PepsiCo, the world’s second-largest maker of soft drinks and snacks, is facing one of the deepest crises in its history. Its flagship product, Pepsi-Cola—once seen as Coca-Cola’s main rival—has slipped to fourth place in U.S. sales volume, behind Coke, Dr Pepper and Sprite, which is also owned by Coca-Cola.
For the first time in more than 40 years, the company has fallen out of the top three, a loss of market share that analysts say reflects not just a business setback but also a severe blow to its brand image.
The famous “Pepsi Challenge,” the classic marketing moment when blindfolded consumers chose Pepsi over Coke during the brand’s heyday, now seems like a distant memory.
Pepsi was born in 1893 as “Brad’s Drink,” created by a North Carolina pharmacist just a few years after Coke was launched in Atlanta. It was renamed Pepsi-Cola five years later and quickly emerged as the “young challenger” in the soda market.
In 1965 it merged with snack maker Frito-Lay to form PepsiCo, creating one of the world’s largest food and beverage empires. The company later expanded with strategic acquisitions such as Tropicana in 1998 and Quaker Oats in 2001, which also brought sports drink Gatorade into its portfolio.
For decades PepsiCo was considered a symbol of innovation and aggressive business strategy, with brands that found their way into nearly every Western household.
But PepsiCo’s market value has fallen by about $70 billion since 2023, from around $270 billion to just $200 billion today. Its food division—long the company’s growth engine thanks to brands like Doritos and Lay’s—has also slowed sharply. North American sales have declined quarter after quarter since late 2022, leading analysts to call for a “fundamental rethink” that could cut at least $800 million a year in costs.
American consumers are flocking to new options: energy drinks, probiotic sodas and low-sugar alternatives. PepsiCo, once a symbol of American soda culture, is struggling to convince Generation Z to embrace the blue can.
Independent distributors, some of whom have worked with the company for generations, describe a sense of abandonment. They say most resources have been shifted to the food division while drinks like Pepsi and Mountain Dew have been sidelined. “We’ve never seen the brand in such bad shape,” one distributor said.
The crisis has now drawn in Elliott Investment Management, one of the world’s most prominent activist hedge funds, which has taken a roughly $4 billion stake in PepsiCo. While that represents only about 2% of shares, it makes Elliott a key shareholder with considerable influence over the company’s direction
Elliott is pressing PepsiCo for sweeping changes. Chief among them is “refranchising” its bottling operations — transferring production and distribution back to independent franchisees rather than keeping them under company ownership. Coca-Cola made a similar move in 2017, a step widely seen as a success that streamlined operations and helped drive its market value close to $300 billion.
The fund is also urging PepsiCo to reevaluate its brand portfolio and shed underperforming products. That includes Mirinda, a niche soda in the U.S. compared with Coca-Cola’s Fanta, and Sierra Mist, a failed Sprite rival recently replaced by the new Starry brand. Sabra, the hummus maker formerly co-owned with Israeli food manufacturer Strauss, has also turned into a burden.
Quality and sanitation issues at its U.S. plants prompted repeated recalls, damaging its reputation as PepsiCo’s intended spearhead in “healthy foods.” Instead of capitalizing on vegetarian and vegan trends, Sabra has faced consumer distrust and slowing sales — compounded by backlash from anti-Israel protests in recent years.
At the same time, PepsiCo is trying to reinforce its core brands — Lay’s, Doritos, Gatorade, Mountain Dew and Quaker — while chasing growth with targeted acquisitions. In late 2024, it bought Siete Foods, a Latino-American grain-free snack brand, and in March 2025, it acquired probiotic soda maker Poppi in a deal worth more than $1.6 billion.
Elliott is also demanding broad cost cuts and a detailed recovery plan to restore investor confidence. The hedge fund argues that if implemented, its proposals could lift PepsiCo’s stock price by more than 50%. Elliott has a recent track record of driving such transformations, including a $5 billion stake in Honeywell that ended with the company splitting into separate groups, and a high-profile intervention at Starbucks that pressured the CEO to step down amid sliding sales.
The market, at least in the short term, welcomed Elliott’s involvement. PepsiCo shares rose 2.6% on the day the fund’s letter was published. PepsiCo said it would “review the proposal” but added it remains confident in its current strategy of targeted investments, portfolio adjustments and efficiency measures.
The crisis is not just an American story. PepsiCo, represented in Israel by Tempo in beverages and Strauss in snacks, also holds several Israeli assets. Chief among them is SodaStream, acquired in 2018 for $3.2 billion — a landmark deal in which a U.S. beverage giant bought an Israeli company that pioneered an at-home soda system marketed as green, innovative and aligned with the global shift away from sugary drinks.
Today, SodaStream’s main plant in Rahat, employing thousands of Jewish and Arab workers, has become a flagship example of international investment in the Negev. But as PepsiCo cuts costs and struggles to protect profits, questions are growing over SodaStream’s future: will it remain a strategic flagship, or fall victim to restructuring?
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PepsiCo CEO Ramon Laguarta with then-SodaStream CEO Daniel Birnbaum at the Rahat plant in 2018
(Photo: Eliran Avital)
PepsiCo’s battles with activist investors are nothing new. About a decade ago, Nelson Peltz, founder of Trian Partners, pushed to split the company’s beverage and snack divisions, even proposing a merger with Mondelez, owner of Oreo, Cadbury and Toblerone. The plan was rejected at the time, but it is resurfacing today as pressure mounts — with snacks slowing and drinks losing market share.
Since 2018, PepsiCo has been led by Spanish CEO Ramon Laguarta, seen as a cautious strategist. He has sought to project stability, investing in legacy brands and modernizing operations. Under his direction, the company integrated food and beverage distribution networks to cut costs, while launching “clean-label” versions of products like Lay’s and Tostitos without artificial ingredients.
In drinks, the focus has shifted to sugar-free formulas. In the U.S., Pepsi Zero Sugar has gained some market share, though industry watchers note it compares unfavorably to Pepsi Max, the product sold in Israel and Europe. The two differ: the U.S. version contains more caffeine and aspartame, while the international formula uses sucralose for a sweeter taste. Both are aimed squarely at competing with Coca-Cola Zero, but the distinction underscores how PepsiCo must adapt formulas to local tastes and regulations.
Wall Street analysts say these are only cosmetic changes. The company, they argue, faces a much deeper problem — a structural crisis, not just a temporary slump, that threatens its long-standing position.
It’s not just about sales dips, but about shifting consumer habits: younger buyers want innovative, low-calorie drinks and feel little loyalty to legacy soda brands. Add to that U.S. President Donald Trump’s trade wars, rising production costs and growing competition from smaller, local players and the picture is stark: a corporation that once embodied innovation and global expansion is now fighting to remain relevant.
“The brand is withering before our eyes,” said one longtime distributor — a sentiment that captures PepsiCo’s struggles more powerfully than any chart or forecast.