2024-01-14 18:42:00
Recently, the French container chain Carrefour announced that it will stop selling PepsiCo products PEPSICO INC +0.69% Close:0 Open:166.34 High:167.38 Low:165.58 Cycle:– Page Quote News Graphs Company Profile Recommendations More articles on the subject: in its branches due to “unexpected price increases acceptability”. The snack and beverage giant was quick to respond and said that it was the one that stopped supplying the supermarket. This public confrontation is further evidence of food inflation in Europe that has remained high despite the slowdown in price increases in the US. Companies like PepsiCo are raising prices for one simple reason: demand is still high.
PepsiCo’s latest reports show that despite complaints about high prices from consumers, politicians and supermarkets, the company continues to make a lot of money in Europe.
In the company’s third quarter reports, PepsiCo’s price mix in the European market increased by 13% compared to a year earlier, while the volume of sales remained the same. With smart management of expenses, the food giant increased its profits even more. Excluding the impact of foreign exchange rates, PepsiCo’s operating profit in Europe increased by 34% in the last quarter compared to last year and the profit margin increased by 82 basis points.
In all geographical areas, the situation was similar. The prices of PepsiCo products were 11% higher in the last quarter compared to last year, while sales volume decreased only 2.5%. This translated to 8.8% organic revenue growth, while organic operating profit grew 12%. Like PepsiCo, many other food companies raised prices due to rising inflation with limited impact on sales volume. Some companies saw their profit margins shrink in 2022 amid high energy costs, but most managed to maintain or even expand profit margins in recent years.
Consumers buy more of the cheap products and less of the expensive ones
Mondelez International, which makes Oreo and Ritz, raised prices by 12% in the last quarter compared to last year, but sales volume did not decrease. On the contrary, consumers bought 3.8% more. Also the Hershey chocolate manufacturer HERSHEY CO THE +0.11% Close:0 Open:193.15 High:194.71 Low:190.2 Cycle:– Page Quote News Graphs Company Profile Recommendations Additional articles on the subject: Showed a 1% increase in sales volume despite a price increase of almost 10 %.
However, people were less patient with expensive food items. Congra Brands, known for its ready-to-eat and canned meals, recently reported a 3% drop in sales volume even though its price mix was down slightly from about a year ago. Also, the sales volume of companies such as Campbell Soup and General Mills decreased by 5% and 4% respectively, from a year ago, even when prices were only 3% higher. It’s worth noting, these companies raised prices many times over the past year, but consumers continued to buy more of their cheap products and less of their expensive products, which dragged down the price mix and overall sales value.
The confrontation between PepsiCo and Carrefour – will the container chain manage to get a better deal?
Carrefour’s boycott of PepsiCo is intended to try and get the food giant to lower prices, but sales of PepsiCo products at Carrefour account for only 0.25% of the snack and beverage company’s global revenue, so PepsiCo is expected to have little impact. Nevertheless, this tension between the companies is an example of how the retailers – who are under pressure from consumers who are beginning to pay attention to prices in a period of difficult economic conditions and from concerned public representatives – can take an aggressive stance and demand lower prices.
Even if an agreement is reached between the companies, it will be difficult to know whether there will be a drop in prices when the negotiations are not usually conducted in front of the public. In 2022, Heinz stopped supplying tins of beans, soups and ketchup to the UK’s largest supermarket chain Tesco, following a dispute over prices. Both parties managed to reach an agreement quite quickly and returned the products to the shelves, but refrained from revealing the details of the agreement.
In conclusion: The actions of the consumers are expected to have a greater impact on the food companies than a boycott on the part of the supermarket chains in regards to setting prices. Products like Pepsi and Doritos are (mostly) not an essential product for life and if the buyers decide to buy less, PepsiCo will have no choice but to lower prices and consequently reduce the profit margin.
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