As is customary for packaged food and beverage companies, Purchase, New York-based PepsiCo buys the commodities and materials it needs months in advance, but those contracts don’t help it stave off inflation, CNBC reported.
“The forward-buying can only do so much for us,” said Johnston, adding that the tactic only buys PepsiCo “about six to nine months of room.”
In that window, PepsiCo can “ease consumers into” seeing higher prices on their goods.
Many food companies have been shelling out more for ingredients and materials amid rising costs costs for freight, fuel and labor, the Wall Street Journal has reported.
“Because of the resiliency we have previously built in the supply chain, we’re doing pretty well,” Johnston said. “But particularly with packaging, which comes from a lot of areas around the world, it hasn’t been easy on us. Our supply chain people have really stepped up, but we’re not immune to any of that.”
Because of the advanced planning PepsiCo has initiated, and because of its forward buying of commodities and materials, the company is faring better amid the global supply chain constraints than most, Johnston said.
Nonetheless, the company had to “scramble” to overcome a shortage of cans and bottles in recent months as demand sharply increased at restaurants and theaters after stay-at-home orders lifted, Johnston told Reuters.
“I do expect there will probably be some price increases in the first quarter of next year as well, as we fully absorb and lock down the impact of commodity inflation,” he said, adding he expects most supply-chain disruptions to “moderate” by the end of the year.
On PepsiCo’s Tuesday morning earnings call, company CEO Ramon Laguarta told analysts consumers have a new view on pricing, which could be due to the company’s success in selling value.
“As consumers shop in-store, they might pay less attention to pricing as a decision factor, and there might be even more relevance to the brand,” Laguarta said.
“We really have been investing heavily in our brands and we’ve been investing heavily in innovation,” Johnston told Yahoo Finance, echoing Laguarta’s sentiment. “I think we’re providing products that consumers are willing to pay more for.”
Throughout the third quarter, PepsiCo saw an increase in its operating costs as a result of inflation in labor, commodities and transportation, the company reported, which led to a 3% net income drop, even despite an 11.6% net revenue growth. In the quarter ending Sept. 4, PepsiCo’s year-over-year profit fell to $2.22 billion from $2.29 billion, and its operating expenses grew to $7.64 billion from $6.92 billion.