PepsiCo is benefiting from recent decisions to cut prices and reposition some of its biggest snack brands, top executives said last week.
The Doritos and Aquafina manufacturer said the company has focused on reducing costs, leading to what “has been a very successful strategy for us,” Ramon Laguarta, PepsiCo’s CEO, told analysts. During the last year, the New York-based company has shuttered facilities in at least three states and reduced the number of products it sells by nearly 20%.
The moves have allowed PepsiCo to divert savings into lower prices for consumers. In February, PepsiCo announced it would lower prices for brands including Doritos and Cheetos by up to 15% in a bid to reignite growth.
“The current macroeconomic environment has become more volatile and uncertain, and we will focus on controlling what we can, which includes innovation, execution, brand building, productivity and disciplined capital allocation,” Laguarta said in prepared remarks, discussing the company’s first-quarter results.
Affordability concerns have weighed on PepsiCo, with executives saying price increases passed on to consumers were discouraging them from purchasing its products.
Other companies, including General Mills and J.M. Smucker, also have rolled out price cuts across their businesses to lure back shoppers.
While Laguarta noted pricing was a key element in getting consumers back into the snacking category, other factors are equally important, including innovation and execution.
PepsiCo has announced versions of Cheetos and Doritos without artificial dyes and is using olive or avocado oil in some products to position them as more premium and better-for-you. It has also touted the launch of snack and beverage options with trendy ingredients, such as protein-enhanced Doritos and Pepsi with prebiotics.
Just last week, PepsiCo said it would remove artificial colors from its top Gatorade flavors while focusing the beverage line on everyday hydration instead of just sports.
The recent changes show signs of paying off. During its first-quarter results, PepsiCo said revenue surged 8.5% to $19.4 billion. Volume in its North American food business, which includes Doritos, Lay’s and other salty snacks, rose 2%.
Following its earnings, analysts praised PepsiCo’s recent efforts. Robert Moskow, an analyst with TD Cowen, said PepsiCo’s Frito-Lay business was starting to “find its footing” as it implements its “full court press” of commercial activities and expands its shelf-space at more retailers.
Still, there was some skepticism over the long-term strength of the segment. Morgan Stanley analysts said it is “less optimistic” about Frito-Lay’s future even with the improvements, noting the timing of Easter and recent retail scanner data.
