Inflation isn't hurting Pepsi

Consumers continue snacking even as high inflation squeezes wallets
Inflation isn't hurting Pepsi
Image: Mario Anzuoni (Reuters)
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Pepsi raised its revenue forecast (pdf) for the year, signaling that higher prices have not stopped consumers from snacking on Cheetos and drinking Pepsi and Mountain Dew despite the inflationary environment.

For the year, the snacks and drinks maker projects revenue growth to rise 12% (pdf), compared to a prior forecast of a 10% increase, driven by higher prices. “[O]ur brands are being stretched to higher price points and consumers are following us,” said Ramon Laguarta, CEO of Pepsi, on a conference call with investors and analysts on Oct. 12. Pepsi also owns brands like Quaker Oats and Tropicana, that are kitchen staples.

Pepsi’s price increases have not stopped consumer spending

During the pandemic, consumers turned toward snacks, and, though food inflation is in the double digits, snacking is an affordable luxury and a pick-me-up, particularly, during stressful times. Plus, working from home means more snacking.

And, unlike things like clothes and Pelotons, food is a non-negotiable necessity and food companies often pass price increases to consumers, largely, because they have significant market power.

Price increases in an inflationary environment

Pepsi’s price increases come during a time of ongoing supply chain woes, rising interest rates, and soaring inflation. With PepsiCo one of the first big companies to report its earnings each quarter, investors pay close attention to its finances for signals on how other companies will fare, as the New York Times reported.

The higher prices help offset higher costs related to supply chains. “The environment clearly is still very inflationary with a lot of supply chain challenges across the industry,” said Laguarta on the call.

Even with the better-than-expected earnings, Pepsi is preparing for a recession scenario, with plans that include a reduction in capital spending and more automation to lower labor costs.