PepsiCo is preparing to lay off hundreds of U.S. workers at its three main divisional headquarters in a possible sign its brands may struggle to pass further price hikes onto indebted consumers.
In a memo obtained by the Wall Street Journal, the company that markets everything from Lay’s potato chips to Quaker Oats to Gatorade energy drinks told staff that cuts would disproportionately hit its beverages business as snacks had already undergone a number of redundancies.
The move is intended “to simplify the organization so we can operate more efficiently,” according to the paper.
PepsiCo, which just took delivery of the first Tesla Semi after at least a year of delays, employs over 125,000 full-time workers across North America.
Hundreds of jobs will be eliminated, one of the people told the Journal, with company sites in Purchase, N.Y., Chicago, and Plano, Texas, likely to be most affected.
The layoffs while relatively small are notable in that recent headline-grabbing examples of corporate belt-tightening thus far affected chiefly the tech sector and digital asset firms.
These companies tended to be the prime beneficiaries of the Federal Reserve’s record-breaking monetary stimulus as investors showered fast-growing businesses with capital to eke out a better return when ultrasafe 10-year Treasury bonds yielded little over 1%.
By comparison, consumer staples producers like PepsiCo generally tend to add workers at a far slower pace than a Meta or Coinbase as sales volumes typically expand at roughly the rate of the overall population.
Across the board price hikes
For the fiscal third quarter that ended on Sept. 3, however, PepsiCo reported an eye-popping 16% increase in like-for-like, currency-adjusted revenue. This was fueled almost exclusively by net price hikes across all its businesses.
Frito-Lay North America, the company’s second-largest division, saw its top line soar 20% despite a 2% drop in volume as it moved to offset rising costs for cooking oil, potatoes, and corn.
How much longer consumers might be able to sustain significant price hikes just to buy their favorite bag of Doritos tortilla chips versus generic store-owned brands is questionable.
According to data published by the New York Federal Reserve, credit card debt in the U.S. jumped 15% in the third quarter, the largest year-over-year increase in more than two decades.
During the Q3 investor call, PepsiCo finance chief Hugh Johnston consequently flagged the company’s ongoing efforts to eliminate waste and inefficiency wherever he finds it “so that if the revenue growth does start to soften up a little bit, we’ll still be in a position to deliver superior financial results.”
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