From grocery stores to fast food drive-throughs, today’s consumers pay a lot more for food than they did just a little while ago. In the years following the pandemic, food and beverage companies steadily increased prices to compensate for soaring commodity and labor costs and to please investors looking to boost profit margins. For example, the average price for a bag of potato chips in June 2020 was $5.09. These days, though, that same bag of chips goes for an average price of $6.56. While many consumers have tolerated price jumps like these, some people are starting to push back against high prices for snacks — and big companies are taking notice. 

Frito-Lay makes some of the most popular chip brands in the world, including Lay’s, Ruffles, Cheetos, and Doritos. Last week, the company said that higher prices may have scared away budget-conscious shoppers, causing a 0.5 percent drop in its second quarter revenue. The decline suggests that some consumers are either buying fewer bags of Frito-Lay chips or choosing cheaper brands instead. “There is clearly a consumer that is more challenged, and a consumer that is telling us that in particular parts of our portfolio they want more value to stay with our brands,” said Ramon Laguarta, CEO of PepsiCo, which owns Frito-Lay. 

The company said that it has a few plans in place to make snacks more affordable for value-focused shoppers. A few products, including unsalted potato chips and tortilla chips, will be reset with new lower prices. Other snacks will be put in variety multipacks, which contain a number of smaller bags that are cheaper to produce. The multipack strategy is a prime example of how the snack industry utilizes “shrinkflation,” or when companies cut the size of their products to save on costs. Of course, consumers don’t like decreased portions any more than they like higher prices, so it remains to be seen if Frito-Lay’s strategy will win over skeptical shoppers. 

Questions:

1. How does Frito-Lay plan to win over value-focused shoppers who are wary of ever-increasing snack prices?
2. What are the potential advantages and disadvantages of shrinkflation for snack companies like Frito-Lay?

Sources: Creswell, Julie and Danielle Kaye, “Have Potato Chips Reached Peak Price?” The New York Times, July 11, 2024. Doering, Christopher, “PepsiCo CEO Sees Lower Prices Across Parts of Its Snacking Portfolio,” FoodDive, July 15, 2024. Maruf, Ramishah, “Snacks Are Getting Cheaper as Americans Tire of High Prices,” CNN, July 12, 2024.