Pepsi posts weaker-than-expected sales as volume slips

After years of price increases and sales growth, Pepsi’s US business is now struggling.

Pepsi missed expectations for second-quarter revenue as a series of price hikes and competition from private-label brands slowed sales of its snacks and soda mainly in the US, its largest market.

Analysts have said that product prices, which are starting to normalise almost after two years of multiple hikes, are still higher than the pre-pandemic levels, giving packaged-food companies such as Pepsi little room to raise prices as volumes shrink.

After years of price increases and sales growth, Pepsi’s US business is now struggling. Persistent inflation has forced many shoppers to cut back on spending and switch to cheaper supermarket-owned brands. The salty snacks category has been particularly lackluster as consumers focus more on nutrition and affordability.

The food giant, which has a significant presence in Ireland through its operations in Cork, raised average prices on its products by 5% for the quarter ended June 15, in line with the first quarter. However, overall organic volumes slipped 3%.

The company’s portfolio of snacks and soft drinks includes brands such as Pepsi, Lay's, Doritos, 7UP, Tropicana and Quaker Oats.

Data from NielsenIQ showed sales at Frito-Lay North America, the company's snacking business that sells Lay's and Doritos chips, fell nearly 1.3% in the four weeks ended June 15, while the overall salty snacks category in the US saw a smaller 0.7% decline.

Frito-Lay North America, which contributed about 27% to Pepsi's total revenue in fiscal 2023, is the company's second-largest business after North America beverages unit, which accounted for about 30% of overall sales.

PepsiCo plans to lean on its ability to improve productivity and focus “surgically” on promotions, while increasing certain advertising and marketing initiatives, chief executive Ramon Laguarta said in a statement.

The company said it expects that consumers will remain budget conscious and overall category growth will moderate.

Pepsi reiterated most aspects of its full-year forecast aside from now targeting organic revenue growth, which excludes acquisitions, of 4% for the year compared with “at least 4%” previously.

Shares of the company fell 2.2% in premarket trading.

Easing production and other expenses from pandemic peaks are giving companies some relief from a surge in costs.

The company's revenue rose 0.8% to $22.5bn (€20.7bn) in the quarter ending in June, while analysts had estimated $22.6bn, according to LSEG data.

Reuters and Bloomberg with additional reporting by the Irish Examiner