Pepsi Fights Back Against Shrinkflation: Why Your Chip Bags Will Be Fuller In The Future

Benzinga · 10/16 21:58

In a marked reversal, PepsiCo Inc. (NASDAQ:PEP) says it will be adding more chips to some bags in a move designed to lure consumers who have grown tired of "shrinkflation."

The Details: According to a CNN report, the largest snack manufacturer in the U.S. will fight back against the trend of smaller sizes at higher prices.

PepsiCo, which produces Lay's, Tostitos, Doritos and Ruffles brand snacks, will begin offering Tostitos and Ruffles "bonus" bags that contain 20% more chips for the same price as the standard size. The company will also be adding two additional chip bags to its 18-bag variety-pack option, the spokesperson told CNN.

TD Cowen analyst Robert Moskow said Pepsi's competitors will likely follow suit and increase the size of their packaging. The TD Cowen analyst highlighted increasing snack prices which have grown 36% since 2020, outpacing a 21% increase in overall grocery prices.

The average price of 16-ounce potato chips in September 2024 was $6.46, up from $5.02 in September 2020, according to the Bureau of Labor Statistics.

Pepsi’s Profits Shrink: Cash-strapped consumers have reacted to the higher prices by purchasing fewer snacks. PepsiCo's snack sales fell 1% last quarter, snack volumes dropped 1.5% and the company's third-quarter revenue was more than $500 million below the Street's estimate, according to data from Benzinga Pro.

Pepsi CEO Ramon Laguarta addressed the issue in the company's earnings call last week.

“The cumulative impacts of inflationary pressures and higher borrowing costs over the last few years have continued to impact consumer budgets and spending patterns,” Laguarta said.

PepsiCo is hoping to revive its snack food segment by providing more value to its customers in the form of more chips per bag.

PEP Price Action: According to Benzinga Pro, PepsiCo shares ended Wednesday's session down 0.81% at $174.48.

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