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PepsiCo Posts Solid Performance, But The Real Challenge Begins Now: Analysis

While PepsiCo is looking forward to the remainder of the year with optimism after a strong second quarter, maintaining shopper loyalty will be challenging in the months ahead, Amira Freyer-Elgendy, consumer analyst at GlobalData, has said.

The soft drinks and snacks giant saw second-quarter revenue growth up 5.2%, while year-to-date revenue is 7.0% higher. CEO Ramon Laguarta praised the business' momentum despite "despite ongoing macroeconomic and geopolitical volatility".

The group raised its full-year expectations, anticipating a 10% increase in full-year organic revenue (up from its previous forecast of 8%), and earnings per share to rise 8%.

Shrinking Margins

Commenting, Freyer-Elgendy said, “PepsiCo has adjusted its full year organic revenue growth forecast for the second time this year but shrinking margins and the company’s reliance on markets heavily hit by inflation, such as North America will be a major hurdle to overcome.

"PepsiCo is trying to establish itself as a strong performer and a solid player, but the remainder of the financial year will be tougher considering downtrading trends in shoppers."

Of particular concern are expected price increases over the coming months, which are likely to push consumers to seek out alternatives, or migrate to private label.

"Shrinkflation – offering shoppers the same price but in smaller packs – has been the go-to strategy for PepsiCo so far," said Freyer-Elgendy. "However, as inflation rises, shoppers will become more sensitive to money spent by volume and may cut back on consuming PepsiCo’s core product categories.

"North America - the biggest region in terms of sales for the company is experiencing high inflation (c7.5% in 2022 based on GlobalData’s Macroeconomic Database) and shoppers opting for private label, cheaper options or buying far less from the brand, are a potential risk."

Private-Label Snacks

According to a recent consumer survey by GlobalData, sales of private-label savoury snacks have increased quarter-on-quarter, from 25% in Q1 to 30% in Q2, potentially adding to the pressure on core brands like Lay's.

"Volume and value trends in PepsiCo’s recent results highlight the inflationary effects, especially in America and Europe," said Freyer-Elgendy.

"Europe accounts for 14.8% of its overall net revenue and PepsiCo Beverages North America accounts for the biggest share of its net revenue, at 30.3%, but both regions dipped into negative volumes this quarter. Quaker Foods North America, meanwhile, was the only North American sector that saw any volume growth this quarter, due to consumers investing in food staples, such as cereals and rice."

In summary, volume growth is expected to soften in the months ahead, and as a result, PepsiCo should "focus on communicating the value for money and quality in its product range while ensuring its entry priced options are appealing for consumers looking to trade down", added Freyer-Elgendy.

© 2022 European Supermarket Magazine – your source for the latest A-brand news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

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