PepsiCo to trim hundreds of jobs following snacks shrinkflation
A major US newspaper announced PepsiCo is eliminating hundreds of jobs in North America, citing a staff memo that said the layoffs are intended "to simplify the organisation so we can operate more efficiently".
The beverage business in Purchase, NY, is expected to feel the brunt, however, the company’s North America snacks and packaged foods businesses in Illinois and Texas will also see cutbacks.
As of 25 December 2021, PepsiCo employed more than 300,000 people worldwide, including around 130,000 in the US.
In October, the Pringles and Doritos maker posted a 16% increase in organic sales from a year earlier – however, the gains came from the 17% bump up in prices.
The company said the higher prices were helping to offset cost increases for everything from raw materials to transport and labour.
Hitting every market across the globe, food inflation is at its highest level in 40 years in the US – up 13.5% in August compared with a year earlier.
According to vice chairman and CFO Hugh Johnston, though, PepsiCo’s snacks are viewed as an ‘affordable luxury’ in a world fraught with struggles and stresses.
The company has also employed the shrinkflation technique to ensure affordable snacks get into the hands of consumers.
Although the trend has been employed for several years, the concept is fast gaining ground amid rising inflation. PepsiCo admitted to taking “just a little bit out of the [Dorito’s] bag’ - shrinking it from 9.75oz to 9.25oz – so consumers could “keep enjoying their chips … at the same price”.
CEO Ramon Laguarta told analysts on the October conference call the snack giant is also reducing promotions and focusing on formats where consumers are less sensitive to price to help boost revenue.
Consumer acceptance of higher prices
The higher prices and better-than-expected consumer reaction to them are a key reason why PepsiCo lifted its FY outlook – expecting organic sales to rise 12% – double the original forecast at the outset of the year. The company raised its profit forecast, too.
For the quarter ended 3 September, PepsiCo reported a profit of $2.7bn – or $1.95 a share – up from $2.22bn a year earlier. Revenue bumped up nearly 9% to $21.97bn, beating analyst expectations of $20.83bn.
In the meantime, the pressure that rising costs are putting on companies’ bottom lines is not expected to let up soon – pushing PepsiCo to lay off ‘hundreds’ of workers.