Bolder flavors and better-for-you benefits are boosting PepsiCo’s beverage business, while lower prices and a brand refresh highlighting “simple, quality ingredients” lifted snack sales in the company’s first quarter.
The gains bucked downward sales and unit trends dragging down other CPG companies amid rising concerns about prices and ultra-processed foods, and underscored what consumers currently care about most: affordability, healthier options and comforting, convenient products that support their emotional wellbeing.
Having proven the playbook, PepsiCo plans to expand its better-for-you offerings, simplified visuals on packaging and affordability initiatives, executives revealed during the company’s first quarter earnings call April 16.
Reflecting on the company’s 8.5% net revenue growth, which combined a 9% increase in net revenue for the North American beverage business and a 1% organic revenue increase for its North American foods division, CEO Ramon Laguarta touted the company’s strategic shift to account for ongoing headwinds impacting the industry.
“The current macroeconomic environment has become more volatile and uncertain, and we will focus on controlling what we can, which includes innovation, execution, brand building, productivity and disciplined capital allocation,” he said in prepared remarks.
He noted during a same-day call with investors and analysts that this strategy is already delivering the desired effect.
“We think that the consumer is back in our brands. The consumer is coming back multiple times to our brands, responding to our holistic value, plus execution, plus advertising, plus innovation strategy,” he said. “And there will be more. As we execute the full space transformation and innovation execution … we’re very optimistic about the sequential improvement of that business, and we think we’re on track – actually a little bit ahead of where we thought we would be by now.”
Breaking down PepsiCo’s strategy: Enhanced affordability
PepsiCo’s gains balance on three key pillars: improved affordability, a new look and “an expansive slate of innovation,” Laguarta said.
On the first pillar, the company announced in February that it would slash snack and chip prices by as much as 15% after discovering that lack of affordability was a significant sales block.
The company currently plans to hold down pricing as much as possible even as it predicts geopolitical pressures will drive up costs in the future.
“Our assumption is that inflation will come. The order of magnitude we’re still working through,” but “how you manage inflation would be kind of three ways over time. One, you grow your way through it and really leverage your infrastructure. The second is you push harder on productivity. And third, you do have options with your price pack architecture,” CFO Stephen Schmitt said during the company’s earnings call.
“We’d like to do the majority of it through the first two,” he stressed. But, he also acknowledged, “the reality is depending on the magnitude and time that we have inflation, we’ll likely play in all three areas to combat the inflation we’ll see.”
New look emphasizes what consumers want
Beyond price, PepsiCo is refreshing branding to better highlight what modern consumers want: simple ingredients and added benefits.
Last fall, the company refreshed its Lay’s branding for the first time in nearly a century to better highlight the use of “real potatoes and real flavors and real joy.”
Looking ahead, Laguarta said PepsiCo will refresh and restage additional brands, including Tostitos and Quaker, “with new visuals, amplified communications and simple ingredients.”
The company also expanded distribution of Doritos and Cheetos NKD with no artificial colors or flavors.
Innovation in the works
The brands’ new look will be complimented by a suite of innovation across snacks and beverages that focus on functional benefits and permissible indulgence.
For example, in food, the company recently introduced products with more protein and fiber, including Doritos Protein, Good Warrior beef sticks, Smarthfood FiberPop and SunChips Fiber.
In beverage, functional hydration – including Gatorade Zero Sugar and Gatorlyte – helped drive strong performance. Propel also gained volume share within enhanced water and saw sales more than double since 2019 to more than $1 billion, according to the company.
Under the Pepsi brand, Pepsi Zero Sugar delivered net revenue growth as did the successful integration of Alani Nu within the energy division – both underscoring consumer interested in better-for-you and functional beverages.
Bold flavors also bolstered beverage sales with standout results from Baja Blash, Mug Root Beer and Pepsi Wild Cherry & Cream, the company noted.
What is next?
The company will leverage both of these innovation strategies going forward, Laguarta said.
“Looking ahead, we expect to expand the presence and availability of on-trend innovations recently introduced – including Pepsi Prebiotic, Gatorade Lower Sugar, a newly formulated Muscle Milk, Starbucks Coffee & Protein, Pure Leaf Mental Focus and Dirty Mountain Dew Cream Soda – and amplify communications with consumers as the year progresses," he said.
He added, “What’s exciting about PBNA at this point is that the business grew 9%” from “a combination of revenue growth of 2% plus 7 points of additional platforms that are now in our distribution system. Some of that is business that we acquired, like poppi. Some of that is an increased portfolio of energy brands that are generating growth to our business. So, we feel good about the 9%. We feel good about the acceleration, the 2% in organic, and we feel good about the fact that we have flat volume as case pack water and that … that acceleration will continue in the coming quarters.”
Given the company’s successful start to the year, Schmitt reaffirmed PepsiCo’s fiscal 2026 financial guidance, noting the assumption that “our business can mitigate the impact of certain cot pressures that may persist.”