PepsiCo: Demand for Smaller Packs Driving Price

Convenience and snacking trends are driving consumer demand for foods in smaller packages, presenting an opportunity to generate higher unit prices on items such as snacks and beverages, PepsiCo CEO Ramon Laguarta said.

These trends—along with demand for more functional products—helped Purchase, N.Y.-based PepsiCo exceed expectations for sales and profits in its fiscal second quarter, Laguarta said in a conference call with analysts.

“What we’ve seen in the industry is a trend toward smaller packs,” said Laguarta, who attributed the demand to both smaller households and more occasion-based purchases.  “As the consumer moves into smaller packs, you realize [higher] pricing,” he said. “Price per kilo is better, price per liter is better.”

Photograph courtesy of Pepsico

Consumers are also looking to higher-value products such as functional beverages, and these also tend to carry higher price tags, Laguarta added. “In developed markets, we see smaller packs and more functional benefits driving what I would say is a positive pricing environment. Then, also, we see more consumption in convenience channels, channels where consumers are willing to be a bit less price sensitive and pay more for every transaction. So those are trends that you could see as positive trends for the category.”

PepsiCo said these trends helped contribute to 4.5% organic sales growth in the quarter, which ended June 15. U.S. divisions Frito-Lay, Pepsi Beverages and Quaker all recorded higher sales in the period.

Laguerta expressed particular optimism for PepsiCo’s Bubly sparkling water line, which he described as “one of our next $1 billion brands.” He said the company is talking with retail partners about expanding shelf space to accommodate its expected growth.

“We see this brand as a brand of the future,” he said. “We’re going to be innovating in this brand and on these flavors, that other occasions that I think we can attack. You're going to see mini cans, you're going to see larger cans. It is going to be a no-plastic brand. I think that is a very, very good positioning that we can have for this brand going forward for the modern consumer, the millennial and the younger mother that I think is adopting this brand for her kids.”