Elliott’s Bold Strategy for PepsiCo: Doubling Down on Iconic Brands While Streamlining Portfolio to Boost Investor Value

PepsiCo at a Crossroads: Elliott Management’s Bold Blueprint to Unlock Hidden Value

PepsiCo is a titan in the global consumer packaged goods space, boasting a portfolio of household names—Lay’s, Doritos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream, among others. With a market value north of $210 billion, it commands leadership in snacking worldwide and stands as the number two beverage player, trailing only Coca-Cola. Yet, despite its scale and brand power, PepsiCo’s stock has languished, shedding nearly $40 billion in market cap over the last three years and underperforming its sector benchmark by a staggering 169 percentage points over two decades.

What’s behind this disconnect? Elliott Investment Management, a heavyweight activist investor managing over $76 billion in assets, has stepped into the ring with a comprehensive 74-page strategic plan aimed at shaking up PepsiCo’s North American operations and reigniting growth.

Where PepsiCo Stumbled: Strategic Missteps You Need to Know

Elliott’s critique zeros in on two critical errors in PepsiCo’s core North American beverage business (PBNA):

1. The Bottling Bottleneck: Unlike Coca-Cola, which refranchised its bottlers after acquiring them, PepsiCo kept its bottling operations vertically integrated. This decision has been costly, dragging PBNA’s operating margins down by 1,000 basis points compared to Coca-Cola, reversing what was once a 300 basis point margin advantage.

2. Misreading Consumer Trends: As soda consumption waned in the early 2000s, PepsiCo pivoted aggressively toward healthier categories, which was prudent at the time. However, soda preferences have since stabilized, but PBNA has failed to reinvest in its core soda brands. Instead, it expanded into weaker brands like Starry and SodaStream and ballooned its SKU count by 70% compared to Coca-Cola, despite generating 15% less in retail sales. This over-diversification has inflated manufacturing and distribution costs, further eroding margins.

Meanwhile, PepsiCo’s snack division (Frito-Lay North America) has borne the growth burden, but even here, aggressive capital expenditures have not translated into margin expansion, with operating margins slipping from 30% to 25% despite a sales contraction.

Elliott’s Playbook: Focus, Simplify, Reinvest

Elliott’s $4 billion stake in PepsiCo comes with a clear message: it’s time for a strategic reset focused on operational discipline and portfolio optimization.

• Refranchise the Bottlers: Returning to a refranchised bottling network could restore PBNA’s competitive edge and margin profile. Historical data supports this—between 1999 and 2010, when PepsiCo operated a refranchised model, it outperformed Coca-Cola’s system.

• Rationalize the Portfolio: PBNA must shed underperforming brands and reduce SKU complexity. The recent sale of Rockstar to Celsius exemplifies the kind of divestitures Elliott envisions, freeing resources to focus on core brands like Pepsi Zero Sugar and Mountain Dew.

• Reinvest in Core Growth Areas: Freed-up capital should flow back into revitalizing Pepsi’s flagship soda brands and targeted new growth categories such as protein and probiotics, which align with evolving consumer preferences for health and wellness.

• Pause Aggressive Snack Expansion: Given the slowdown in Frito-Lay North America sales, Elliott recommends halting the current high-capex growth strategy to realign costs and sharpen focus on core snack products.

• Consider Divesting Quaker: Quaker’s center-of-the-plate products fall outside the snack core and may be a candidate for divestiture, enabling PepsiCo to concentrate on areas with the strongest competitive advantages.

What This Means for Investors and Advisors

PepsiCo’s current valuation at 18x P/E is below its 10-year average of 22x and trades at a significant discount to its sector benchmark—a disconnect largely driven by investor skepticism over the company’s strategic execution. Elliott’s plan, if executed effectively, could unlock at least 50% upside, transforming PepsiCo’s narrative from one of underperformance to renewed growth and value creation.

For investors, this is a call to closely monitor PepsiCo’s strategic moves over the coming quarters. The activist’s long-term reinvestment focus—rather than short-term buybacks—signals a sustainable value creation path. Advisors should consider the implications of a potential portfolio reshuffle and the impact on PepsiCo’s revenue mix and margins.

What’s Next? The Execution Challenge

Elliott’s presentation is not just a critique but a roadmap. However, the real test lies in execution. Activist investors like Elliott are known for their rigorous oversight, and PepsiCo’s management will be held accountable to deliver on these strategic initiatives. Governance changes don’t seem imminent, but continuous monitoring and pressure from Elliott will likely ensure discipline.

Unique Insight: The International Angle Often Overlooked

One of the most undervalued aspects of PepsiCo is its international business, which accounts for 40% of revenue and is growing rapidly with expanding margins. Yet, the market largely ignores this segment due to North America’s struggles. Elliott’s plan to fix the domestic engine could unleash the full value of PepsiCo’s global footprint, making it a more balanced and robust growth story.

Actionable Takeaways for Investors and Advisors

• Watch for Bottling Refranchising Moves: This structural change could be a game-changer for margins and cash flow.

• Track Portfolio Simplification: Divestitures and SKU rationalization will signal management’s commitment to operational discipline.

• Evaluate Reinvestment in Core Brands: Increased marketing and innovation spend on flagship products will be a positive indicator.

• Consider International Exposure: Given its growth trajectory, PepsiCo’s international segment might warrant a closer look as a growth driver.

• Stay Engaged on Activist Developments: Elliott’s involvement is a strong catalyst; investors should stay informed on progress and quarterly updates.

Final Thought

PepsiCo stands at a strategic inflection point. The company’s legacy and brand strength are undeniable, but unlocking its full potential requires bold moves and disciplined execution. Elliott Management’s activist playbook offers a compelling blueprint for transformation, one that could redefine PepsiCo’s trajectory for years to come. For investors seeking value in the consumer staples sector, this is a story demanding attention—and perhaps, renewed conviction.

Sources:

• Ken Squire, 13D Monitor & 13D Activist Fund
• Company financials and activist presentations
• Market data from S&P Consumer Staples Index and recent trading multiples

Source: Elliott’s plan for PepsiCo includes investing in some of its iconic brands, shedding others