One snack giant has finally admitted that $6 for a bag of Cheetos is crumbling consumers’ wallets.
After multiple years of raising prices for consumers, PepsiCo’s snack unit Frito-Lay is finally feeling them bite back. The company—which produces most of America’s chip favorites, including Doritos, Ruffles, and Lay's— reported a 0.5% decline in second quarter revenues Thursday. The drop comes after Frito-Lay saw its net revenues soar roughly $7 billion between 2020 and 2023.
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Years of persistent inflation have created “tighter household financial conditions,” PepsiCo management said in prepared remarks . Now, as customers have become more “value-conscious,” the snack giant’s performance is “subdued.”
Upon this realization, Frito-Lay intends to cut prices for some salty snacks and expand marketing for others, PepsiCo chairman and CEO Ramon Laguarta said in a call to investors.
“There is some value to be given back to consumers after three or four years of a lot of inflation,” Laguarta added.
Frito-Lay will utilize a now familiar play to win back consumers, Laguarta said: investing in value-based deals. Multiple food retailers, from fast food to grocery stores, have begun offering deals in recent weeks to attract value-seeking customers. Like McDonald’s new $5 meal, or Whole Foods' $2 Tuesday rotisserie chickens, Frito-Lay is ready to jump on the trend of bargaining with its customers.
“It seems that customers are gravitating toward where they feel the best deal is right now,” Whole Foods CEO Jason Buechel previously told Fortune.
Laguarta, in response to multiple peppering comments from investors Thursday, agreed, admitting that “new entry points” and “new promotional kind of mechanics” would be necessary for consumers.
Some consumers might say that it’s about time. The average price of potato chips in June 2024 was $6.56—a near 30% jump from the June 2020 pandemic price of $5.09, according to Federal Reserve data .
And it’s not just potato chips—more than 80% of consumers say that overall, food prices have increased a little or a lot over the past 12 months, according to the May 2024 Consumer Food Insights Report from Purdue University. The same report found 37% of chip-loving Gen Zers and millennials say they are going into debt, or whittling away their savings, to pay for food.
Additionally, “food” was the top choice over categories like housing and childcare when consumers were asked which goods and services saw the largest year-over-year price increase.
The White House contests the impact of inflation on food prices, making the case that consumer purchasing power at grocery stores has actually increased. Grocery inflation has cooled in recent months, according to a recent White House report . And, if you narrow the scope to just the past year, at-home food prices have increased by only 1%, according to the Consumer Price Index, while wages grew by about 3.9% .
Yet, that data ignores the years of persistent price increases from compounding inflation; since 2021, groceries are about 25% more expensive.
“The reason consumers feel like prices are increasing is because they still are,” Kendall Meade, a certified financial planner at SoFi, previously told Fortune. “While inflation may be slowing down, it has not stopped and we are not seeing disinflation.”
However, falling revenues may be the wake-up call food retailers need to offer permanent price decreases, beyond promotional deals.
Over the past six months, food companies such as Conagra—which dominates the frozen meals section at grocery sections—have tried to use temporary discounts to woo customers, Bank of America analyst Peter Galbo told the Washington Post.
“But a lot of the promotional activity that they’ve put in place hasn’t really worked,” Galbo said. “So now it becomes a question of whether they need more permanent reductions on price.”
This story was originally featured on Fortune.com
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