Key takeaways:
- Food prices remain elevated across categories even as demand softens, breaking the usual link between pricing and volume.
- Companies have prioritised protecting margins over maintaining frequency, but consumers are now pushing back by buying less or trading down.
- As volumes weaken, the impact is spreading beyond shoppers to manufacturers and retailers, forcing a rethink of pricing strategies.
If demand is falling, why aren’t prices? It’s a simple question, but right now the food industry doesn’t have a clean answer.
Across a range of everyday categories, volumes are easing. Not dramatically, but enough to show up in company results and in how retailers are talking about performance. At the same time, pricing hasn’t followed. In many cases, it has held steady; in others, it has actually edged higher.
That mismatch is starting to draw attention. Costs remain elevated, but consumers aren’t responding in the same way they were a year or two ago. They’re buying differently: less often, more selectively, and in some cases, opting out altogether.
The pattern is becoming difficult to ignore. In snacks, PepsiCo has started to pull back pricing after pushing some products beyond what shoppers were willing to pay. In US grocery, prices overall are still roughly 25%-30% higher than pre-pandemic levels, even as volume growth has slowed. Meanwhile, categories like cereal show a longer-running version of the same issue: demand gradually weakening while prices continue to climb.
In other words, the usual relationship has flipped. Lower demand is no longer easing prices – in some cases, it’s reinforcing them.
The cereal paradox
Cereal isn’t in crisis – yet – but it hasn’t been growing for a long time. The category has been gradually losing momentum for years. Eating habits have shifted, with more consumers opting for portable breakfasts, higher-protein options or skipping the occasion altogether. Despite this, cereal remains widely purchased. In the US, more than two-thirds of households continue to buy it, and over half of consumers eat it at least once a week.
What has changed is the pricing. In a typical market, a category experiencing this kind of slow decline would begin to see downward pressure. However, cereal prices have moved in the opposite direction. In the US, family-size boxes of brands like Cheerios, Lucky Charms and Frosted Flakes are now routinely priced between $6 and $8, with some formats pushing higher depending on retailer and promotion cycle. For a category built on affordability, that’s a noticeable shift.
At the same time, pack sizes have been adjusted or quietly reduced, often still positioned as ‘family’ or ‘large’. That combination is starting to affect how often people come back to the shelf.
Stripped back, there are, however, solid business reasons for higher prices. Input costs increased significantly across raw materials, energy, logistics and packaging after the pandemic and haven’t fully come back down. General Mills reported that its input costs rose by more than 30% over that period, reflecting a broader trend across the sector. Climate-related pressures on agricultural production and geopolitical disruptions have added further volatility.
But rising costs only explain part of what’s happening.
When demand softens, companies face a trade-off between maintaining demand and protecting margins. Lower prices might support volume but put pressure on profitability. Maintaining or increasing prices helps sustain revenue in the short term, but risks further weakening demand. Over the past few years, many have chosen to hold.
As General Mills’ CEO Jeff Harmening said on a recent earnings call: “We are seeing consumers be more selective… they’re looking for value more than they were a year ago.”
That selectivity is already visible in behaviour. People still buy cereal, just not as often; they switch to lower-cost alternatives; or delay purchases until promotions are available. These incremental shifts are beginning to reshape the category.
Snacks reach the limit faster
Snacks provide a more immediate example of how these dynamics can play out. Because they’re closely tied to impulse purchasing, they’re more sensitive to changes in price perception. Once something feels too expensive for what it is, it’s easy to leave it on the shelf.
That’s what caught up with PepsiCo.
Sustained price increases pushed core brands significantly higher than their traditional price points. In the US, larger share bags of Doritos and Lay’s have been selling for $6-$7 or more depending on the retailer, while multipacks and ‘value’ formats have also crept up in price. Doritos prices at Walmart, for example, rose by close to 50% between 2021 and 2024.
For a period, the strategy delivered. Higher pricing helped drive strong top-line growth, with Frito-Lay’s net revenue rising sharply during the early pandemic years. The division became central to PepsiCo’s performance, regularly delivering the kind of margins and consistency that investors expect from packaged food.
“The Frito business is the jewel of PepsiCo… No matter what happens with the consumer, we’re going to be, I think, the preferred choice,” noted PepsiCo CEO Ramon Laguarta in 2023.
But pricing didn’t adjust as quickly as conditions changed. Even as consumer pressure built and retailers began pushing back, shelf prices largely held. Instead, companies looked for alternatives – adjusting pack sizes, introducing multipacks with fewer units, or launching reformulated products positioned around health or value.
Eventually, the strain showed up in behaviour. “Consumers are feeling stretched… and that’s impacting how often they’re buying snacks,” acknowledge PepsiCo CFO Hugh Johnston earlier this year.
And, more recently, PepsiCo Foods US CEO Rachel Ferdinando said: “We’ve spent the past year listening closely to consumers, and they’ve told us they’re feeling the strain.”
The snack giant has since moved to respond, cutting prices on parts of its snacks portfolio by around 15% to bring products back within reach. That shift suggests the issue wasn’t simply inflation, but how far pricing had moved relative to what consumers were willing to accept.
Similar pressures are emerging across other discretionary categories, including bakery and confectionery. They rely on routine, but also on the idea that they’re affordable. Once that balance shifts, behaviour follows.
So who pays?
In the short term, the impact is most visible at the consumer level.
Higher prices mean people either spend more or adjust. Most do both; still buying the product but just less often. Several consumers respond by switching to private label products or seeking out promotions. In fact, in the US, private label unit sales have ticked up while branded volumes have declined, reflecting a gradual but meaningful shift.
But it doesn’t stop there.
When volumes start to weaken, manufacturers feel it. General Mills has already pointed to softer demand. PepsiCo has seen pressure in its food business. Others are signalling similar trends.
Retailers feel it as well. Slower turnover makes shelf space more competitive, and higher prices increase the importance of perceived value at the point of purchase. That gives retailers more room to push their own-label ranges or challenge supplier pricing.
In practice, the cost is shared. Consumers adjust first, but the effects ripple through to manufacturers and retailers.
What’s different now is how heavily the industry has relied on pricing over the past few years. From 2021 onwards, it became the primary way to protect margins, and in many cases it worked. Revenues held up even as volumes slipped.
But that approach has limits. Once consumers start to change how they shop, those changes tend to stick. Buying patterns shift, expectations reset and restoring previous levels of demand becomes more difficult – even if prices are adjusted.
That’s where the industry finds itself now: softer demand, higher prices, and a growing gap between the two. And that gap is starting to matter more than it has for a long time.
