Franchise Fortitude vs. Tariff Turbulence: Why Roark Capital Outperforms PepsiCo in a Protectionist Era

In an era defined by rising trade barriers and geopolitical friction, the resilience of investment portfolios hinges on sector-specific adaptability. While PepsiCo battles tariff-driven headwinds, Roark Capital—a private equity firm specializing in franchise-driven businesses—appears poised to outperform through operational agility and diversified exposure. This analysis explores how macroeconomic trade policies disproportionately impact these two giants, favoring Roark's model of decentralized franchising over PepsiCo's centralized supply chain vulnerabilities.

PepsiCo's Tariff Trap: A Perfect Storm of Costs and Consumer Shifts

PepsiCo's 2025 earnings forecast now predicts flat growth after slashing expectations due to $245 million in tariff-related losses, a stark contrast to its earlier mid-single-digit growth targets. Key vulnerabilities stem from:
- Tariff-Heavy Inputs: A 10% tariff on Irish soda concentrate ($189M annual cost) and 25% duties on aluminum (used in cans) have inflated production expenses. Unlike Coca-Cola, which manufactures concentrate domestically, PepsiCo's reliance on imported concentrate leaves it exposed.
- Consumer Backlash: Years of price hikes have eroded loyalty, with U.S. soda market share dipping to 26%—a historic low. Competitors like Dr Pepper now outsell Pepsi-Cola, signaling a shift toward value-driven choices.
- Global Supply Chain Rigidity: Over 30% of PepsiCo's sales depend on North America, where retaliatory tariffs (e.g., 34% on Chinese imports) disrupt plastic bottle and sweetener supplies.

The result? PepsiCo's stock has underperformed the S&P 500 by 15% since 2020, while peers like Coca-Cola (with domestic supply chains) surged ahead.

Roark Capital's Franchise Resilience: Decentralized Strength in a Fractured World

Roark Capital's $38 billion portfolio thrives in this environment through its focus on franchise-driven sectors, which are inherently less exposed to tariffs and more adaptable to macroeconomic shifts. Key advantages include:

1. Operational Decentralization

Franchise models like Anytime Fitness (health and wellness) and Driven Brands (automotive services) rely on local suppliers and decentralized operations. For example:
- Subway's Buyout: Roark's 2024 acquisition of Subway—a global brand with 37,000 locations—leverages local franchisees to source ingredients regionally, minimizing tariff impacts.
- ServiceMaster's Diversification: Its cleaning and moving franchises (e.g., TWO MEN AND A TRUCK) operate in 118 countries, spreading risk across markets.

2. Consumer Demand Stability

Franchises in essential services—restaurants, fitness, automotive repair—tend to weather economic downturns better than discretionary products like sodas.
- Dunkin' and Arby's: Part of Roark's Inspire Brands portfolio, these chains benefit from morning routines and casual dining habits that remain resilient even as consumers cut back on luxuries.

3. Franchisee Synergy

Roark's “Win-Win-Win” philosophy ensures alignment between franchisors, franchisees, and customers. Metrics like Net Promoter Scores (NPS) and real-time performance dashboards allow rapid adjustments to local market conditions.

4. Geographic and Sector Diversification

While 60% of PepsiCo's revenue comes from snacks and beverages, Roark's holdings span 107,500 locations globally across food, health, and business services. This diversification shields it from sector-specific tariff shocks.

The Macro Case for Roark Over PepsiCo

Trade policies disproportionately penalize centralized supply chains like PepsiCo's, while decentralized franchising models thrive:
- Inflation Mitigation: Franchisees can pass costs to consumers through localized pricing, whereas PepsiCo's global pricing strategies face regulatory scrutiny.
- Labor Flexibility: Roark's multi-unit brands (e.g., Maaco auto shops) use local hiring, avoiding the 21-state minimum wage hikes that plague centralized operations.
- Technological Leverage: Roark's “Centers of Excellence” invest in AI-driven supply chain tools, reducing reliance on vulnerable imports.

Investment Thesis: Shift to Franchise Fortresses

Investors should consider Roark Capital's private equity exposure as a hedge against PepsiCo's vulnerabilities:
1. Sector Rotation: Allocate to private equity funds tied to Roark's portfolio (e.g., Anytime Fitness, Divisions Maintenance Group) for steady cash flows.
2. Public Market Plays: Companies like Driven Brands (post-Roark exit) or ServiceMaster offer public exposure to Roark's strategies.
3. Avoid Tariff-Exposed Stocks: PepsiCo's stock is likely to remain under pressure until it restructures supply chains—a costly and time-consuming process.

Conclusion: Franchises as the New Safe Havens

In an era of escalating trade wars, the decentralized, stakeholder-aligned model of Roark Capital offers a stark contrast to PepsiCo's centralized fragility. Investors seeking resilience should pivot toward franchise-driven sectors, where local agility and diversified revenue streams outmaneuver the global supply chain's vulnerabilities. As tariffs reshape the economic landscape, Roark's portfolio stands as proof that adaptability, not scale, defines the next era of winners.

Investors: Look beyond the soda aisle—franchises are the new frontier.