Wed. Feb 21st, 2024

    People are turning away from Pepsi’s brands because they’re too expensive

    PepsiCo’s North American sales fell by about 3.5% in the last three months of 2023.Its CEO said this was partly because shoppers were put off by higher prices.He said that PepsiCo expected its international business to keep growing faster than its US one.

    PepsiCo’s US sales are falling as the company keeps putting prices up, executives told investors Friday.

    “We’re seeing a bit of a slowdown in the US, both the food category and the beverage category” in the fourth quarter, CEO Ramon Laguarta said at the company’s earnings call.

    “Part of that is a slowdown due to pricing and disposable income situation,” Laguarta said. “Part of that is also pivoting between in-home consumption and away-from-home consumption that we’re seeing in our business in the US.”

    PepsiCo, which owns brands including Mountain Dew, Lay’s, Cheetos, and Gatorade, has raised prices in recent years to offset the rising costs of ingredients and supply-chain disruptions.

    Its fourth-quarter global revenues were down 0.5% year-over-year to $27.85 billion.

    In North America, sales were down roughly 3.5% to $16.28 billion. This came from sales decreases of about 3% for Frito-Lay, 2.4% for PepsiCo Beverages, and 15.7% for Quaker Foods, which is by far the smallest of its three North American subsidiaries.

    Laguarta added that PepsiCo was lowering its guidance because it expected the trend to continue into 2024.

    But PepsiCo is optimistic for the year ahead. “We feel good about the consumer in ’24 in the US,” Laguarta said, pointing to low unemployment levels and an expectation that wages would rise at a higher rate than inflation.

    “And we hope that by the summer interest rates will go down and that will create another source of oxygen for disposable income in households,” he continued.

    Laguarta said that PepsiCo’s sales post-pandemic were shifting from in-home to away-from-home, such as at convenience stores. But he said that the portion size is “meaningfully different,” because people who buy food and drinks on-the-go typically buy single-portion servings that they can easily carry.

    PepsiCo is “optimizing” its portfolio by stopping selling brands that aren’t as profitable, Laguarta said. He said that the company had removed some bottled water and larger multi-serve bottles. It also recently announced that it was stopping sales of Mountain Dew Energy.

    Laguarta said that the Pepsi brand was focusing on its zero-calorie, no-sugar variant Pepsi Zero, sales of which he said were “growing very fast.” He added that Mountain Dew was making its Baja Blast flavor – at first available only at Taco Bell and later rolled out to retailers during the summer months – a year-round product at retail stores in the US.

    And Starry, the company’s caffeine-free lemon-lime drink that launched last January, has been selling well among Gen Zers and getting repeat customers, Laguarta said.

    Net revenues for PepsiCo were up about 18% in Latin America. Sales in its other geographical segments – Europe; Africa, the Middle East, and South Asia; and Asia Pacific, Australia and New Zealand, and China Region – all slumped slightly.

    In January, French grocery-store chain Carrefour said that it would stop selling PepsiCo’s products because of high prices.

    Prices at retailers and restaurants soared during the pandemic as labor shortages and supply-chain chaos put up their costs. But customers are starting to bite back. McDonald’s said last week that price hikes were putting off customers.

    Read the original article on Business Insider

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