PepsiCo Getting Granular On Pricing to Recapture Sensitive Consumers
PepsiCo will re-examine pricing for certain segments of its portfolio and increase marketing investments as part of its efforts to woo value-seeking consumers.
Price consciousness is extending across all income levels, CEO Ramon Laguarta said in an investors call today; though it’s playing out differently depending on the level, consumers have demonstrated they’re willing to compromise some of their decisions.
“I think the connecting line would be [that] the consumer is more cautious, the consumer is more choiceful, but the consumer is willing to spend in areas where they see value,” he noted.
“They're asking for more value, and they're willing to compromise in some of their decisions. So that's the problem to address. … I think once we address that situation, we'll be back in growth, and we feel pretty good about the tools and the resources we have and the actions that we're taking, and we're quite encouraged by recent performance of the business."
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PepsiCo organic net revenue grew 1.9% in the second quarter, compared with a 13% increase last year. Results were also impacted by recalls in its Quaker brands. Among the investments the CPG said it will make to recapture growth include enhancing capabilities in trade promotion management, consumer insights, demand forecasting, and supply planning.
This includes standardizing and harmonizing IT systems and increasing digitalization in the organization, as well as expanding automation and capacity at manufacturing plants, warehouses, and distribution centers.
The No. 2 publicly owned consumer goods company will also invest more in advertising and marketing and retail execution for some of its brands, including the challenged Frito-Lay portfolio. Although Laguarta said the portfolio does not need a pricing reset, they will provide more entry points for value.
Like most CPGs, PepsiCo has raised prices over the last few years to combat economic and raw material inflation and maintain margins. As consumers have demonstrated a willingness to switch brands and trade over to private label, manufacturers are stepping up their product innovation and marketing investments to maintain competitiveness on the shelf.
Rather than a one-size-fits-all promotional approach, PepsiCo will look to pull the pricing levers more strategically for the salty snack category. For example, while tortilla chips may require value intervention, flavored potato chips are being purchased with high frequency, said the CEO.
“The sweet spot for us is not to promote, but to promote to who needs it, in the products that need it vs. a blanket approach to promotion. … I think we're much more capable from the insights and diagnostic point of view, and also from our ability to execute more granularly all these interventions, be it digital, be it with particular channels or customers.”
