Ca$htag$: Pepsi’s (PEP) Shelf Space Battle Intensifies Ahead of Earnings

SPEAKER_1 (0:00)

It's time now for our Cache Tag segment. For that, let's bring in our next guest, and that is Andy Swan, co-founder of LikeFolio, with a look at fresh sentiment data on Pepsi ahead of its quarterly results. Now, this stock is sitting not just at a 52-week low today, but the lowest level since the pandemic, since the beginning of the pandemic. So Andy, let's get into your latest data. What does sentiment look like now?

Andy Swan (0:25)

It just looks really difficult for Pepsi. They're facing a ton of headwinds.

First and foremost, GLP-1 adoption remains really strong. And we're seeing the kind of trickle out effect of that. The positive feedback loop on that is getting people who aren't necessarily obese, but looking for something to spark their weight loss journey and hearing great results from people in their social circles. That impacts Pepsi in a lot of ways. First of all, sugary drinks are easy to quit, and so are a lot of snacks when you're on those GLP-1 drugs.

But also, another massive headwind for Pepsi that I think might be a little bit underappreciated by Wall Street is that people are trading down to store brands. Rather than going for the Doritos, the Fritos or the Pepsi, they're picking the generic off the shelf to save some money, and that puts some serious price pressure on Pepsi and impacts their profit margins and volume. So it's a difficult environment for Pepsi here. We don't see anything, unlike yesterday when we talked about Constellation Brands, we saw the strength in their portfolio that told us there's at least some light at the end of the tunnel. With Pepsi, we really don't see that. The headwinds that we see for Pepsi seem to be only accelerating, which is difficult going into an earnings call like this for this brand behemoth.

SPEAKER_3 (2:02)

Andy, salty snacks are one thing and that drives Pepsi, but the negative evolution of soft drinks and what's happened with Gatorade and what's happened with all the competition for these sugary drinks that we talk about, it's pretty incredible. You've still got chips and snacks very high, but you know Andy, there's powders now, electrolyte powders and things you put in water and there's so many different choices to make now with drinks that it's almost rare now to even see a Gatorade and soda. But it's really interesting to see people trading.

You go in stores now Andy, there's aisles of other snacks that aren't everything that ends in Edo. There's other names now and other brands and more healthy brands. There's a whole evolution of eating and drinking that seems to be moving away from PepsiCo. And I've watched and traded this company for 40 years. I've never seen a negative run like this in their stock Andy.

Andy Swan (3:21)

No, it's really bad. And like you, I drive a Tesla, but I love gas stations. And so I stop at the gas station three to five times a week. I love walking through the snacks. I love looking at the drinks that are available. And the amount of shelf space that Pepsi has lost, both in the snacks and in those coolers of drinks, is shocking. To energy drinks, like you said, to the liquid IV powders, et cetera, there's just so many more choices for consumers. And the better for you drinks are just absolutely crushing it right now. And Pepsi just continues to lose that shelf space. It's really pretty shocking. I think one thing Pepsi is starting to do that could turn out to be pretty good is leaning into a little bit higher fiber options.

That goes right along with the GLP-1 stuff.

So there's some opportunity there, but the headwinds that this company is facing, it actually, I think that there's a lot of parallels with Nike in a really weird way. It used to be Nike was the only thing that you would see on the kids' feet, on the kids' feet at soccer games, at sporting events. Everybody wanted to be like Mike. That meant they were wearing Nikes and they were drinking Gatorade. Now you go to a sporting event, you're seeing kids in all kinds of different shoes. They aren't necessarily Nikes and they certainly aren't drinking Gatorade. So that cache that Pepsi once had and kind of shared with Nike in a really kind of ironic way seems to be missing now. And it's reflected in consumer demand choices and their ability to just say, you know what, what's the difference? Let me just buy the nacho cheese chips that Publix offers. Those are pretty good, you know, and they're cheaper. So Pepsi is in a very difficult spot here and the stock seems to be reflecting it accurately.