PepsiCo price hikes appear to be paying off.
Shares in the company rose when markets opened on Tuesday morning after its Q3 earnings revealed net sales of $23.45 billion, up 6.7 percent on the same period last year.
PepsiCo owns big-name household brands such as Gatorade, Doritos, Tropicana and Lay’s potato chips. The firm has previously been accused of ‘greedflation’ – the practice of hiking prices well above the rate of inflation.
The corporation increased prices globally by 11 percent on average between July and September. It marked the seventh straight quarter that the company increased prices by double digits.
The company has also been shrinking portions and selling smaller value packs to drive more transactions, it said.
PepsiCo owns big-name household brands such as Gatorade, Doritos, Tropicana and Lay’s potato chips. Pictured are bottles of Diet Pepsi Wild Cherry on display at a market in Pittsburgh
Shares in the company rose when markets opened on Tuesday morning after its Q3 earnings revealed net sales of $23.45 billion – up 6.7 percent
After the change, in the 12 weeks ending September 9, Pepsi’s beverage division in North America had a revenue increase of 8 percent, but unit volume only decreased by around 6 percent, according to company filings on Tuesday.
Frito-Lay, which oversees the company’s food businesses in the United States and Canada in North America, also experienced an increased revenue and lower sales following changes to the company’s pricing model.
As such, the company hiked its full-year forecast of share growth from 12 to 13 percent – its third consecutive quarterly increase.
Africa, the Middle East and South Asia was the only market in which the company reported a drop in revenue, which it attributed to unfavorable foreign exchange rates, driven by the weakening of the Egyptian pound.
Moving forward Pepsi’s pricing would continue to increase, albeit more conservatively, its CFO said. ‘Our pricing will be roughly inline with inflation,’ Pepsi executive Hugh Johnston told investors.
But he also indicated that consumers were becoming increasingly strict with their spending amid higher gas prices and inflation more generally.
‘I do think that we see the consumer right now being more selective, you see it in a variety of ways,’ said Johnston.
‘Typically when gas prices are up and consumer income is stressed, you see revenue there stressed as well,’ he said. ‘We expect the consumer to continue to be cautious.’
PepsiCo CEO Ramon Laguerta (pictured) said the company was braced for the impact of weight loss drugs, but so far their influence on sales was ‘negligible’
CFO Hugh Johnston (pictured) said consumers were beginning ‘more selective’ amid higher gas prices and inflation more broadly
An exception in terms of dwindling sales volume was Pepsi-owned brand Gatorade, which continued to see increases in sales, though a smaller increase than on the previous quarter.
CEO Ramon Laguarta, said competition from new energy drink Prime was potentially to blame but that the brand was otherwise performing well.
‘The emergence of Prime took some share from Gatorade, but less than other brands in the category,’ said Laguarta. But, he added: ‘We’re seeing that the size of Prime in the category is getting smaller as we get into fall.’
Laguarta also addressed the threat posed by weight loss drugs such as Ozempic, which target the appetite, and recent reports that their prevalence has impacted food and drink sales.
He said that although they were having ‘negligible impact today’, the company was braced for them in the coming years.
‘We’re observing the growth of these new drugs and its potential impact,’ he said.
When in April Pepsi announced more price hikes experts suggested they could actually be exacerbating inflation.
‘Inflation is going to stay much higher than it needs to be, because companies are being greedy,’ Albert Edwards, global strategist at Société Générale told the New York Times.
‘Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,’ he added.
But David Beckworth, a senior research fellow at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid pace of price increases was ‘profit-led.’
He said prices would not be able to go up if people were not willing or able to spend more.
DailyMail.com wrote to PepsiCo for comment on its Q3 earnings and the recent increases to its prices but did not immediately receive a response.