In a reported effort to cut costs, PepsiCo plans to lay off hundreds of workers at its corporate offices. PepsiCo's decision follows at the heels of a move in the tech industry to lay off thousands of workers. Companies like Facebook, Amazon and Twitter all laid off thousands of employees in an effort to cut costs.
What to Expect
PepsiCo will lay off more employees on its beverage side of the business because it previously reorganized its snack and food departments. We can expect anywhere from 4,000 to 8,000 jobs to be cut at the start of January 2023. The new job cuts may indicate the health of the US economy at the moment, but PepsiCo has always taken drastic measures to manage costs. Along with the plan to cut jobs, PepsiCo announced this year that it will no longer sponsor the Super Bowl Halftime Show.
Fueling the Job Cuts
Ramon Laguarta, the CEO at PepsiCo, made this decision due to inflation fueling lower profits at the company. The board of directors at PepsiCo always take active measures to manage the cost structure in an agreeable way. The gross margins were down, and the operating margins had risen.
PepsiCo remains strongly aware of its stock price as a public company. The stock performed well for investors in 2022, which may have to do with their willingness to cut costs when necessary. To keep the stock price high, they must be willing to trim the excess jobs from time to time to save on costs. We see this happen with other public companies as well to make the stock valuation better.
While 4,000 to 8,000 workers laid off may look like a large number, PepsiCo, in fact, has 309,000 people working for them in December 2022, which means that it will lay off less than two percent of its workforce at the worst. Over 40 percent of everyone hired at Pepsi work in the United States.
Where the Main Layoffs Will Take Place
PepsiCo plans to lay off most of its workers in the following three markets in its beverages division—Chicago, Illinois; Plano, Texas; and Purchase, New York. The popular brand made the choice at the end of a strong Q3 where they reported an 8.8 percent revenue growth. For the year-to-date growth, PepsiCo reports a 7.7 net percent revenue growth.
No one specified how many teams would deal with the layoffs directly, but those at the top believe it will allow PepsiCo to operate more efficiently. In the past, PepsiCo offered a voluntary retirement program in its snacks division to avoid laying off workers.
Other Companies That Made Cuts
Other companies cut jobs as well including Ford, Walmart, Stanley Black & Decker, Gap and Zillow. Some analysts worry that the US could begin the process of a white-collar recession where those jobs could be harder to come by. One report suggests that over half of all US chief executives could cut jobs within the next six months.
In regard to the circumstances, the white collar jobs would face the most turbulence. At the US tech companies alone, over 28,000 lost their jobs. This job loss has had no impact on the blue-collar sector as of right now. In the blue-collar sector, the United States has struggled with a labor shortage that the pandemic worsened. Job creation has slowed the most since February 2021, and it hasn't ended either. We can expect to see layoffs at companies.
Demand Remains Strong Despite Inflation
Despite inflation, demand for Pepsi products remains strong enough to keep selling products at higher prices. However, executives hoped the layoffs would offset some of the pressure felt on their profit margins. Hugh Johnston, the CFO at PepsiCo, told investors in a conference call that they will continue to cut costs if the company fails to meet its margin goals. Even if the revenue began to soften, he told them that they could still make cuts to deliver superior financial results.
The tech sector received the most publicity because it went on a hiring spree during the pandemic. All sorts of industries have begun to feel the pressure from the economic downturn. Higher prices pushed consumers to spend less, but despite the layoffs at Pepsi and other companies, the US economy added 263,000 jobs. That was more than expected due to the Federal Reserve rate hikes.
