PepsiCo responds to shrinkflation backlash: Will bigger chip bags win back customers?

The Lay’s, Tostitos, Doritos and Ruffles maker is making big changes to win back customers tired of rising prices and shrinking packages.

After years of complaints about shrinkflation – reducing the size of products without lowering the price – the snack giant is reversing course and adding 20% more chips to some of its larger bags. The move is part of PepsiCo’s strategy to address consumer frustration and declining sales.

As previously reported in Bakery&Snacks,​​ shoppers have increasingly voiced their dissatisfaction with downsized products while prices continued to rise. Faced with inflationary pressures and shrinking purchasing power, consumers began turning to more affordable private-label brands or cutting back on non-essential purchases like salty snacks.

This shift hit PepsiCo’s bottom line, with the company seeing a drop in both sales and snack volumes in the third quarter of 2024.

PepsiCo’s CEO Ramon Laguarta acknowledged the issue during the company’s recent earnings call.

“The cumulative impacts of inflationary pressures and higher borrowing costs over the last few years have continued to impact consumer budgets and spending patterns,” he said.

However, he noted the upcoming fall and winter seasons – marked by gatherings and football games – present an opportunity to regain market share.

“It’s the football season – there are a lot of gatherings – and those brands belong very well in those gatherings. And it will be a combination of value in the form of bonus packs and more product, too.”

In select locations across the US, Tostitos and Ruffles will come in ‘bonus’ bags that contain 20% more chips for the same price as standard bags.

PepsiCo is also increasing the number of smaller chip bags in its variety packs, adding two more to its 18-bag option.

Laguarta added for the “normally large group gatherings … bonus packs make a lot of sense.”

The economics behind the move

PepsiCo’s decision to boost the volume of its chip bags is a response to mounting frustration among consumers who have grown weary of paying more for less.

In 2021, consumer protection advocate Edgar Dworsky highlighted several instances where PepsiCo had reduced the size of its chip bags. For example, Tostitos’ Hint of Guacamole shrank from 12oz to 11oz, while its Hint of Lime variant dropped from 13oz to 11oz. Ruffles also downsized, with a 0.5oz reduction of its Sour Cream & Onion variety in 2013.

So why is the company reversing its shrinkflation strategy now?

PepsiCo – like many others – has been hit hard by changes in consumer behavior.​​

As inflation drove up the cost of groceries, shoppers began scrutinizing their purchases more closely, opting for cheaper alternatives or foregoing pricier brands like Tostitos altogether.

According to the Bank of America, snack sales declined by 0.5% in Q3 2024 compared to the year prior, with snack volumes falling by 1.1%. Meanwhile, Circana data revealed sales of private brands increased by 6% in 2023.

PepsiCo’s own snack sales dropped by 1%, while its snack volumes declined by 1.5%. This drop in volume is significant, as salty snacks like chips have seen steeper price increases than many other grocery items. Since 2020, the price per ounce of salty snacks has risen by 36%, outpacing the overall 21% increase in grocery store prices, according to TD Cowen analyst Robert Moskow.

In September 2024, the average price for a 16oz bag of potato chips was $6.46, compared to $5.02 in September 2020, based on data from the Bureau of Labor Statistics. This steep price increase, coupled with shrinking bag sizes, led many consumers to seek better value elsewhere, contributing to the decline in sales for PepsiCo’s snack brands.

Will competitors follow PepsiCo’s lead?

As prices continue to rise across the board, offering larger portions without raising prices could be an effective strategy for retaining customers and PepsiCo’s decision is likely to influence others in the industry, Moskow told CNN.

PepsiCo, General Mills, Mondelez and other snack giants have ramped up promotions in an attempt to win back customers, but these efforts haven’t always been successful, reported the Bank of America.

So, will PepsiCo’s move be enough to bring back the customers now loyal to private-label brands?  but whether the decision to add more chips to bags will lead to sustained success remains to be seen.

It’s clear that consumers are watching closely. As inflation continues to impact household budgets, the demand for value and transparency will likely shape the future of the snack industry.

It is unclear how long the ‘bonus’ promotion will last, but in the meantime, chip lovers can enjoy a little extra crunch in their Tostitos and Ruffles bags.