How low can a bag of potato chips go? Food brands drop prices to lure inflation-weary shoppers.

By Charles Passy

PepsiCo and Conagra are among the companies making changes.

We've seen fast-food restaurants trying to entice diners with all sorts of bargain options, such as $5 value meals and $1.99 cheeseburgers. Now we might be looking at the same sort of discounting for some of the most popular consumer food brands.

In other words, how low can a bag of Lay's potato chips go?

PepsiCo Inc. (PEP) effectively said this week that it would be looking to cut prices on some of its snack foods in an effort to increase sales. The company's portfolio includes some of the most popular brands in the category, such as Lay's, Doritos and Cheetos.

PepsiCo's move comes after its latest earnings report showed mixed results. Its stock has declined by more than 10% in the past year.

"There is clearly a consumer that is more challenged. ... They want more value to stay with our brands," PepsiCo CEO Ramon Laguarta said in an investor call on Thursday.

PepsiCo is not the first major producer of consumer-brand foods to look at lower prices in light of sales challenges. Conagra Brands Inc. (CAG), the company behind Duncan Hines, Birds Eye and Slim Jim, has also dropped prices on some items, though it's continued to face sales declines.

This is all coming as consumers say they're still feeling the pinch. While the latest government report showed that the 12-month rate of inflation declined from 3.3% to 3%, it's clear consumers aren't completely satisfied.

"Elevated prices, especially for food and groceries, continued to impact consumers' view of the economy," said the Conference Board, the organization behind the Consumer Confidence Index, a monthly yardstick that measures consumer attitudes. The index fell slightly in June.

Retail and marketing experts told MarketWatch that it's inevitable more consumer brands will join the discount bandwagon, if for no other reason than they'll want to stay competitive with brands that have already lowered prices.

"It's going to create downward pressure across the board," said Eric Dahan, founder and chief executive of Mighty Joy, a marketing agency that works with consumer brands.

But how will this play out at your neighborhood supermarket or corner grocery store? Keep in mind that while companies may lower the prices they charge retailers, it's the retailer that determines what consumers pay.

Still, experts are confident that retailers will pass along the savings. In many cases, companies will work with retailers on specific promotions, such as buy-one-get-one-free offers. It's also possible companies will reach out directly to consumers - for instance, with digital coupons.

Ultimately, companies will probably not drop prices dramatically, said Michael Baker, senior research analyst with D.A. Davidson Equity Capital Markets. He estimates the reduction will be well below 10% and more likely in the low-single-digit percentages.

Baker added that the savings might not be on individual items, such as a price drop on single bag of potato chips, but rather in the form of promotions.

Either way, the goal is still about changing shoppers' mindsets, particularly at a time when many may be looking to store brands as a lower-cost alternative.

"The consumer is definitely strapped right now. This can maybe help a little bit," Baker said.

That view was echoed by Tyler Renaghan, vice president at Upside, a digital marketplace. But Renaghan also noted that retailers themselves are becoming more aggressive in offering discounts as part of an effort to entice inflation-weary customers.

For example, Target (TGT) announced in May that it was lowering prices on 5,000 of its most frequently purchased items. The move comes after the company saw its revenue fall in 2023.

So, Renaghan said, the combination of retailer savings and brand savings might translate into a big win for shoppers after the recent years of rising prices.

"There could be double-up effect" on savings, he said.

-Charles Passy

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07-13-24 0531ET

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