Elliott Management Pushes PepsiCo for Cost Cuts, Bottling Divestment

Hedge fund Elliott Investment Management is actively pushing PepsiCo (PEP.US) to implement cost-cutting measures and divest low-growth brands. This initiative has garnered support from other investors. The fund is urging PepsiCo to follow the model set by Coca-Cola (KO.US), which involves separating its bottling operations. This strategic move aims to enhance efficiency and profitability, aligning with the broader trend in the beverage industry towards streamlined operations and focused brand management. The pressure from Elliott Investment Management reflects a growing sentiment among investors for companies to optimize their portfolios and operational structures to better compete in a dynamic market.

In a presentation to PepsiCo shareholders, Elliott Investment Management argued that while "repatriating the bottling business" had some rationale in the past, it is now time to evaluate "a more efficient franchising model." The hedge fund warned that PepsiCo's integrated operating model in North America (PBNA) has been outperformed by Coca-Cola's franchised bottlers at the regional level. This has led to PepsiCo lagging in "price-pack management," slowing regional innovation, and poor in-store execution. Elliott Investment Management believes that introducing a third-party bottler model would create a balancing mechanism for brand portfolio management.

Previously, Coca-Cola completed the global separation of its bottling business, resulting in the establishment of independent bottling entities such as Coca-Cola Enterprises, Coca-Cola Europacific Partners (CCEP), and Coca-Cola FEMSA (KOF).

In early September, Elliott Investment Management disclosed holding 400 million dollars worth of PepsiCo shares and released a 75-page report detailing suggestions to enhance PepsiCo's profitability. In response, PepsiCo stated that the company maintains active communication with its shareholders and will evaluate the content of Elliott Investment Management's presentation.