After years of raising prices, some of America’s biggest food companies are now cutting them — and the early results suggest it is working. When PepsiCo reported its quarterly results on Thursday, April 16, the maker of Lay’s, Doritos, Cheetos and Tostitos said its struggling North American food business returned to growth, with the amount of product sold up 2% after it lowered prices on popular snacks. “We feel good about where we are at this point in the journey,” chief executive Ramon Laguarta told analysts, adding that the early signs were “quite exciting.”

The price cuts are a direct response to shoppers who have spent the last few years trading down, buying less, or walking away from name brands altogether. PepsiCo first announced the reductions on Lay’s, Doritos, Cheetos and Tostitos at an investor meeting in early February. Laguarta has been blunt about why. “There’s a big reset of affordability because we see the consumer struggling in the U.S. and in many Western countries,” he said, calling affordability the single biggest obstacle for lower- and middle-income shoppers in the snack aisle.

General Mills, the company behind Cheerios, Nature Valley, Pillsbury and Häagen-Dazs, has made the same move. It cut prices on nearly two-thirds of its grocery products in North America, and said the change brought more items into shoppers’ carts. “Cost of living and housing pressures are reshaping spending patterns, and value is a core expectation that is here to stay,” chief executive Jeffrey Harmening said at an industry conference.

The shift has come at a cost to the companies’ bottom lines. In February, General Mills cut its sales and profit forecast for the year, warning that demand was soft and shoppers were resisting high prices. Its shares fell about 7% on the news and were down nearly 19% over the prior 12 months. Lower-income households in particular have been moving to cheaper store brands and private-label goods — the no-name products that sit next to the famous ones on the shelf, often for a dollar or two less.

How did it get to this point? Food prices climbed sharply after the pandemic and never really came back down. Grocery bills are far higher than they were a few years ago, and the steady drip of increases has worn shoppers out. Mondelez chief executive Dirk Van de Put, whose company makes Oreo and Ritz, put it plainly on a recent call: shoppers are “fed up with the price increases,” and confidence is near a historic low.

The strain shows up in unusual places. Some households are now using buy-now-pay-later installment plans just to cover the grocery bill, splitting the cost of food into smaller payments the way they might for a TV or a couch.

Not every company is cutting, and not every product is getting cheaper. Hershey raised prices by double digits to cover the soaring cost of cocoa, and food makers are still nudging up prices on items where their own costs have jumped. The broader picture is a balancing act: lower prices can win back shoppers and lift the number of items sold, but they also shrink the profit on each sale. Companies like PepsiCo and General Mills are betting that selling more at a lower price beats selling less at a higher one.

There is also a competitive threat pushing them. As shoppers hunt for value, discount chains and private-label brands have been taking customers, forcing the big names to fight back on price rather than just on advertising. PepsiCo said it is resetting shelves and rolling out new products, work its leadership expects to largely finish by the middle of the year.

For shoppers, the upshot is real if modest: after a long stretch of sticker shock, a growing list of well-known snacks and groceries is finally getting a little cheaper, as the companies that make them decide that winning customers back may matter more than protecting every cent of profit.

JBizNews Desk
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