticeable decline in demand, as shoppers have increasingly turned to cheaper alternatives or reduced their purchases altogether. PepsiCo had previously relied on price increases to offset rising costs for packaging, ingredients, and transportation, but this approach has resulted in a loss of sales volume.
Financial Performance and Volume Impacts
In the fourth quarter, PepsiCo implemented a global price increase of 4.5%, with beverage prices in North America rising by 7% and snack prices ticking up by 1%. While these hikes boosted revenue to $29.3 billion for the October-December period, exceeding Wall Street expectations of $28.9 billion, they also weakened consumer demand.
Volumes for PepsiCo snacks, such as Doritos and Cheetos, fell by 1% in the most recent quarter, and North American beverage volumes dropped by 4%. Globally, the company reported a 1% rise in beverage volumes but a 2% decline in food volumes.
Activist Investor Influence and Product Streamlining
In December, PepsiCo revealed plans to cut prices and trim nearly 20% of its product offerings as part of an agreement with activist investor Elliott Investment Management. Elliott, which acquired a $4 billion stake in PepsiCo in September, has been urging the company's board to implement changes, citing slowing growth and lower profits in its North American food and beverage business.
Innovation and New Product Accelerations
Alongside the price reductions, PepsiCo is accelerating the introduction of new offerings featuring simpler and more functional ingredients. This includes products like Gatorade Lower Sugar and Simply NKD Cheetos and Doritos, which are free from artificial flavors and colors.
The company also recently launched Pepsi Prebiotic, which sold out within 30 hours after its Black Friday debut and is set to become available across the United States soon.
Earnings and Market Response
Adjusted for one-time items, PepsiCo earned $2.26 per share in the fourth quarter, surpassing analyst forecasts. Net income attributable to the company rose to $2.54 billion, or $1.85 per share, up from $1.52 billion, or $1.11 per share, during the same period last year.
Despite the positive earnings report, shares of PepsiCo experienced a slight decline before the market opened on Tuesday, reflecting ongoing investor concerns about the company's strategy and market performance.
