Pepsi Bows to Inflation, Cuts Snack Prices by Up to 15% Ahead of Super Bowl

[Financial News]


PepsiCo has decided to reduce prices on flagship snacks including Doritos, Lay’s and Cheetos by as much as 15%. The move is a last-ditch effort after inflation-weary consumers began switching to cheaper brands, eroding the company’s market share.
The price cuts will apply only in the United States.
According to CNN Business and other foreign media, Rachel Ferdinando, chief executive officer (CEO) of PepsiCo Foods North America, announced in a statement on the 3rd (local time) that the company will lower the recommended retail prices of U.S. snack products by up to 15%.
Ferdinando explained that over the past year the company has listened closely to its customers, and that consumers are feeling squeezed by inflation. This, she noted, is the backdrop for the decision to cut prices.
The decision comes just before the biggest snacking occasion of the year: the U.S. football championship game. On the 8th, the Super Bowl, the National Football League (NFL) championship watched by more than 100 million Americans, will take place.
Former President Donald Trump had boasted that he would bring down inflation, but his large-scale tariffs have helped keep price growth elevated, and food prices at American dinner tables have been slow to fall.
Food companies have been quietly raising prices bit by bit over the past several years.
As a result, consumers are increasingly abandoning relatively expensive PepsiCo brands in favor of low-priced private brand (PB) products sold by retailers such as Walmart.
Well-known brands like PepsiCo are seeing their sales take a hit as a consequence.
Another factor behind PepsiCo’s decision to swallow its pride and cut prices is pressure from an activist investor.
Elliott Management, which has built a roughly 4 billion dollar stake in PepsiCo, has been pushing the company to improve its performance and has suggested price cuts as one way to do so. PepsiCo’s acceptance of Elliott’s demands has now made the price reductions a reality.
In its earnings release, PepsiCo said that lowering prices will allow it to see whether purchase frequency increases. If it proves beneficial to results, the company hinted that the price cuts could be expanded.
Because beverages and snacks are not essential goods, changes in their prices are known to have a strong impact on demand. Their price elasticity is above 1, meaning that a price reduction can boost demand enough to increase total sales.
In North America, snack sales by volume have fallen about 1% from a year earlier.
Alongside the price cuts, PepsiCo is also rolling out products that reflect shifting consumer preferences. The company unveiled protein-fortified Doritos, popcorn rich in dietary fiber, and Lay’s potato chips fried in avocado and olive oil.

dympna@fnnews.com Song Kyung-jae Reporter