PepsiCo recently revealed that it is considering a new round of price increases, which may take effect early next year.
Like other companies, PepsiCo is seeing continued to see rising costs related to goods, transportation and labor, and PepsiCo is trying to offset most of these costs through cost-saving strategies, but some of these costs still need to be passed on to consumers. That could make some consumers more price-sensitive — PepsiCo executives told investors on the company's third-quarter earnings call that they were confident in the current resilient model and didn't expect higher prices to lead to lower sales.
In fact, PepsiCo's strong third-quarter results show that changes in consumer preferences and buying habits due to the impact of the pandemic, regardless of whether prices rise or not, are a good sign for PepsiCo.
Probably up early next year
Inflationary pressures within labor, transportation and commodities markets, as well as supply chain disruptions, negatively impacted PepsiCo's results in the third quarter. So, despite the measures previously taken by PepsiCo to offset the impact of increased investment, PepsiCo executives warned that further action was still necessary.
Hugh Johnston, vice chairman and chief financial officer of PepsiCo, explained that this could mean that prices will rise again on top of the summer price increases. This summer's price increases are already unfolding in Pepsico and most of Pepsi's snack businesses.
While multiple rounds of price increases aren't ideal, PepsiCo CEO Long jiade doesn't seem too worried about the negative impact on the business, as resilience is still good for the company. He hypothesized that the change could be caused by several factors: "Around the world, consumers seem to think differently about pricing than before. As far as we're concerned, our brand is stronger, and I think our innovation is stronger, so that could be a factor. As consumers shop faster in stores, some behaviors may also change, and they may pay less attention to the determinants of pricing, which may be more relevant to the brand, or they feel closer to the brand and more emotionally attached to us, so pricing is less important. ”
Strong third-quarter results had an optimistic impact for the full year
In fact, judging from the results of the third quarter, the price increase measures taken by PepsiCo so far do not seem to have a negative impact on it.
On October 5, PepsiCo announced its financial results for the third quarter of 2021, with net revenue of $20,189 million, up 11.6% from $18,091 million for the same period in 2020 – reflecting PepsiCo's "fastest pace since 2019 began to implant a faster, stronger, and better strategic framework."
While some of these gains undoubtedly reflect PepsiCo's strategic investments in employees, brands, market systems, supply chains, manufacturing and marketing, PepsiCo acknowledges that about 5 percentage points of growth also came from higher prices and product portfolios.
Those price increases helped offset about 10 percent of the cost increase, the latter in part due to increased distribution and marketing spending. PepsiCo's strong third-quarter results prompted it to raise its full-year performance forecast, including a potential increase of about 8 percent in organic revenue and at least 12 percent growth in earnings per share for the full year 2021.
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