PepsiCo's Market Share Decline and Activist Pressure: A Strategic Overhaul in the Beverage Sector

The beverage sector, long dominated by titans like PepsiCo and Coca-Cola, is undergoing a seismic shift. PepsiCo's recent slide to third place in the U.S. soda market—behind Coca-Cola and Dr Pepper—has triggered a high-stakes activist investor campaign led by Elliott Investment Management. With a $4 billion stake in the company, Elliott has positioned itself as a catalyst for strategic reinvention, arguing that PepsiCo's fragmented brand portfolio, operational inefficiencies, and declining North American demand have eroded its competitive edge. This article examines the implications of this activist push, the potential for a corporate governance overhaul, and the investment opportunities and risks embedded in PepsiCo's transformation.

The Decline of a Beverage Giant

PepsiCo's dominance in the nonalcoholic beverage industry has been eroded by shifting consumer preferences and aggressive competition. As of Q2 2025, the company holds a 53.31% market share in the sector, down from 53.57% in Q1 2025. While this remains far ahead of Coca-Cola's 27.35%, the soda segment tells a starker story: PepsiCo's carbonated soft drink market share in the U.S. fell to 8% in 2024, with Dr Pepper overtaking it as the second-largest soda brand. Dr Pepper's success—driven by innovative marketing (e.g., college football promotions) and novel flavors like strawberries and cream—has exposed PepsiCo's struggles to innovate and connect with younger consumers.

The company's financials reflect these challenges. In Q2 2025, PepsiCo reported $22.73 billion in revenue, exceeding analyst expectations, but earnings per share (EPS) fell 55% year-over-year. Weak North American demand, rising tariffs, and the shift toward value brands have compounded pressure on margins. Meanwhile, Coca-Cola's cola segment retains a 47.4% market share, underscoring the gap in PepsiCo's core soda business.

Elliott's Activist Playbook: Refocus, Streamline, and Revalue

Elliott Investment Management has laid out a three-pronged strategy to unlock value at PepsiCo:
1. Refranchising the Bottling Network: By mimicking Coca-Cola's model, PepsiCo could reduce operational complexity and focus on brand innovation. Independent bottlers would handle distribution, allowing PepsiCo to redirect resources to high-growth categories like low-sugar beverages and international markets.
2. Portfolio Rationalization: Divesting underperforming brands and streamlining the SKU count would reduce costs and sharpen focus on core assets like Pepsi-Cola, Gatorade, and Tropicana. Elliott argues that PepsiCo's “brand fragmentation” has diluted its marketing effectiveness and diluted consumer loyalty.
3. Operational Efficiency and Innovation: The activist firm emphasizes the need for disciplined capital allocation, targeted marketing, and faster innovation cycles. For example, PepsiCo's recent launch of prebiotic cola aligns with health-conscious trends but requires more aggressive promotion to capture market share.

Elliott's proposals are not without precedent. Coca-Cola's refranchising in the 1980s and 1990s boosted its global scalability and profitability, while Procter & Gamble's portfolio pruning in the 2010s improved margins and focus. If executed effectively, similar moves could reinvigorate PepsiCo's growth trajectory.

Investment Implications: Risks and Rewards

The potential upside for investors is significant. Elliott estimates that a successful overhaul could unlock a 50% stock price increase, driven by margin expansion, operational efficiency, and renewed growth in core categories. PepsiCo's current valuation—trading at a P/E of 17x versus Coca-Cola's 25x—suggests it is undervalued relative to peers, particularly given its diversified portfolio (which includes snacks like Frito-Lay).

However, risks remain. PepsiCo's North American beverage segment faces structural headwinds, including declining soda consumption and the rise of GLP-1 drugs, which suppress appetite. Additionally, refranchising could face resistance from internal stakeholders and bottlers accustomed to the current model. The company's recent cost-cutting measures, including plant closures and logistics optimization, have yielded short-term savings but may not address long-term strategic gaps.

A Path Forward: Collaboration or Conflict?

PepsiCo has acknowledged Elliott's proposals but has not committed to a full-scale overhaul. The company's response highlights its focus on innovation (e.g., prebiotic cola) and international expansion, particularly in Asia and Latin America, where demand for functional beverages is growing. However, without bold action, PepsiCo risks further erosion of its market share and brand relevance.

For investors, the key question is whether PepsiCo's leadership can balance short-term stability with long-term reinvention. A partnership with Elliott could accelerate necessary changes, but a misstep in execution—such as overdivesting or misallocating capital—could deepen the company's challenges.

Conclusion: A Make-or-Break Moment

PepsiCo stands at a crossroads. Its third-place position in the soda market and declining EPS have made it a prime target for activist intervention, with Elliott's $4 billion stake signaling a vote of confidence in the company's potential. While the proposed changes carry risks, they also offer a roadmap to restore growth, profitability, and shareholder value. For investors, the coming months will be critical in determining whether PepsiCo can reclaim its position as a beverage sector leader—or cede ground to more agile competitors.

In a market where consumer preferences shift rapidly, the ability to adapt is not just a strategic imperative—it's a survival necessity. PepsiCo's response to Elliott's push will serve as a case study in how mature consumer brands can navigate disruption and emerge stronger.