Beverage Digest Editor and Publisher Duane Stanford explains what the soda and snack manufacturers' performances are indicating about the American consumer, a topic President Biden broached in a recent video addressing snack "shrinkflation"
"When you look at the companies as a whole, they have very different strategies — PepsiCo, half its business is in snacks and that's a very profitable part of their business," Stanford tells Yahoo Finance. "So, they're looking to always make sure they can maximize investments in the snack business. And so a lot of times, what they're doing is balancing those investments with what they do on the beverage side, so that sometimes leads to decisions when it comes to how much share they're willing to try to take by lowering prices."
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BRAD SMITH: Food and beverage sectors are in focus this week as we get the latest read on how consumers are responding to inflation. In Coca-Cola and PepsiCo's latest quarterly results, the soft drink makers are seeing a drop in volume sold in North America thanks to ongoing price hikes. But overall consumer sentiment remains strong.
For more on beverage trends and the overall health of the US consumer, we're joined by Duane Stanford, who is the "Beverage Digest" Editor and Publisher. Duane, great to have you here with us this morning. I mean, if there's one common denominator that you're seeing in some of the reports that are coming out from these major consumer packaged goods and beverage-- food and beverage companies, what would that be?
DUANE STANFORD: Right now, everyone's waiting to see exactly what happens with the consumer-- how much consumers are pressured by the economy. We've got a real bifurcation between the top end of the spectrum on the income level and the lower end. The lower end is the one that would be most concerning. That's where you would start to have some impacts to either volume sales and also the ability to price, you know, your beverages. So companies are generally feeling optimistic about what's going to happen as the year progresses. But it's something that everyone's watching very closely.
RACHELLE AKUFFO: And as you-- there's always this want to compare Pepsi with Coca-Cola. Pepsi, obviously, broader in the snack space versus the more pure play with beverages for Coca-Cola here. How do you think we should be looking at those two brands?
DUANE STANFORD: Yeah. I think that's something that people don't always quite grasp when they're looking at these companies. When they're on the store aisle, I mean, they're battling it out every single day. And the frontline workers are going at each other tooth and nail.
But when you look at the companies as a whole, they have very different strategies. PepsiCo, a huge part of its business-- half its business is in snacks. And that's a very profitable part of their business. So they're looking to always make sure they can maximize investments in the snack business.
And so a lot of times what they're doing is balancing those investments with what they do on the beverage side. So, you know, that sometimes leads to decisions when it comes to how much share they're willing to try to take by lowering prices. On the Coke side, on the other hand, they are a beverage play.
That's their primary-- that is the category they compete in. And so they have just a very different investment profile. That's why you often see situations where Coke is leading on share. PepsiCo is falling behind on share at times. And they're constantly trying to get that level right as it compares to snacks. So it's something to really keep in mind when you look at those two companies in terms of how they compete.
BRAD SMITH: Yeah. Spot on, Duane. And I'm sure many Americans consumed multiple snacks last week for the Super Bowl, I mean, myself included. Consumers right now, though, we're complaining that packaged goods are-- they're getting smaller. And shrinkflation is real. And it's certainly caught the attention of many Americans, including one of the Americans at the top of the totem pole, President Biden. Take a look at what he had to say about shrinkflation, and we'll get your reaction on the other side.
JOE BIDEN: When buying snacks for the game, you might have noticed one thing-- sports drinks bottles are smaller. A bag of chips has fewer chips, but they're still charging you just as much. I've had enough of what they call shrinkflation. It's a ripoff.
BRAD SMITH: So there's shrinkflation, and then there's, perhaps, another thread of the mind of profit-led inflation as well here. I mean, where do we toss this one up? Where does it settle?
DUANE STANFORD: I mean, this is something that the food and beverage companies have dealt with going back well over a decade, even during the Great Recession. PepsiCo, particularly, because they have such a large snack business, which is typically a place where you're going to find more of that sort of pricing strategy-- instead of raising the price of the shelf, you take more out of the bag in order to equalize that and make it easier, especially for lower income consumers-- that's something that they've had to contend with for some time, the backlash against that.
We just came off a period of extreme pricing growth across all food and beverage. Beverages and snacks were included in that. That pricing is starting to subside. And EEO companies, as part of their strategy, are going to use that as a mix. They're going to do it. They're not going to stop.
It's really all about, how do you communicate that? And how do you make sure that you're not going too far at any given time to really turn those consumers against your brands?
RACHELLE AKUFFO: And speaking of that, Duane, I want to talk about just a potential trend that you see for the year. There's always some, no pun intended, flavor of the month here. What do you see as being a top theme that some of these beverages, both alcoholic and non-alcoholic, will be leaning into?
DUANE STANFORD: Yeah. I mean, one of the things for carbonated soft drinks has been flavors. Flavors are overindexed with young consumers, Gen Z consumers, multicultural consumers. So that's really been a real part-- important part of the industry. It's about a third of carbonated soft drink sales on a dollar basis in the US-- things like root beer, orange, lemon lime, root beer.
So that's a pretty important trend. And of course, zero sugar is extremely important. The companies like Coca-Cola and PepsiCo are really leaning into their zero sugar cola products, and also turning most of their beverages, making sure that all of them have some sort of zero sugar offering for consumers who want that as an option. So those are two big things that we're seeing right now, for sure.
BRAD SMITH: I'm learning a lot about my co-host right now, Duane. She just Slacked me and said she does not like root beer. I love root beer. Duane, we'll get your take on this perhaps next time we have back on. Duane Stanford, "Beverage Digest" editor and publisher, thanks so much for taking the time.