Consumers Are Still Buying Snacks and Drinks Despite Price Increases

Meanwhile, online retail sales could hit the $1 trillion milestone in the third quarter of this year.

July 14, 2022

Lady with chips and soda

ALEXANDRIA, Va.—PepsiCo stated that consumers are willing to pay more for drinks and snacks—for now, reports the New York Times. On a second quarter earnings call, PepsiCo raised its revenue forecast for the year for the second time; however, it did not raise its profit outlook because of consumer elasticity concerns.

During the second quarter, PepsiCo’s revenue and profit grew faster than sales volumes, meaning that the company charges more for its products, and customers continued to purchase them.

“We still have six months to go,” Hugh F. Johnston, PepsiCo’s chief financial officer said on the call. There are “plenty of unknowns in terms of what’s going to happen with consumer behavior.”

However, the company is moving with caution, likely due to historically high inflation and price increases as well as what that means for consumer spending.

“As inflation keeps going up,” Ramon L. Laguarta, PepsiCo’s chief executive, said on the call, “we’re going to have to be super agile and very precise on the choices we make with the consumer.”

eCommerce Remains Strong

Meanwhile, online retail sales could hit the $1 trillion milestone in the third quarter of this year, which is double from four years prior, according to FTI Consulting.

“[T]he rocket-like growth of online retail during COVID-19 certainly will moderate. Online sales in the past two years were driven by necessity—shopping from home due to stay-at-home living and work conditions—as well as more discretionary income due to government stimulus, a speedy jobs recovery and increased savings,” J.D. Wichser, leader of the retail and consumer products practice at FTI Consulting, said in a statement. “This will modulate over time, exacerbated by recent inflationary pressure, which is expected to slow total retail spending over the second half of 2022 and is quickly becoming the primary source of stress for consumers, who don’t know how long it will persist.”

Retail Dive reports that Adobe is making similar predictions on e-commerce spending. Last year, the company forecasted that e-commerce spending would reach $1 trillion in 2022.

However, physical retail is an important channel, with estimates that nearly three-fourths of retail sales in the U.S. will still occur in physical stores in 2024. Also, online-only retail tends to not be as profitable as brick-and-mortar stores. Salesforce found that 44% of online-only retailers were not profitable, compared to 20% of brick-and-mortar retailers that said the same.