By David Wainer
PepsiCo just pulled off something rare in the food industry: It got consumers to come back.
For the past few years, food companies raised prices so aggressively that shoppers revolted, trading down to store brands and buying less. Now the industry is running the playbook in reverse, cutting prices and investing more in marketing and innovation.
The strategy makes sense in theory. In practice, it is proving brutally difficult. PepsiCo, which owns the massive Frito-Lay snacking empire, has more breathing space than most. Still, its effective use of price reductions might point the way for rivals.
Last week, the food and beverage giant reported a quarterly earnings beat and reaffirmed its full-year guidance. Crucially, its North American food division, which includes the likes of Lay's and Doritos, saw volume growth of 2% after several consecutive quarters of declines. Its international business grew even faster. For a food industry that has been losing volume to private-label alternatives, it is a remarkable feat, especially given the fact that companywide margins actually expanded.
The results were the early signs of progress under a plan hashed out with activist investor Elliott Management last December. The two sides agreed on a straightforward logic: Cut costs aggressively, trim the product lineup, then use the savings to lower prices and reinvest in the business to win consumers back.
In February, the company cut prices on many of its snack products, including Lay's, Doritos and Cheetos. To fund it, PepsiCo has been reducing head count, closing plants and streamlining what it sells.
Size helps. PepsiCo's massive scale, parallel beverages business and vast distribution network give it the financial cushion to restructure and invest in consumers at the same time -- something smaller or more narrowly focused rivals have found harder to pull off.
"We've got some things that are really working in our favor that allow us to play offense as much as we have to grow volume," Chief Financial Officer Stephen Schmitt said on the company's earnings call last week. PepsiCo has also pushed into restaurants and convenience stores and added better-for-you products such as Siete chips, a category which is experiencing better revenue expansion than the rest of the business.
Many food companies are attempting variations of the same strategy with considerably less to work with. Both General Mills and Campbell's have cut their financial projections for this year, as their businesses project continued sales declines. Both are cutting prices and spending more to win consumers back. Neither is seeing the consumer response PepsiCo is reporting. Their stocks reflect that skepticism: While Pepsi's shares are up roughly 9% this year, General Mills and Campbell's have both fallen more than 20%.
The lesson isn't lost on the broader industry. Last month, McCormick announced a roughly $45 billion deal to acquire Unilever's food business including Hellmann's in a bet that greater scale is what the current environment demands.
Food companies can cut prices as long as inflation remains manageable. But a prolonged Middle East conflict could push costs back up -- as commodity shocks did following Russia's invasion of Ukraine in 2022 -- putting the industry in a real bind. Companies might face the uncomfortable choice of passing increases on to consumers who have already made clear they have little appetite for them.
Those risks were brought into stark relief during Pepsi's earnings. While PepsiCo has hedges that protect it from jumps in commodity prices for up to a year, management acknowledged that inflation is likely to hit in 2027. The last thing the company wants to do is to raise prices. It prefers to push harder on cost cuts first. Schmitt said reducing package sizes -- the industry's time-honored way of raising prices without appearing to -- remains a last resort. But, as CFRA senior analyst Garrett Nelson has said, deploying that too soon would risk undermining the volume recovery.
For now, PepsiCo has done something genuinely rare. The question is whether it can hold that balance as costs rise, and whether its rivals can find a way to follow.
Write to David Wainer at david.wainer@wsj.com
(END) Dow Jones Newswires
April 21, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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