Some of America’s biggest CPG manufacturers are discovering that they’ve pushed prices beyond what many consumers are willing, or able, to pay. And bringing those prices back down may be one of the more important competitive decisions they make.
As we’ve seen time and again, consumers have become more selective, shopping habits have changed, and the old relationship between pricing, volume and profitability isn’t working quite the way manufacturers would like.
Look at PepsiCo, for example.
In February, the company announced reductions of up to nearly 15% in suggested retail prices on selected Lay’s, Doritos, Cheetos and Tostitos products. The objective was clear to anyone watching: improve affordability and bring back shoppers who were tired of higher prices. Actual shelf prices, of course, remain at retailers’ discretion.
The initial results looked promising enough. North American convenient-food volume increased 2% in the first quarter, alongside PepsiCo’s affordability and innovation initiatives. But translating those improvements into numbers that move the needle on earnings calls has – so far – proven tough.
In its third quarter, PepsiCo reported a 1% increase in North American savory snack volume, while operating profit in its North American foods business declined 13%. For the first 36 weeks of the year, segment volume increased 1%, but operating profit fell 8%.
Now, I wouldn’t lay those profit declines entirely at the feet of PepsiCo’s price reductions. We’re in an environment that could charitably be described as “challenging,” and the company has been dealing with higher costs and other operating pressures.
Still, improving unit movement is one thing; booking profits on those additional units is quite another. And if PepsiCo’s objective is to rebuild household penetration and purchasing frequency, the payoff could take considerably longer than a single quarter.
Different Strategies, Similar Pressures
PepsiCo isn’t alone, although we need to be careful about lumping its competitors together.
General Mills has been investing in affordability while grappling with softer demand and changing consumer preferences. Its North America Retail business reported a 3% decline in organic sales during its fiscal 2027 first quarter, including a 2-point decline in organic volume. Segment operating profit fell 15%.
Kraft Heinz is confronting a different “flavor” of the problem. In its second quarter, pricing contributed 1.3 percentage points to organic sales, but volume/mix declined 2.6 points. In North America, volume/mix declined 3.8 points. Adjusted operating income fell 18.4%, to approximately $1 billion.
The company has committed approximately $700 million to incremental brand investments this year, including product improvements and marketing. That’s a substantial commitment, clearly, and one that suggests Kraft Heinz understands it can’t rely on pricing alone to restore demand.
Conagra Brands, meanwhile, has continued using pricing to offset costs even as consumers buy less. Its Grocery & Snacks business reported a 5.4% decline in organic volume during its fiscal 2027 first quarter, partly offset by a 3.4% increase in price/mix. Reported operating profit fell 21.5%, while adjusted operating profit declined 7.2%.
Different approaches, certainly, but all four are confronting the same fundamental problem: manufacturers have less freedom to raise prices without losing customers, yet little assurance that lowering them will bring those customers back profitably.
The Mathematics of a Price Cut
Some back-of-the-envelope arithmetic explains why.
Consider a packaged-food product selling for $4, with variable manufacturing and distribution costs of $2.50 per unit. That leaves $1.50 toward fixed expenses and profit.
Cut the selling price 15%, to $3.40, and contribution falls to $0.90 per unit, a 40% reduction. The manufacturer now needs to shift 66.7% more units just to generate the same total contribution dollars, assuming variable costs remain unchanged.
66.7% – a massive increase simply to end up where you started.
This is illustrative math, not PepsiCo’s actual unit economics, and assumes the manufacturer absorbs the entire reduction. It also excludes additional promotional and merchandising expenses.
But there’s another consideration. A price reduction that doesn’t recover its costs immediately may still make sense if it improves a brand’s competitive position over several years.
Brand vs. Brand Competition
The most immediate threat for many CPG manufacturers isn’t private label but another national brand competing for the same shopper, shelf space and promotional opportunities.
Consider salty snacks. PepsiCo’s Frito-Lay brands compete with Campbell’s Snacks, Utz Brands and others. Each wants a larger share of the consumer’s purchases, and everyday pricing can influence which brand becomes the habitual choice.
There’s a meaningful distinction between temporary promotional discounts and sustainably lower everyday prices. Promotions may generate a short-lived increase in volume. Competitive everyday pricing can gradually change purchasing habits and brand loyalty.
And there’s a consumer benefit we shouldn’t overlook.
We’ve spent considerable time documenting the rising cost of groceries and the pressure on American households. Manufacturers making meaningful, sustainable reductions in everyday prices are addressing a genuine problem, even if the decision creates some short-term financial discomfort.
The challenge is that competitors can respond, and shoppers who have changed their purchasing habits may take time to return.
A Market That Isn’t Growing Much
The broader food market isn’t providing much help.
According to Circana’s July 2026 analysis, U.S. retail food and beverage dollar sales increased 2.2% during the first half of 2026, while volume was flat. Price/mix increased 2.3%, including 3.7% for packaged foods. Circana expects flat volume through the balance of 2026 and projects dollar growth of 2% to 3% in 2027.
Put those numbers together, and the picture isn’t all that encouraging. Much of the industry’s dollar growth continues to come from pricing and mix rather than consumers purchasing more food.
That creates difficult choices for supermarkets, too. A manufacturer-funded promotion may improve unit movement without adding much to overall category sales. Shoppers might switch brands or simply stock up during a promotion and buy less the following week.
I’d argue that grocery businesses need to evaluate those promotions on incremental category profitability rather than sales lift alone. More cases moving through the system don’t necessarily mean a healthier business.
But a manufacturer investing in sustainable everyday affordability may offer something more valuable than another temporary discount.
The Long-Term Test
PepsiCo’s improved volume is the real deal, even if stronger profitability hasn’t followed right on its heels. Its subsequent pursuit of selective price increases and cost efficiencies illustrates the tough balancing act.
I don’t believe manufacturers should abandon price reductions. In fact, in some categories, restoring affordability may be essential to remaining competitive. But it’s important for brands to distinguish between discounting to generate a temporary sales increase and establishing an everyday price that can support a brand’s competitive position for years.
For retailers, that means looking beyond the next promotional period. For manufacturers, it means recognizing that restoring brand loyalty and purchasing frequency can take time – more than a quarter or two.
The ultimate balancing act in all of this is attaining profitable growth while giving consumers a convincing reason to keep buying.