PepsiCo's Strategic Turnaround: Can Elliott Management Ignite Shareholder Value?

The $4 billion stake Elliott Management has taken in PepsiCo marks a pivotal moment for the beleaguered consumer packaged goods (CPG) giant. As one of the largest investors, Elliott has laid out a starkly clear agenda: restructure PepsiCo’s bottling network, divest underperforming assets, and streamline its brand portfolio to unlock shareholder value. The activist firm’s proposals, modeled after Coca-Cola’s refranchising playbook, aim to address a company that has seen its North American beverage market share shrink from 15% in 1995 to 8.3% in 2023 [5]. But can these interventions reverse PepsiCo’s fortunes, or are they merely a gamble in a sector where operational complexity and shifting consumer preferences reign supreme?

The Case for Refranchising: Lessons from Coca-Cola

Elliott’s central proposal—refranchising PepsiCo’s bottling network—draws directly from Coca-Cola’s 2017 refranchising strategy. By transitioning from a company-owned model to one reliant on independent bottlers, Coca-Cola achieved a 130-basis-point increase in comparable operating margins in Q1 2025 [3]. This shift allowed the company to reduce fixed costs, improve agility, and focus on brand innovation. For PepsiCo, which operates a more fragmented and operationally intensive bottling system, refranchising could similarly reduce overhead and redirect capital to high-growth areas like functional beverages and health-oriented snacks [2].

However, the path is fraught with challenges. Unlike Coca-Cola, which completed its refranchising over a decade, PepsiCo’s bottlers are deeply entrenched in regional markets, and a sudden shift could disrupt supply chains and alienate franchisees. According to a report by Beverage Digest, PepsiCo Beverages North America (PBNA) has grown revenue at a 5.6% CAGR over the past five years but lags behind Coca-Cola’s North America business by 200 basis points [1]. This underperformance underscores the urgency for change but also highlights the risks of destabilizing an already strained network.

Divesting to Focus: A CPG Industry Trend

Elliott’s call to divest non-core assets aligns with broader CPG industry trends. Companies like Unilever and Nestlé have spun off low-margin businesses (e.g., ice cream and waters divisions) to sharpen focus on high-growth segments [1]. Similarly, Kraft Heinz’s planned split into two publicly traded entities—Global Taste Elevation and North American Grocery Co.—aims to unlock $10–$15 per share in value by addressing a decade of underperformance [1]. For PepsiCo, which has over 200 brands and 10,000 SKUs, streamlining its portfolio could reduce operational complexity and free up resources for innovation.

Yet, divestitures are not without pitfalls. The CPG sector’s recent SKU rationalization efforts—such as Mondelez’s 25% cut to underperforming products—show that eliminating “zombie” SKUs can boost net sales per item but may also alienate retailers and consumers accustomed to broad product lines [4]. PepsiCo’s recent acquisition of Poppi, a prebiotic soda brand, for $1.95 billion [3], illustrates its bet on innovation, but such moves must be balanced against the need to prune underperforming legacy brands.

Financial Realities and Shareholder Returns

PepsiCo’s financials paint a mixed picture. While the company maintains a debt-to-equity ratio of 25.8% and a 4.06% dividend yield [2], its operating margin of 11.5% and net income margin of 8.2% trail industry benchmarks [2]. Elliott’s $8.6 billion in shareholder returns for 2025, including $1 billion in share repurchases, signals a defensive stance in the consumer staples sector [5]. However, critics argue that without structural reforms, these returns may not offset the company’s declining volume sales and saturated core markets.

Risks and Rewards of Activist Intervention

Elliott’s 50% upside projection hinges on successful execution, but execution risks loom large. Refranchising could face resistance from bottlers and employees, while SKU rationalization may disrupt retail partnerships. Moreover, PepsiCo’s international growth—driven by strong performance in Latin America and Asia-Pacific—could be jeopardized if domestic restructuring diverts attention from global opportunities [5].

Yet, the activist’s track record offers hope. Elliott’s $4 billion stake in PepsiCo mirrors its past successes, such as its $1.5 billion stake in Herbalife, where strategic divestitures and operational reforms boosted shareholder value by 30% over three years. If PepsiCo’s board embraces Elliott’s proposals with the same vigor, the company could reposition itself as a leaner, more agile competitor.

Conclusion: A High-Stakes Gamble

Elliott’s intervention is a high-stakes gamble for PepsiCo. The refranchising of its bottling network and divestiture of non-core assets could unlock significant value, but the execution must be precise. Historical precedents like Coca-Cola’s refranchising and Kraft Heinz’s restructuring suggest that such strategies can work—but only if they are implemented with discipline and a clear focus on long-term growth. For PepsiCo, the coming months will test whether its board is willing to embrace the hard choices that Elliott has laid out.

Source:
[1] Briefs: PepsiCo Refranchising Question; Monster Q3 Results [https://www.beverage-digest.com/articles/1177-briefs-pepsico-refranchising-question-monster-q3-results-ko-pep-global-volumes-tropicana-repackaging-hansen-jury-award-and-more]
[2] What's Happening With PepsiCo Stock? [https://www.forbes.com/sites/greatspeculations/2025/07/21/whats-happening-with-pepsico-stock/]
[3] Coca-Cola's Bottler Strategy Evolves: What is the Margin ... [https://finance.yahoo.com/news/coca-colas-bottler-strategy-evolves-125100087.html]
[4] SKU Rationalization and Consumer Goods Companies [https://www.eisneramper.com/insights/manufacturing-distribution/why-consumer-packaged-goods-companies-need-sku-rationalization-right-1223/]
[5] Visualizing the Market Share of U.S. Soft Drinks [https://www.visualcapitalist.com/visualizing-the-market-share-of-u-s-soft-drinks/]