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PepsiCo Increases Pricing Power with Healthier Products

Posted by PriceBeam on May 2, 2017

PepsiCo's stock has risen by 8.3% over the past year, while competitors such as Coca Cola and Monster Beverages have risen by 4.3% and 1.7% respectively; an increase that analysts mainly attribute to PepsiCo's higher prices. The 7% rise in earnings per share supports the notion that the stock increase is a result of a notable increase in profits. 

PepsiCo has managed to increase their profits in a time where big supermarket chains are putting more pressure on suppliers than ever, to stay competitive on prices. But PepsiCo has not caved. Instead, they have addressed the change in consumer preferences towards healthier snack and beverage options, and invested heavily in this segment to stay ahead of the competition.

PepsiCo's CEO Indra Nooyi announced that the healthy options would remain a key focus for PepsiCo: "Snacks are a simple pleasure of life. What we are doing is making our snacks more permissible." Moreover, she announced that PepsiCo would continue to make significant investments into R&D to reduce sodium and fat levels in their products, and meet the demands of the growing segment of consumers that want to "eat better".

This move is smart. PepsiCo differentiates itself from competitors on other parameters than price, and sustain their profits under tough conditions. But more importantly, they also reach a new segment of more health conscious consumers -- and this segment is very lucrative. Several studies have found a strong correlation between income level and eating habits, and people with a high income generally eat healthier. Thus, PepsiCo's new focus allows them to target a segment of consumers with a higher willingness to pay: a segment with lower price sensitivity, who will happily pay a higher price for PepsiCo's products as long as it is healthier. 

Written by PriceBeam

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