- Rising snack prices may have finally peaked, PepsiCo’s CEO said Thursday.
- Even high-income consumers have felt the impact of food inflation over the years, says Ramon Laguarta.
- It’s the latest sign that you’re starting to see some relief from high prices at the grocery store.
Snack food costs may finally be reaching a turning point after years of rising prices, the parent company of Doritos and Cheetos said Thursday.
“Do you believe that Frito’s prices are too high given the price increases over the last few years?” Kaumil Gajrawala, an analyst at Jefferies, asked PepsiCo CEO Ramon Laguarta in a Q&A session after Thursday’s earnings call. Frito-Lay is the division that sells packaged foods such as Cheeto chips and Lays.
Laguarta responded that some products may need a new price point to get consumers to buy them again.
“Yes, there is some value that can be given back to consumers after three or four years of high inflation,” he said.
One key reason: Sales volumes of many of PepsiCo’s food and snack products in its Frito-Lay and Quaker Foods North America businesses have been falling for the past several fiscal quarters.
As food inflation has risen over the past few years, companies like PepsiCo have been able to raise prices through to retailers and consumers — and beyond. Last year, for example, the company’s revenue rose 9% organically. The volume of “prepared food” sold fell 2%.
But those days may finally be over, comments from a top PepsiCo executive suggest.
That should come as a relief to consumers battling overall inflation. Indeed, when Instacart user Crisman White tried to reorder a number of groceries from five years ago, the two biggest price increases were for a 12-pack of Pepsi and a bag of Pedigree dog food.
And it’s not just consumers on a budget who are feeling the impact of high prices, Laguarta said later in the call. Even high-income consumers are looking to save money on food.
“This need for greater value or sense of worth, I think, is impacting every household in the US,” he added.
Food inflation has been rising at a steady pace for the past few months. The food consumer price index (CPI) rose 2.2% year-on-year in June, according to the latest inflation figures released on Thursday.
Although PepsiCo is one of the world’s largest food manufacturers, it is not the only company raising prices.
At a time when the White House is sharply criticizing grocery stores for draining the pockets of American households, top retail executives are quick to point out the role of national brands in driving up prices on products on their shelves.
“They continue to make huge profits, so we think they have room to invest further,” said Rodney McMullen, CEO of Kroger, the largest U.S. grocery retailer, of the big food brand.
McMullen told investors last month that he expects more discounts to come from national brands this year.
That may already be starting. At Walmart, America’s leading grocer, CFO John David Rainey says the company’s discounts are “predominantly vendor-funded,” meaning that the price cuts shoppers receive are passed on to suppliers, rather than Walmart bearing the cost itself.
And Target Chief Growth Officer Christina Hennington said when national brands see Bullseye cutting prices on its private label products, “they help us do that with their brand portfolio.”
Of course, national brands have boasted huge profits in recent years, indicating that they are now in a position to offer discounts and promotions without spending a lot of money.
