Lowering Prices Isn't Enough to Bring the Consumer Back
PepsiCo's Q1 results highlight what it might take.
The CPG industry has spent the last three years raising prices. Consumers absorbed it for a while, trading down in some categories, switching to private label in others, but largely stayed within the branded ecosystem. A bag of Doritos hit $7, PepsiCo lost $50 billion in market cap and proved that, over time, this was not a sustainable strategy. Volume started declining across nearly every major category while private label share hit record highs. For the last two quarters, almost every major brand has responded with price cuts to try to win their consumer back.
I’ve been curious to see whether price reductions alone would be enough to undo what three years of higher prices has done to the relationship, and PepsiCo’s Q1 earnings suggest the answer is more nuanced than a simple thumbs up or down.
Frito-Lay North America posted 2% volume growth, 4% unit growth, and 300 million new consumption occasions - the first positive volume quarter for the division in more than two years. Company-wide revenue hit $19.4 billion, up 8.5%, beating both top and bottom line estimates.
General Mills on the other hand, cut prices across two-thirds of its North America retail portfolio and still saw volume deteriorate, down 3% over the most recent 12-week period. They cut their 2026 fiscal year guidance in February and Jefferies suggested that the recovery is “likely multiyear”.
Both companies faced the same consumer environment, both responded to the same private label pressure, both cut prices - But only one of them did so in isolation.
PepsiCo paired its price reductions with reformulations across the snacking portfolio (Cheetos NKD, Doritos NKD, Doritos Protein, Smartfood FiberPop, etc.). They stripped the products of artificial ingredients and repositioned the brands around what consumers are actually asking for. The reformulated lines are hitting double-digit growth rates at ~40-50% ACV distribution, with further acceleration expected through summer planogram resets. Lay’s and Tostitos were restaged, shelf space expanded and the away-from-home business grew at three times the company average.
PepsiCo CEO, Ramon Laguarta, described it as a “holistic value plus execution, plus advertising, plus innovation strategy”. The word order and framing is worth noting - Value comes first, but it’s one variable in a system, not the system itself.
A price reduction alone is a margin concession in disguise. It narrows the gap with private label on the one dimension where they will always win. A price reduction paired with reformulation, however, (visible product improvement, shelf reset, etc.) is something different: It’s an acknowledgment that the value proposition broke, alongside a visible effort to rebuild it.
The distinction matters because almost every major CPG company is cutting prices right now. The ones treating the cut as the first step in a broader consumer relationship repair strategy, vs. the strategy itself, are the ones positioning themselves for volume recovery.
It’s worth noting that North America beverages posted a 2.5% volume decline in the same quarter. The snacking category playbook may have landed first, but a major Gatorade rebrand has already been announced.
The preliminary evidence suggests consumers need more of a reason to come back than just a lower price. P&G reports earnings later this week and I'll be interested to see whether a strategy built around superiority messaging still resonates with the consumer after they've tried lower-cost alternatives.