How PepsiCo Surpassed Profit Expectations with the Power of ‘Treat Culture’

**PepsiCo Reports Strong Revenue and Profit Despite Price Hikes**

PepsiCo, the parent company of popular brands like Pepsi, Mountain Dew, and Lay’s, surprised analysts by reporting better-than-expected revenue and profit. This strong performance was attributed to the continued interest in PepsiCo’s products, even after price hikes. Consumers are still willing to indulge in these affordable luxuries, despite the rising costs.

**Consumer Demand Drives Revenue and Profit Growth**

PepsiCo CFO Hugh Johnston emphasized that consumers are willing to pay higher prices for the company’s products because they still have disposable income. Johnston used the example of treating himself to a Mountain Dew and a bag of Lay’s after filling up his car with gas. Despite experiencing a decline in sales volumes, particularly in its packaged-food business in North America, PepsiCo was able to generate $22.3 billion in revenue, a 10.4% increase compared to the previous year. The company’s net income also doubled to $2.7 billion.

**Rising Commodity Prices Drive Price Hikes**

To keep up with the rising costs of commodities, PepsiCo implemented price hikes of around 15% on average. This was a necessary move to maintain profitability. While some consumers may have been deterred by the higher prices, the majority were still willing to make these purchases.

**Inflation Cools Down in the U.S.**

Inflation in the United States has cooled down significantly. The consumer price index only rose by 3% in June, a considerable decrease from the 9.1% increase reported the previous year. This decline in inflation contributes to consumers’ ability and willingness to continue purchasing PepsiCo’s products.

**PepsiCo Raises Full-Year Guidance for Revenue and Profit**

Based on its strong financial performance, PepsiCo raised its full-year guidance for both revenue and profit. Investors responded positively to this news, with shares rising by 2.4% on Thursday.

**The Rise of the Treat Culture**

Younger consumers in the United States are increasingly embracing the concept of the “treat culture.” This mindset involves buying small luxuries as a way to navigate challenging economic conditions, exhausting work environments, and the rising cost of living. In response to these factors, millennial and Gen-Z consumers are turning to smaller purchases such as snacks, escapist entertainment, and clothing.

**The Snacking Trend**

The younger generation’s affinity for snacking has contributed to the success of snack companies like PepsiCo and Mondelez International. According to market research firm Circana Group, half of U.S. consumers, particularly millennials and Gen-Z individuals, consume three or more snacks per day. This snacking habit has resulted in an 11% increase in snack sales, amounting to $181 billion in 2022.

**Mondelez International’s Success**

Mondelez International, known for brands like Oreo and Toblerone, also experienced significant revenue growth. The company generated $9.2 billion in revenue in its most recent quarter, representing an 18.1% increase compared to the previous year. Similar to PepsiCo, Mondelez did not face significant backlash from consumers despite price increases.

**The “Moonlight Clan” in China**

In China, a country grappling with high youth unemployment rates, social media users have adopted the term “moonlight clan.” These individuals spend money on small treats instead of saving for an unattainable standard of living. This trend highlights the universal appeal of indulging in small luxuries as a means of coping with challenging economic circumstances.

In conclusion, PepsiCo’s strong financial performance, despite price hikes, demonstrates the continued demand for affordable luxuries among consumers. The rise of the treat culture and the snacking trend have played significant roles in driving revenue and profit growth for PepsiCo and other snack companies. Additionally, the willingness of consumers to embrace small luxuries to improve their daily lives is not limited to the United States but can also be observed in other countries like China.

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