PepsiCo is hoping for a recovery in its food business

PepsiCo expects improved revenue performance from its PepsiCo Foods North America division as its Frito-Lay snack unit provides consumers with greater value and innovative products. The improved outlook follows a December 9th presentation by PepsiCo executives outlining new strategic priorities aimed at enhancing the company's overall financial performance, with the food business at its core.

First, PepsiCo stated that its North American food business plans to drive growth and increase purchase frequency of its mainstream brands (led by Frito-Lay) by offering consumers "more affordable everyday consumption" through differentiated price tiers across brands and channels. Simultaneously, the company will implement a "broad innovation program" focusing on brand refreshes and the introduction of more health-conscious products, including those free of artificial colors and flavors, with simpler ingredients, and rich in protein, fiber, and whole grains.

Second, to support investments in advertising, marketing, and enhanced consumer value, the company plans to utilize savings from reduced operating costs and optimized operations. The company noted that it plans to reduce its US stock-keeping units (SKUs) by 20% by early next year and has already closed three manufacturing plants and several production lines this year. Automation, digitalization, and process simplification initiatives are expected to contribute at least 100 basis points to core operating margin improvement over the next three fiscal years.

Most importantly, to achieve long-term financial goals sustainably, PepsiCo Foods North America must increase organic revenue and improve core operating margins. Significant investments in innovation, brand communication, and affordability are expected to enhance market performance and growth in these businesses, while significant productivity improvements, net of inflation and investments, are projected to increase core operating margins by fiscal year 2026. This business remains a key driver of shareholder value for PepsiCo, and its performance in 2026 must significantly exceed that of 2025. PepsiCo projects full-year organic revenue growth of 2% to 4% in 2026. The company stated that including the impact of acquisitions (excluding divestitures and foreign exchange effects), the growth rate would rise to 4% to 6%.

Currently, PepsiCo Foods North America is a key business "capable of maximizing" its current low single-digit organic revenue growth "to algorithmic levels." Frito-Lay North America's performance improved year-on-year, and enhanced operational execution will boost results in the second half of fiscal year 2025 and lay the foundation for growth in fiscal year 2026. PepsiCo CEO Ramon Laguarta stated, "Investments in pricing and shelf space give us confidence in sales growth, which will also drive net revenue and market share growth. In addition, we are investing heavily in some of our major brands. The relaunch of Lay's potato chips has received very positive consumer feedback so far. We are about to relaunch Doritos tortilla chips. Later this year, we will also be repackaging some other brands. Therefore, we are confident in the improved performance of our core brands, and we also believe that some innovations are redefining category boundaries and attracting new customers and consumers back to the category."

Furthermore, in terms of innovation, PepsiCo is confident in the new image and consumer communication approach for the rebranded Lay's potato chips. He also mentioned the Simply NKD product line, which began rolling out to more stores this month. Products include Doritos Original tortilla chips, Cheetos Original cheese puffs, and Cheetos Original cheese puffs. The line was initially retailed by Walmart, and more retailers are expected to join in 2026.

Overall, while the specific scale of price adjustments remains unclear, the company has tested price adjustment plans with three major customers over the past three months and indicated that initial indicators show positive results. Frito-Lay has also gained more shelf space from retailers due to price adjustments and innovation initiatives. While these measures are necessary to enhance consumer value, there is still skepticism about the timing of a turning point given the structural pressures from GLP-1 drugs and healthier snacking habits.