Introduction
PepsiCo’s recent engagement with Elliott Management represents a pivotal moment for the company’s leadership. Elliott, a seasoned activist investor, has called for sweeping changes aimed at restoring PepsiCo’s operational strength and market standing, particularly in North America. While PepsiCo maintains a leading global position in snacks and beverages, Elliott argues that the firm has drifted away from the operational discipline and strategic focus that once underpinned its success. The proposals target underperformance in two key business units—PepsiCo Beverages North America (PBNA) and PepsiCo Foods North America (PFNA)—and call for structural, financial, and governance reforms to reverse margin erosion and unlock shareholder value.
This article assesses what Elliott’s intervention implies for PepsiCo’s executive management and board of directors. These proposals are not merely financial adjustments or efficiency initiatives. They require substantive decisions on business model redesign, brand architecture, investment allocation, and governance accountability. In short, they test the company’s capacity to self-correct and deliver a more precise trajectory for sustained performance improvement.
Elliott’s Diagnosis of the Status Quo
Elliott’s case rests on a stark contrast: the scale and market position of PepsiCo’s brand portfolio versus its sluggish share price performance and valuation discount. PepsiCo owns more than 20 billion-dollar brands and generates over $90 billion in annual revenue, yet its recent performance has been disappointing relative to its historical standards and industry peers. Over the last decade, investor returns have lagged behind the S&P 500 Consumer Staples Index. Crucially, this underperformance is not evenly distributed but centred on North America, which accounts for around 60% of total revenue and profit.
PBNA has faced ongoing challenges. These include a loss of share in the carbonated soft drink segment, poor returns from acquisitions (such as Rockstar and SodaStream), and a fragmented approach to brand and SKU management. Meanwhile, PFNA, dominated by Frito-Lay, has historically masked these weaknesses. But recent slowing growth and margin compression in PFNA have exposed PepsiCo’s reliance on one high-performing division to offset systemic issues elsewhere.
Elliott believes this situation stems from three root causes.
1) A lack of strategic focus: exemplified by portfolio proliferation and diluted marketing investment.
2) Operational complexity, particularly in PBNA’s integrated bottling model, which is misaligned with industry best practice.
3) A credibility gap with investors, who have heard successive cost-saving announcements with limited impact on actual margin expansion.
For PepsiCo management, this diagnosis carries a direct implication: they must shift from defending legacy strategies to actively transforming their structure, capital allocation, and leadership governance.
Refranchising PBNA: Resetting the Operating Model
Elliott’s call for a review of PBNA’s bottling structure is rooted in comparative performance. Coca-Cola, PepsiCo’s primary rival, completed a multi-year refranchising strategy that restored bottler independence while keeping the concentrate business focused on brand growth and innovation. The results, Elliott argues, are evident: better local execution, sharper price-pack strategies, and improved financial returns.
PBNA’s current integrated model, by contrast, creates execution risk. It combines highly operationally intensive bottling functions, such as warehousing, distribution, and logistics, with strategic brand stewardship. This dilutes management attention, introduces rigidity in fixed costs, and weakens local responsiveness.
If PepsiCo were to pursue refranchising, the shift would involve disentangling bottling assets, renegotiating distribution rights, and potentially selling bottling operations to third parties. This would not be a short-term undertaking. However, refranchising could unlock capital, reduce structural cost burdens, and sharpen strategic accountability.
Management must therefore address three areas. First, scenario planning is conducted around different degrees of refranchising, e.g., partial, regional, or complete, and their associated capital, talent, and legal implications. Second, a communication strategy for stakeholders, including franchise partners, employees, and investors. Third, internal alignment is required around the governance of a dual-entity model, where PepsiCo retains brand ownership and innovation responsibility while relying on external execution partners.
In Europe, PepsiCo’s beverage distribution is led by a network of regional bottlers, with Carlsberg Britvic now the largest. Following its acquisition of Britvic in 2024, Carlsberg handles production and distribution across the UK, Ireland, Scandinavia, and Switzerland. In Central and Eastern Europe, Mattoni 1873 (KMV) is PepsiCo’s key partner, covering markets such as the Czech Republic, Slovakia, Austria, Bulgaria, Serbia, and Montenegro. While Refresco operates widely across Europe, its role in PepsiCo's system is more limited. These partnerships form the backbone of PepsiCo’s European bottling and distribution structure.
