Pepsico admits that shrinking snacks while raising prices was maybe not their most beloved strategy

The company behind Lay’s, Doritos, Tostitos, and Ruffles is adding more chips to select snack bags in an effort to win back frustrated shoppers. As consumers grow increasingly wary of paying more for less — a practice now widely referred to as shrinkflation — many have either switched to cheaper brands or stopped buying altogether. According to a PepsiCo spokesperson, Tostitos and Ruffles “bonus” bags will now include 20% more chips without a price hike in certain regions. Additionally, the brand’s 18-bag variety pack will be getting two more smaller-sized bags to boost value.

“It’s the football season. There’s a lot of gatherings,” PepsiCo CEO Ramon Laguarta said during an earnings call last week.

This move counters the trend of reduced chip bag sizes seen over recent years. Consumer advocate Edgar Dworsky, who tracks product downsizing on Consumer World, flagged that Tostitos’ “Hint of Guacamole” shrank from 12 ounces to 11 in 2021, and the “Hint of Lime” variant dropped from 13 to 11 ounces. Even Ruffles slimmed its “Sour Cream & Onion” bags by half an ounce back in 2013. “It’s about time,” Dworsky remarked on PepsiCo’s latest change. “Chip lovers have suffered through years of downsizings.”

PepsiCo dominates the salty snack category in the U.S., and according to analyst Robert Moskow from TD Cowen, its competitors may follow suit to remain competitive.

The decision comes amid declining snack sales. With inflation squeezing household budgets, shoppers are moving away from premium brands like Tostitos and opting for private-label alternatives at retailers like Walmart and Costco. In the third quarter of 2024, snack sales were down 0.5% year-over-year, while retail volumes dropped by 1.1%, according to Bank of America research. PepsiCo saw a 1% fall in snack sales and a 1.5% drop in volumes in the same period.

Salty snack prices have surged faster than most grocery store items. Moskow said the per-ounce cost of salty snacks is up 36% compared to 2020 — outpacing the 21% hike in general grocery prices. In September, the average cost of a 16-ounce bag of potato chips reached $6.46, up from $5.02 four years ago, based on data from the Bureau of Labor Statistics.

The public has taken notice. Everyone from President Joe Biden to the Cookie Monster has voiced frustration about shrinkflation. In response, companies like PepsiCo, General Mills, and Mondelez have turned to promotions, but those efforts haven’t moved the needle, Bank of America analysts noted.

Others are also jumping on the anti-shrinkflation bandwagon. Last month, Domino’s introduced a “Moreflation” promotion. Online customers ordering two or more medium two-topping pizzas were offered a free upgrade on one to a large size. “Consumers are getting fed up of actually seeing a smaller portion for the same price,” said Domino’s CFO Sandeep Reddy on a recent earnings call.

Sources:

https://www.cnn.com/2024/05/15/business/pepsico-chips-shrinkflation/index.html

https://www.consumerworld.org/pages/shrink.htm

https://www.bls.gov/news.release/cpi.nr0.htm