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Snacks have always been a harbinger for the economy’s health. The category is especially prone to inflation’s effects, experiencing a 2x increase in prices compared to the food category as a whole. In 2023, that was a 7% increase for the food category, and 15% for snacks. Meanwhile, consumers’ dedication to snacking is so unwavering that it’s one of the last things to get cut from budgets. In July, Frito-Lay sent up a flair, reporting they were finally seeing a decline in sales volume after sustaining growth during the last few years of historic inflation.
Despite unit prices and inflation leveling off, Frito-Lay believes consumers might finally be at their breaking point, much like the dining out category where Attain data is showing a plateau in what’s been a surprisingly resilient category. According to Pepsi-Co, the owner of Frito-Lay, consumers are looking for everyday lower prices per unit, instead of deals like buy-one-get-one, WSJ reported.
Yet Attain’s data on the snack category tells a slightly different story. Here are two potential counter-arguments to the earnings report doom and gloom.
Attain’s panel data shows that consumers are still willing to spend on snacks, and they aren’t showing signs of stopping. Average unit prices are dropping due to inflation easing, while purchase frequency continues to increase despite a dip following the holiday season.
Gen Z and Millenials are two demographics that have fully embraced the “little treat” culture, and have continued to make small splurges on snacks. Food & Wine defines the trend as “small purchases and sweet moments to fend off the general malaise of the current moment.” Some snack companies are capitalizing on this trend and by creating new, novel products in smaller sizes that appeal to the fad.
Little treat culture has been compared to the “lipstick effect,” a term coined during the economic turmoil of 2001, illustrating how people are willing to spend on small indulgences like lipstick during tough times. Younger generations are also leaning more towards smaller, more frequent meals (i.e. “girl dinner”), as well as healthier options. Accordingly, Frito-Lay’s health category, including products like PopCorners and Pepsi Zero Sugar, is doing quite well.
As inflation has dragged on, consumers have become more accustomed to price comparing and shopping for deals, leading to less brand loyalty across the board. Consumers might be reaching a breaking point but more so at the brand level. Their behavior could be more a function of finding better deals elsewhere instead of decreasing their overall snack budget, as we see in the Attain data.
Consumer trust is at a low, and according to a 2023 study from Horizon Media, 52% of consumers believe corporate greed is a primary cause of inflation. As Christine Alemeny writes in the Harvard Business Review, “communication, transparency, and credibility are vital.” If brands increase their prices, it’s ideal if they can be transparent with consumers about why. “Ignoring the impact that inflation has on customers is likely to erode trust,” says Alemeny. “By acknowledging the downstream effects of inflation, brands can address customers’ concerns, validate their price perceptions, and address their worries so that they feel secure enough to make purchases again.”
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