PepsiCo to cut prices, eliminate products as part of a deal with an activist investor

PepsiCo Announces Major Product Cuts and Price Reductions Under Activist Investor Deal

PepsiCo plans to slash nearly 20% of its product offerings and reduce prices as part of a strategic overhaul announced Monday following pressure from activist investor Elliott Investment Management.

The Purchase, New York-based food and beverage giant, known for brands like Cheetos, Tostitos, and other Frito-Lay products, said it will implement these cuts by early next year. While the company hasn’t specified which products will be eliminated or the extent of price reductions, it stated the resulting savings would be redirected toward marketing efforts and improving value for consumers.

The strategic shift comes after Elliott took a substantial $4 billion stake in PepsiCo in September. In a letter to the company’s board, the investment firm criticized what it described as a “lack of strategic clarity, decelerating growth and eroding profitability” in PepsiCo’s North American food and beverage operations.

Marc Steinberg, a partner at Elliott, expressed confidence in the new direction. “We appreciate our collaborative engagement with PepsiCo’s management team and the urgency they have demonstrated,” Steinberg said in a joint statement with the company. “We believe the plan announced today to invest in affordability, accelerate innovation and aggressively reduce costs will drive greater revenue and profit growth.”

Despite these significant changes, PepsiCo’s shares remained flat in after-hours trading following the announcement.

The company is also accelerating the introduction of products with simpler ingredient profiles, responding to growing consumer demand for less processed foods. New offerings include protein-enhanced Doritos and Simply NKD versions of Cheetos and Doritos that contain no artificial flavors or colors. The company recently launched a prebiotic version of its signature cola as well, further expanding into the functional beverage market.

PepsiCo Chairman and CEO Ramon Laguarta expressed optimism about the new strategy. “We feel encouraged about the actions and initiatives we are implementing with urgency to improve both marketplace and financial performance,” he said in a statement.

The company has set ambitious growth targets, projecting organic revenue growth between 2% and 4% by 2026. This represents a significant improvement from the 1.5% organic revenue growth reported during the first nine months of 2023.

This restructuring follows PepsiCo’s February acknowledgment that years of double-digit price increases had weakened consumer demand for its products. By July, the company was already attempting to address affordability concerns by expanding distribution of value brands like Chester’s and Santitas to combat perceptions that its products had become too expensive.

Industry analysts note that PepsiCo’s moves reflect broader challenges facing consumer packaged goods companies in the current economic environment, where inflation-weary shoppers have become increasingly price-sensitive and willing to switch to private label alternatives.

The plan also includes a comprehensive supply chain review and continued board refreshment, with a focus on recruiting global leaders who can help the company achieve its growth and profitability objectives. Elliott has indicated it plans to continue working closely with PepsiCo’s management as the new strategy is implemented.

This restructuring represents one of the most significant overhauls in recent years for the food and beverage giant, which has been facing increasing competition from both traditional rivals and emerging brands that have capitalized on changing consumer preferences for healthier and more affordable options.

The success of PepsiCo’s new strategy will likely be closely watched across the food and beverage industry as other major players grapple with similar challenges in balancing premium innovations with affordable offerings in a challenging economic landscape.