The owner of a large portfolio of snack brands that includes Lay's Potato Chips may have admitted that consumers really are seeing fewer chips in a bag due to inflation.
What Happened: Beverage and food company PepsiCo (NYSE:PEP) reported second-quarter earnings Tuesday before market close.
Pepsi Chief Financial Officer Hugh Johnston discussed how inflation and higher costs are impacting the company and passing on the costs to consumers.
“We take a consumer-centric approach to packaging,” Johnston said.
When asked specifically if the Harrison, New York-based company has lowered the number of chips in bags of products, Johnston had a surprising answer.
“There are times we’ll take chips out of the bag instead of taking pricing up," he said. "There’s other times we’ll actually increase the number of chips in the bag, and we may take pricing up a little bit along with that.”
As for Doritos, Johnston says that's not the case. An article that said there were five fewer Doritos in bags is false, he added, possibly referring to a recent Newsweek piece.
Doritos haven’t changed in a long time but admitted that every single package might have changed over the last few years, he explained.
“(It’s) something that’s been going on for decades and frankly as I said consumers seem perfectly fine with it.”
Johnston said volume is up and PepsiCo does studies to make sure consumers are happy and the packaging sizes and prices make sense.
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Why It’s Important: The pricing power of Pepsi was mentioned as a strength by several analysts who weighed in on the quarterly report from the food company.
Johnston highlighted the impact pricing power had in the quarter.
“If you look at the results for the quarter, prices were up 12%, which is less than the inflation that we faced,” Johnston said.
Higher costs Pepsi is seeing include packaging, food and commodities. The company passes some of the higher costs on to consumers and also has another strategy.
“We’ve been hedging, forward buying by about nine months. Our focus first and foremost is how do we avoid taking pricing.”
The comments from Johnston come after the company said it is expecting costs to rise higher in the second half of the year and could shrink product sizes in response.
Guidance for 2022 calls for organic revenue growth of 10%, a slight increase from a prior forecast of 8%.
PEP Price Action: Pepsi shares were up 0.4% to $170.10 on Wednesday.
Image courtesy of Lays.com