Done correctly, refranchising could realign PBNA with a model better suited for agility, profitability, and brand growth.
Simplifying PBNA’s Brand Portfolio
Another central point in Elliott’s critique is portfolio complexity within PBNA. According to estimates cited in their analysis, PBNA manages over 700 SKUs across its soda, sports drink, energy, and non-carbonated beverage lines, significantly more than Coca-Cola North America, despite generating less retail sales. This proliferation of SKUs burdens the business in several ways. Manufacturing becomes more complex and costly due to shorter production runs and increased changeovers. Distribution is less efficient, with increased warehousing and stocking costs. Most importantly, marketing effectiveness suffers as investment is spread too thin across too many sub-scale products.
For PepsiCo management, this demands a decisive simplification agenda. That includes reviewing the commercial performance of every sub-brand and SKU to identify which are genuinely driving consumer demand and margin contribution. It also involves assessing shelf presence and retailer feedback to understand which products support the brand equity of core franchises, such as Pepsi, Gatorade, or Mountain Dew, and which dilute it.
Portfolio rationalisation is not simply a cost-reduction exercise. It is a strategic reset that should strengthen brand coherence, improve promotional efficiency, and ultimately allow greater investment behind fewer, better-positioned products. By doing so, PepsiCo can capitalise on shifting consumer preferences toward lower-sugar offerings, functional beverages, and more convenient packaging formats.
However, executing this rationalisation requires strong cross-functional coordination. It will involve trade-offs between marketing ambitions and operational feasibility, as well as careful engagement with retailers to manage assortment changes. Management must create an internal mandate backed by data and tied to a clear outcome: a simpler, more profitable, and more resonant beverage portfolio.
Realigning PFNA’s Cost Base and Portfolio Focus
The issues facing PFNA are more subtle than those in PBNA, but no less critical. While PFNA remains a category leader in salty snacks, recent data indicates a slowdown in both volume and revenue growth. This is compounded by the weight of non-core assets acquired via the Quaker deal, which include cereal, bars, and ambient wellness brands that sit outside PFNA’s core competency.
Elliott proposes that PepsiCo’s management reassess the relevance of these businesses in today’s market. These assets have historically underperformed in both growth and margin terms. Their inclusion adds overhead complexity and distracts attention and investment from the high-performing core.
For management, this implies a potential divestment agenda. Evaluating which assets to exit (and which might be reinvested in or restructured) requires robust internal assessment, market benchmarking, and strategic clarity about the long-term role of health-and-wellness brands within PFNA’s future.
At the same time, cost structures within PFNA must be reviewed. After several years of investment and scale expansion, the cost base may now exceed what is required to meet current demand levels. Adjustments could include headcount reduction, overhead rationalisation, and tighter prioritisation of innovation spending (see our previous article on Fakennovation)
However, cost reduction must not come at the expense of brand vitality. The challenge for management will be to execute a ‘tight and focused’ cost reset while continuing to support growth in core franchises such as Lay’s, Doritos, and Tostitos, which retain category leadership and high shelf velocity.
Reinvestment Strategy: Organic and Inorganic Renewal
A key pillar of Elliott’s proposal is reinvestment, not merely in cost-saving, but in future growth vectors. PepsiCo has already signalled its intent to play in adjacent growth areas such as protein, functional beverages, and value-tier snacking. However, execution to date has been inconsistent. Several acquisitions have resulted in impairments, and growth in emerging brands has not offset declines in core categories.
To change this, management must adopt more explicit investment criteria. This means setting specific hurdle rates, return periods, and brand fit filters. For organic investment, this includes marketing activation in under-leveraged segments (e.g. Pepsi Zero Sugar), innovation in immediate consumption packs, and digital engagement for Gen Z consumers.
On the inorganic side, bolt-on acquisitions can play a significant role—particularly in smaller, high-growth segments such as prebiotic drinks or plant-based protein. However, past mistakes indicate that brand synergy, distribution scalability, and execution capacity must be carefully assessed before acquisition.
