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Big food companies like PepsiCo are feeling the pinch as consumers, squeezed by inflation, balk at ever-increasing prices at the grocery store. Recent earnings reports from snack giants like PepsiCo and Conagra Brands reveal a concerning trend: declining revenue and unit sales. This suggests a shift in consumer behavior, with value taking center stage over brand loyalty.
The culprit? Soaring food prices. While overall inflation shows signs of slowing, grocery costs remain stubbornly high. This has led to what industry analysts call “value-seeking behavior.” Shoppers are becoming more price-sensitive, actively searching for deals and promotions. They’re also willing to trade down from name brands to private label options, which are often significantly cheaper.
And now Pepsico is planning to lower prices on certain products like chips to reel customers back in.
“We’re seeing consumers be very price sensitive,” said Bobby Gibbs, a partner at Oliver Wyman, a marketing consulting firm [ paraphrased from Red Lake Nation News]. “Consumers are cherry picking promotional prices more and retailers are putting out more promotional pricing than they have in the last few years.”
Pepsico’s CEO, Ramon Laguarta, said on the price reductions: “There is some value to be given back to consumers after three or four years of a lot of inflation. Some parts of the portfolio need value adjustments. I don’t think the overall portfolio … needs a reset.”
This trend poses a significant challenge for major food companies. They’re stuck between a rock and a hard place. On one hand, they face rising production costs due to factors like supply chain disruptions and ingredient shortages. To maintain profitability, they’ve raised prices on many of their products. However, this strategy seems to be backfiring as consumers tighten their belts and prioritize affordability.
So, how will food companies navigate this tricky situation? Some may resort to reducing portion sizes or offering cheaper versions of their popular products. Others might focus on value packs or bulk options to entice budget-conscious shoppers.
Ultimately, the companies that can successfully adapt to this new reality – where price is king – will be the ones to weather the storm.
Laguarta continued: “For particular consumers, we need some new entry price points and probably some new promotional kind of mechanics.”
