PepsiCo Faces Competition from Private Labels as Shoppers Downgrade

As continued grocery inflation affects more consumers’ shopping habits, PepsiCo is facing new private-label competition.

The multinational food and beverage giant shared on a call with analysts Tuesday (April 25), discussing its first quarter 2023 financial results, that it is beginning to face new challenges from retailers’ private-label brands as ongoing food and beverage inflation begins to influence more and more of consumers’ purchasing choices.

“We’re seeing private label growth in some of the categories where we participate, especially waters, juices, …. salty snacks,” PepsiCo CEO Ramon Laguarta told analysts on a call. “We see both private label increasing, although from a very low base, in salty snacks, but most importantly for us, we’re seeing our brands continue to gain loyalty, expand their consumer base and be preferred in that segment.”

The news marks the first time in this inflationary period that the company has acknowledged competition from private-label brands on an earnings call. In previous quarters, the sentiment among many similar companies has been that consumer trade-down is more of a concern for larger-ticket items and that consumers’ food and beverage loyalties had been resilient.

For instance, PepsiCo competitor Coca-Cola stated last year that “a typical recessionary pattern,” based on historical data, sees consumers refrain from purchasing “high-ticket item, discretionary things” first, putting off major purchases until the economy is stronger. It was not until February of this year that the beverage giant noted the start of the shift, with consumers beginning to pull back on food and beverage spending.

Yet, consumers have been reporting changes to their grocery shopping habits for significantly longer than that. For instance, research from PYMNTS’ study “Consumer Inflation Sentiment: Inflation Slowly Ebbs, But Consumer Outlook Remains Gloomy,” which drew from an August 2022 survey of more than 2,100 U.S. consumers, found that 62% were cutting down on unnecessary grocery expenses in the face of rising food prices. Plus, 37% reported reducing the quality of grocery products they purchased for the same reason.

Now, PepsiCo is not certain what the rest of the year will hold when it comes to those consumer purchasing decisions.

“There are a few things we’re still concerned about. One is where is the consumer going to be in second half of the year,” Laguarta said on the call. “We have multiple scenarios. And some of the scenarios are more optimistic, some less.”

Consumers, for their part, are not optimistic. Research from PYMNTS’ study “Consumer Inflation Sentiment Report: Higher Prices Fuel a Deal-Seeking Competition,” produced independently by PYMNTS, which drew from a survey of more than 2,100 U.S. consumers, found that more than two-thirds of consumers said they believe grocery prices will increase over the next year.

Plus, the March edition of the report “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” noted that 67% of consumers cite price and discounts as key factors that influenced their decision of where to make their most recent grocery purchase. This share is significantly larger than the 44% of consumers who were motivated by loyalty or the 34% motivated by the quality of products or services, suggesting that cost concerns remain a top priority for grocery shoppers as food inflation continues to loom large for the foreseeable future.