The broader implication is that PepsiCo management needs to strengthen its investment governance processes. Clear accountability, post-investment evaluation, and alignment to core strategy should replace the past pattern of opportunistic but fragmented acquisitions.
Adopting Revised Financial Targets and Governance Mechanisms
One of Elliott’s more forceful points is the need for updated financial targets underpinned by operational delivery. PepsiCo has, in recent years, announced cost actions and margin ambitions without delivering meaningful movement in its financial profile. As a result, investor scepticism has grown. While PepsiCo’s long-term financial algorithm includes organic revenue growth of 4–6% and operating margin expansion of 20–30 basis points annually, actual performance has often fallen short of these benchmarks, particularly in North America.
Elliott argues that renewed investor confidence requires more than verbal commitments. Management must translate operational initiatives into revised medium-term targets, supported by clear implementation plans and time-bound milestones. This includes expectations for margin improvement by business unit, specific portfolio simplification metrics, productivity gains from refranchising (if pursued), and revenue uplift from reinvestment strategies.
For PepsiCo management, this will involve shifting from a communication model based on aspiration to one grounded in operational evidence. Internally, this means cascading financial targets down to divisional leadership and ensuring alignment between strategic planning, capital allocation, and incentive structures. Externally, it requires disciplined investor messaging, enhanced disclosure, and regular progress updates.
Additionally, leadership may need to work more closely with the board to refresh its oversight mechanisms. This may include forming a dedicated transformation subcommittee, introducing third-party reviews of strategic initiatives, or restructuring executive KPIs to focus less on top-line growth and more on profit and capital efficiency.
The aim is not just to improve results, but to restore credibility—by ensuring that what is promised is delivered and that the company is accountable at every level for performance improvement.
Building Oversight and Reinforcing Accountability
Transformation on the scale proposed by Elliott cannot succeed without effective execution governance. PepsiCo’s management team must consider whether the current organisational structure, talent mix, and decision-making cadence are fit for purpose. Refranchising, brand rationalisation, cost realignment, and capital redeployment are complex initiatives that require specialist capabilities and sustained senior engagement.
This implies several immediate actions. First, an internal capability review to identify skill gaps, resourcing issues, and accountability constraints. Second, establish a dedicated transformation office or task force with cross-functional authority and executive sponsorship. Third, defining clear ownership of each strategic priority, linked to metrics and timelines.
Management must also ensure that cultural inertia does not undermine delivery. There is a risk that longstanding norms, such as maintaining broad portfolios to cater to all consumer segments or prioritising revenue growth over margin, may persist unless actively challenged. Cultural change is difficult to quantify, but essential. It requires leadership to set a different tone, reward different behaviours, and maintain consistent focus.
On governance, the board has a role to play. This includes ensuring that strategy and execution are aligned, that new initiatives are not only launched but tracked, and that executive incentives reflect outcomes—not just effort.
By reinforcing oversight and embedding accountability, PepsiCo can build the management systems needed to deliver sustainable improvements rather than one-off adjustments.
Conclusion
PepsiCo’s leadership now faces a strategic juncture. Elliott Management’s proposals are not simply activist demands; they reflect an underlying truth: that past performance, particularly in North America, has fallen short of what PepsiCo’s scale and brand equity should enable. The time for incremental adjustments has passed. What is required now is a deliberate, sequenced, and accountable transformation across the core structure, portfolio, and financial model.
This means refranchising PBNA to improve focus and execution. It means cutting complexity from bloated brand portfolios. It means realigning PFNA’s cost base and divesting distractions. It means redeploying capital in a disciplined way towards both core and future growth platforms. And it means making performance commitments that are credible, measurable, and delivered.
Elliott has placed a spotlight on PepsiCo’s potential and its underutilised value. Whether that value is realised depends entirely on how the company’s management responds in the coming quarters. If they succeed, PepsiCo could reestablish itself as a disciplined, high-performing operator in the global consumer goods sector. If they do not, further investor pressure will be inevitable.
The choice lies with management. And the time to act is now.