PepsiCo blames ‘inflationary pressures’ and high gas prices for sales drop

PepsiCo is grappling with declining beverage sales in North America, a trend CEO Ramon Laguarta attributes directly to "inflationary pressures" and elevated gas prices. In the second quarter, the company saw a four percent dip in beverage sales compared to the previous year, while food sales volumes remained stagnant. This economic squeeze is forcing consumers to tighten their budgets, leading them to seek cheaper alternatives and smaller product sizes.

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Performance moderated with consumer budgets tightening due to rising inflationary pressures.

To combat this, PepsiCo has implemented price cuts of up to 15 percent on popular brands like Lay's and Doritos in North America since February. The company is also prioritizing "affordability initiatives," aiming to ensure its products are available at price points consumers can manage. Laguarta acknowledged that the consumer environment is tougher than anticipated, largely driven by the impact of higher gasoline costs.

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What we learn is that, yes, because of the consumer environment and the fact that gasoline prices were higher, consumers felt a little bit more [of] the economic impact.

The challenges faced by PepsiCo mirror those of other packaged food companies, which are cutting prices and investing in healthier options to adapt to evolving consumer preferences and new market dynamics, including the rise of GLP-1 weight-loss drugs. In Canada, food and non-alcoholic drink inflation reached 4.4 percent in May, according to Statistics Canada, further straining household finances.

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I think the consumer is worse than what we had anticipated, and it’s driven mainly by gas prices.

Despite these domestic headwinds, PepsiCo reported a 2.4 percent increase in organic revenue for the second quarter. This growth was primarily fueled by strong performance in international markets, including Germany, Poland, the United Kingdom, India, and China, demonstrating the company's global resilience.

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We’re seeing the consumer changing behaviours, basically an acceleration of some of the behaviours we saw in the past.