In a marked reversal of the shrinking bag trend, PepsiCo Inc. (PEP) is doubling down on its commitment to value by adding more chips to some of its popular bags. This move, aimed at luring consumers who have grown weary of ‘shrinkflation,’ marks a significant shift in the snack food industry.
According to a CNN report, the largest snack manufacturer in the U.S. is taking a direct approach to combatting the trend of smaller sizes at higher prices. PepsiCo, the force behind beloved brands like Lay’s, Tostitos, Doritos, and Ruffles, will be introducing ‘bonus’ bags of Tostitos and Ruffles. These special bags will offer 20% more chips for the same price as the standard size.
PepsiCo’s commitment to providing greater value doesn’t stop there. The company is also adding two extra bags of chips to its 18-bag variety packs. This move is designed to entice consumers seeking more bang for their buck, especially in the face of rising grocery prices.
The decision comes at a time when consumer spending is facing significant pressure due to rising inflation. Analysts like Robert Moskow of TD Cowen believe that PepsiCo’s move could be a game-changer, potentially prompting other snack manufacturers to follow suit and increase the size of their packaging. Moskow highlighted the alarming increase in snack prices, which have surged 36% since 2020, significantly outpacing the 21% increase in overall grocery prices. The Bureau of Labor Statistics reports that the average price of a 16-ounce bag of potato chips reached $6.46 in September 2024, a substantial increase from $5.02 in September 2020.
The impact of these price hikes on consumer behavior has been undeniable. Cash-strapped consumers have been forced to reduce their snack purchases, leading to a decline in PepsiCo’s snack sales. In the last quarter, the company saw a 1% drop in snack sales and a 1.5% decline in snack volumes. This resulted in third-quarter revenue that fell short of analysts’ expectations by over $500 million, according to data from Benzinga Pro.
PepsiCo’s CEO, Ramon Laguarta, acknowledged the impact of inflation on consumer budgets during the company’s recent earnings call. He emphasized the ongoing pressure on consumers’ spending patterns due to the cumulative effects of inflation and higher borrowing costs over the past few years.
By providing more value to its customers through larger bags of chips, PepsiCo is hoping to revive its struggling snack food segment. The company’s strategy hinges on attracting cost-conscious consumers and regaining their trust, particularly during this period of economic uncertainty. It remains to be seen how the industry will respond to PepsiCo’s bold move, but the potential for a shift towards larger packaging sizes and a renewed focus on value seems increasingly likely.