The U.S. and other developed markets have moved into "stagflationary" mode over the past six months, and the lack of growth has created a pricing dilemma for CPG companies, Hugh Johnston, PepsiCo's CFO, told attendees at a Barclays Capital investor conference on Sept. 7.
"While our brands are solid and our company is highly productive, this stagflation has made pricing a tricky balancing act," Johnston said. "Price elasticities have become steeper at the same time that [price increases] are required to cover higher input costs, and this is squeezing performance across food and beverage."
Given this reality, PepsiCo is focusing on pricing strategies -- as well as supporting its brands with marketing -- to clearly define and communicate their distinct positioning to consumers and drive innovation, Johnston said.
advertisement
advertisement
PepsiCo continues to adjust its pricing architecture to "meet the needs of the widening gap between value, middle and premium consumers" and "be responsive to generally higher price sensitivity across all consumers," he said.
Johnston and John Compton, CEO, PepsiCo Americas Foods, shared a number of points about pricing, packaging and marketing initiatives.
On the carbonated soft drinks/CSB front, using consumer insights, packaging innovation and PepsiCo's integrated bottling system to leverage occasion-based marketing -- to tailor pricing and packaging by brand, channel and consumption occasion -- has become an increasingly important strategic focus, according to Johnston.
Examples, he said, include using 16-ounce bottles to provide a 99-cent price-point option for on-the-go consumers in the convenience and gas store channel (PepsiCo is the leader in this channel); offering 1.5-liter, 99-cent bottles for mealtimes in smaller households (accounts distributing this size are seeing improved volume across the 1.5- and 2-liter spectrum); and focusing on 20-packs of 12-ounce cans for special occasions/celebrations. A 7.5-ounce can launched in March was designed to meet the "mealtime snack" needs of "light CSB" consumers, while also enabling a higher price per ounce, Johnston said.
Occasion-based marketing is being leveraged first in CSBs, but will also be deployed in teas, where a broader variety of sizes, configurations and prices will be seen, he added.
PepsiCo began implementing beverage price increases after July 4, and is continuing to roll these out in the third quarter, Johnston reported, adding that higher Gatorade pricing will go into effect in the fourth quarter.
Johnston also noted that the company is seeing success with more "bundling" of beverage and snack products (such as Hot Doritos and Pepsi Max in c-stores), supported by coupons and other marketing.
In the Frito-Lay snacks business, PepsiCo has also seen higher price elasticities -- meaning higher consumer resistance -- particularly in promoted prices as opposed to everyday pricing, according to Compton. This has made it more difficult to predict the effects of promotions, requiring PepsiCo to fine-tune promoted price points introduced in July. "All [boats] sort of rose during the summer when everyone was taking additional pricing into the marketplace, and I think the consumer can only afford so much," he said.
A few highlights from Johnston's remarks on PepsiCo's advertising and marketing initiatives: