PepsiCo sees double-digit snack sales drop in Spain, yet profits surge 92%

Pepsi sells fewer snacks in Spain but earns more than ever

A bag of Doritos now costs around three euros, and as the debate goes, much of its weight is air. At this price, the Spanish buyer has started to slow down: PepsiCo told investors that snack sales in Spain fell double-digit during the second quarter of 2023, the worst record among all European countries where it operates. Doritos, Lay's, Ruffles, and Cheetos are included in this basket. And here comes the first uncomfortable fact: the less it sells, the more it invoices.

What has peine with Doritos, Lay's, and Ruffles sales in Spain

The European comparison leaves Spain in an uncomfortable position. The volume of snacks in Europe grew by 2% in the quarter, driven by a high single-digit advance in Russia and double-digit growth in Turkey and Ukraine, offset by high single-digit drops in the UK and France, slight growth in the Netherlands, and a double-digit decrease in Spain.

This pattern repeats year-to-date. The group's unit sales volume fell by 1%, with high single-digit declines in the UK and Spain and low single-digit drops in France, partially offset by Turkey, Russia, and the Netherlands. Spain continues to post the worst performance in its environment.

Watch the vocabulary. "Double-digit" is mentioned without specifying how much: such a drop could be 10% or 90%. The company does not break down the Spanish figure, and here begins the slippery ground.

Pepsi sells less, raises prices by 20% in Europe, and earns 92% more

The mechanism is written in the income statement itself. PepsiCo generated $22.322 billion in revenue in the quarter, 10.4% more in absolute terms and 13% in organic terms, with a price increase of 15% on average that reached 20% in Europe. Commercialized volumes fell by 2.5%.

Attributed net profit reached $2.748 billion, 92.3% more than in the same period of the previous year, when accounts were penalized by the impairment of assets in Russia. In Spain, the firm acknowledges that revenue grows double-digit even if fewer units are sold. The summary is exact: sell less, charge more.

This balance has a leg that does not appear in the headline. The company did not need prices to adjust downward to balance accounts: it is enough that those who keep buying pay what they used to pay plus half again.

From the three-euro bag to the cutlet: what replaces snacking

The buyer's response is predictable and quite creative. The large bag that previously cost 40 or 50 cents in store brand now moves between €1.15 and €1.30, with less product inside. The kilogram of fried potatoes has gone to €15 or €20, a figure that turns the snack into a meat-price indulgence.

Comparisons trinc. A sandwich bread bar for 0.25 euros more a packet of packaged chorizo for 1.10 euros is cheaper than a single package. A tomato and onion salad with chili peppers solves the salty snacking. Potatoes by weight from a nut shop leave the money in a small shop. Some have simply stopped buying, and others have switched to store brands.

The curiosity is not just Spanish. Mexican President Andrés Manuel López Obrador attacked potato chips for carrying "too much air" and noted that frying a potato at home is much cheaper. A whole anti-inflation argument with potato and oil.

Why don't prices fall if demand drops?

This is the question ordering the entire matter. If demand plunges, the manual says prices should yield; if costs cannot be absorbed, the company would go bankrupt. Neither has peine: less is sold, staff is reduced, and more money is earned.

One analytical current holds that the increase responds to greed and the pricing power of a few manufacturers with strong brands, not to the rise in energy or grain costs. Another part argues that the crossing point has moved and the product has become a more selective good: less is sold, but those who buy can be charged more. Neither current fully explains why the same pattern repeats in categories that do not compete with each other.

The ERE of 500 employees and upward forecasts

This episode arrives after the company announced at the end of 2022 a regulatory employment scheme in Spain affecting around 500 people, 20% of the workforce, for organizational and productive reasons.

And it arrives with optimism in the accounts. The group has revised its projections upward: it expects organic revenue growth of 10%, up from 8%, and a 12% increase in constant currency earnings per share, three points more than in April. It anticipates cash returns to shareholders of about $7.7 billion, with $6.7 billion in dividends and $1 billion in share buybacks. In the first half, net profit fell 17.7% and net revenue rose 10.3%.

The closing is left to the European map. The volume of snacks grew 2% in the continent and Spain posted the only double-digit collapse. The question is no longer whether the buyer will return, but at what price they would accept doing so.