As sales of doughnuts and cookies slip, food companies and grocers are offering protein-packed snacks to appeal to changing diet trends. By Evie Liu

America's apparently insatiable appetite for snacks is hitting a wall. Sales are shrinking as prices climb, and new diet trends are leaving some established brands to go stale on the shelf.

Packaged-food companies are struggling, but those that can straddle the line between indulgence and wellness, and keep prices reasonable, could make consumers hungry for their products. Sales of protein-enriched snacks are rising, and manufacturers are scrambling to roll out more of them.

Snacking boomed during the pandemic, as people stuck at home turned to cookies and pretzels more frequently for comfort. But things have taken a turn in the past few years. While many companies continued to deliver sales growth, aggressive price hikes have camouflaged slipping sales volume.

As inflation cooled, many food companies posted negative top-line growth for their snack businesses. Even PepsiCo -- known for the resilient demand and strong pricing power of its snack segment -- has hit its limit. After years of growth, its North American food division reported a 2% organic revenue dip for two consecutive quarters this year.

According to data from NielsenIQ, the average price across all salty snacks increased 31% over the past five years, while sweet snacks became 40% more expensive, far surpassing overall inflation of 25% during the same period. The high price tags have pushed many budget-strained consumers to forgo the snack aisle.

Pricing isn't the only challenge. Snacks have been a good business that is driven by repeat impulses. But the rising use of GLP-1 weight-loss drugs like Novo Nordisk's Wegovy has helped heavy snackers suppress their cravings. That is good for their weight-management plans, but bad for business.

Sweet snacks have been hit particularly hard. Compared with five years ago, the total sold units of doughnuts, cakes, and cookies are down by 10%, 19% and 13%, respectively, according to NielsenIQ. Other sweet snacks, such as cupcakes and brownies, saw even steeper declines of more than 30%.

In February, sales volume of potato chips -- the largest category of salty snacks -- saw a 7% dip compared with three years ago. The gap narrowed to 1.5% by July, as outdoor events in the summer kept demand more robust than other times of the year.

To be sure, snacking isn't dead: Mondelez International's 2024 State of Snacking survey found that 91% of global consumers still nibble daily. Household penetration for snacks hasn't declined, says Stephens analyst Jim Salera, but the frequency of consumption has been falling, and the type of desired snacks is changing.

Consumers now are taking wellness in consideration. Besides low sugar, low sodium, and low saturated fat, adding "functional" nutrients -- think protein, collagen, and fiber -- is the new trend. Caution against highly processed food has also led to an interest in "clean label" products with fewer ingredients and chemical additives.

"Consumers are getting wiser; they are seeking products with higher food value," Evercore ISI analyst David Palmer tells Barron's.

Food companies are launching new products or enhancing existing ones to meet these demands. Many are also selling smaller pack sizes at lower prices to accommodate the need for portion control.

Protein is in vogue. Over the past year, sales and unit volume of protein-oriented snacks, including nuts, cheese sticks, and protein bars, have increased by 8% and 4%, respectively, according to Palmer.

The avoidance of carbs has partially driven the expansion of premium snacks, as higher-income consumers move to more expensive protein-rich snacks. According to Palmer's analysis, people reach for protein snacks about 15% of the time when they eat, but those snacks make up 40% of all snack sales.

On the flip side, private labels have been gaining market share. Store brands' cheaper prices are one reason, but they are also closing the gap by copying premium flavors, clean labels, and even functional claims. "The quality of private labels has significantly improved," Salera says.

From 2021 to 2024, annual unit sales for store-branded products increased 2.1%, while national brands slumped 6.8%, according to the Private Label Manufacturers Association. Food-related private labels saw the biggest gain in sales, according to the trade group.

Walmart in April 2024 launched its Bettergoods private brand -- a broad range of nutritional snacks at affordable prices, such as the $3 Thai-Style Pineapple Fried Rice Crackers and $6 Pistachio Nut Butter. Bettergoods has seen strong growth and already reached nearly $500 million in sales, Walmart Chief Financial Officer John David Rainey said at a conference in June.

Kroger, the nation's largest grocery chain, said in its June earnings report that sales for its private-label products have grown faster than national brands for seven quarters straight, since "customers want premium products while also spending less." The grocer plans to introduce 80 new protein products under its Simple Truth brand to "stay ahead of what customers want."

Despite the overall weak backdrop, some food companies are better positioned than others.

With 70% of revenue coming from outside of the U.S., Oreo cookie maker Mondelez is leaning on overseas growth to offset softness in North America. Management expects organic net revenue to grow 5% this year. The stock is up 12% this year, trading at 22 times expected earnings for next fiscal year -- a richer valuation than most of its peers.

By contrast, Campbell's shares have tumbled 22% this year to historically low valuations. The selloff might be overdone. Although Campbell's snack sales have declined, its meals and beverage segment -- accounting for half of the business -- has been growing thanks to strong demand for canned soup, broth, and sauces as people cook more at home. The stock might be oversold.

Last year, the company acquired Sovos Brands, maker of the popular Rao's pasta sauce. The brand has been a strong growth engine for Campbell's. Across the entire firm, management expects net sales to increase 6% to 8% for full-year 2025.

The chocolate industry is facing headwinds after cocoa bean prices shot up due to supply-chain issues and adverse weather conditions in West Africa. The 10% tariffs on imported cocoa -- with potentially higher rates ahead -- have further driven up the costs.

That is bad news for Hershey, which generates 80% of its revenue from North America chocolate sales. Still, chocolate -- often viewed as a treat -- has stronger pricing power than other snacks. Chocolate's relatively simple ingredients also makes it less vulnerable to the movement against highly processed food, Salera says.

In the first half of 2025, net sales of Hershey's North America confectionery segment increased 2.3% from a year ago, as higher prices offset lower volume. But the company didn't pass all the cocoa costs to consumers: The segment's income dropped 15% as Hershey absorbed some of the costs.

That might not be necessary, according to some analysts. "Mars took more aggressive pricing than Hershey and seemingly has gotten away with pretty good price elasticity," Palmer says. "Hershey should be more confident about its pricing power."

Hershey expects net sales to increase at least 2% in 2025, although earnings could be more than 35% below 2024 levels due to cocoa and tariff costs. Hershey shares are up 15% year to date, trading at 33 times expected earnings for next fiscal year -- the highest valuation ever. This suggests investors are looking past earnings pressure and focusing on sales resiliency.

Salera likes Simply Good Foods for the low-carb, low-sugar, high-protein snacks under its Quest brand that are especially appealing to people on GLP-1 drugs, he says.

In 2024, the company acquired Only What You Need, a rising brand of plant-based protein shakes and powders. Net sales for the May quarter increased 14% from a year ago, lifted by the new business and growth from Quest.

Simply Good Foods' other brand, Atkins, is dragging on sales, so the stock hasn't outperformed. But that offers investors a chance to buy: Shares are down 19% this year to their lowest valuation since the stock went public in 2017. "The portfolio is well positioned to be insulated from the headwinds," Salera says.

Write to Evie Liu at evie.liu@barrons.com

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August 01, 2025 21:31 ET (01:31 GMT)

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