The valuation gulf between Coke and Pepsi hasn’t been this wide in decades

With Elliott Investment Management taking a $4 billion activist position in PepsiCo, the snack and soda behemoth’s performance will now be under a lot more scrutiny.

In a letter to Pepsi’s board of directors, Elliott said, “The company has an opportunity — and an obligation — to improve financial performance and regain its position as an industry leader.” But just how much has Pepsi slumped compared to its rivals?

Though Pepsi has long been in second place in the cola wars, things have taken a turn for the worse recently, with its North American sales going flat and its flagship American soda slipping down the standings last year.

That’s culminated with Pepsi now having the widest valuation gap to rival Coke in some 25 years.

In June, the gulf between Coca-Cola and Pepsi’s market caps reached a staggering $132 billion, marking the widest value disparity between the competitors since the late 1990s. While that difference has narrowed modestly recently, it still sits at $93 billion — more than at any point since the turn of the century, when Coke was riding high on the back of international expansion and Pepsi was busy building out the brand, acquiring Tropicana in 1998 and The Quaker Oats Company in 2001.

It’s the real thing

In the years since, America has turned away from Pepsi’s bestselling drink, while Coca-Cola has fended off upstarts and rivals to stay at the top — in fact, Pepsi no longer ranks in the top three most popular sodas in the US, per data from Beverage Digest.

Last year, Dr Pepper and Sprite overtook Pepsi in the American soft drinks rankings with an 8.7% and 8.03% pie slice in the industry by case sales, respectively. Pepsi had a close 7.97%, marking its fourth consecutive year of losing market share.

In response, a Pepsi spokesperson told Daily Mail that the company will be “focused on building the Pepsi brand, which includes options like Zero Sugar and flavor innovations like Wild Cherry,” noting that the Pepsi brand remains the overall No. 2 soda when taking into account the many variations of the beverage.

Snack attack

Pepsi’s business is at a critical juncture. Health concerns over soda consumption are nothing new, but the rise of Ozempic and other GLP-1s has intensified the spotlight on unhealthier processed foods as well, and analyst scrutiny about the threat of GLP-1s intensifying. That’s a big deal for PepsiCo, as its snack business is actually the company’s main earner, with food accounting for 58% of its revenue last year.

Earlier this year, The New York Times reported that PepsiCo would be moving to “offer smaller portions, as well as snacks made with lower sodium and fat and fewer artificial ingredients.”

That could help, but Elliott Management thinks there are even easier fixes for PepsiCo, with the hedge fund urging the consumer giant to ditch its complex list of products and get back to focusing on its core brands. Per Elliott, Pepsi’s beverage business has a whopping 780 individual products, 70% more than Coca-Cola, but it sells 15% less overall despite that huge portfolio.