PepsiCo (NASDAQ:PEP), once a titan of the soda world and a close rival to Coca-Cola, now finds itself scrambling to reclaim its footing in the U.S. beverage market. The company’s flagship cola has slipped to No. 3 behind Dr Pepper, while other beverages like Gatorade have seen steady market share erosion. Ram Krishnan, who took over as CEO of PepsiCo’s North American beverage division in early 2024, is now spearheading a hands-on recovery campaign—visiting stores, inspecting shelves, and recalibrating product visibility. Meanwhile, the company is reviving its famed “Pepsi Challenge,” now focused on Zero Sugar variants, as it tries to rekindle consumer loyalty. Despite growth in international markets and continued success in its snack division, the beverage side of PepsiCo’s U.S. business is under considerable strain. A series of strategic shifts, infrastructure overhauls, and increased marketing efforts are underway, but questions linger as to whether the cola giant can truly stage a meaningful comeback.
Collapse Of Core Soda Market Share
One of the most pressing issues facing PepsiCo is the collapse of its core cola market share, particularly in the United States. The company's classic blue-can Pepsi has now fallen to the third spot in U.S. soda rankings, behind Coca-Cola and Dr Pepper. This is a significant decline from the brand's peak in the 1980s when it nearly matched Coke’s market dominance, fueled by edgy celebrity-driven advertising and the famed “cola wars.” Between 2010 and 2023, Coca-Cola’s sales volume dropped 14%, but Pepsi's dropped 32%, according to Beverage Digest. CEO Ramon Laguarta has admitted to missing the mark, noting publicly that the company had failed to gain market share in recent years. Internal insights suggest that a long-term diversion of resources toward healthier food and drink products under former CEO Indra Nooyi contributed to the erosion. Even when demand existed, distribution inefficiencies left shelves unstocked, hurting both sales and brand visibility. Independent bottlers have raised concerns that PepsiCo pivoted too sharply away from beverages, leaving them struggling with poor volume and stale branding. While the Pepsi Challenge has been reintroduced—this time with a Zero Sugar twist—consumer preference has shifted significantly. Pepsi now finds itself in a marketplace that increasingly favors functional drinks, energy beverages, and perceived "healthier" options. Even ad spending lags behind Coca-Cola; Pepsi spent roughly half of what Coke did in 2023 and fell further behind in 2024. Despite early signs of a small rebound in 2025 with modest sales gains for Pepsi Zero Sugar and Wild Cherry Pepsi, the overall cola category remains challenged, and Pepsi’s relevance within it is far from assured.
Diversion Of Focus To Snacks & Healthier Offerings
Another major driver behind PepsiCo’s beverage challenges has been its deliberate shift in focus toward snack foods and healthier product lines over the past two decades. Under Indra Nooyi's leadership, the company embarked on a major repositioning strategy, emphasizing "better-for-you" offerings and decreasing reliance on sugary sodas. This led to acquisitions like Naked Juice and KeVita kombucha, and a joint venture for Sabra hummus. These efforts were part of a broader pivot toward convenient foods, which now represent 60% of the company’s revenue, with brands like Lay’s, Doritos, and Cheetos gaining significant traction globally. The issue, however, is that while PepsiCo’s food business thrived, the beverage division was left without the aggressive marketing, innovation, and strategic attention it once enjoyed. Gatorade, once a dominant force in the sports drink market, saw its market share erode, and Pepsi cola itself was relegated from a "hero brand" to an afterthought. Even advertising for key soda products became fragmented and unfocused, with campaigns that lacked consistency across channels. The consequences have been multifold—declining shelf presence, brand fatigue, and a failure to attract younger, health-conscious consumers. Current CEO Ramon Laguarta has acknowledged that PepsiCo may have moved too far away from its beverage roots. The company is now attempting to rebalance its portfolio by allocating more A&M (advertising and marketing) dollars back into key beverage segments and introducing products like Starry to compete in lemon-lime, as well as buying the prebiotic soda brand Poppi for $1.95 billion. Whether this rebalancing will be enough to reverse years of underinvestment remains to be seen.
Fragmented Distribution & Bottler Discontent
Distribution inefficiencies have emerged as a critical internal bottleneck for PepsiCo’s beverage recovery strategy. Approximately 25% of PepsiCo’s U.S. beverage distribution is handled by independent bottlers—many of which are family-owned businesses with deep historical ties to the brand. However, these bottlers have increasingly voiced their frustration, citing volume declines, inconsistent strategy from headquarters, and a lack of clear direction for beverage priorities. A case in point is Tim Tenney, a longtime Pepsi bottler in New York whose family ties to Pepsi stretch back to the 1930s. His company has resorted to stocking products from competitors like Keurig Dr Pepper due to diminishing volumes and operational challenges with Pepsi. Some bottlers have even floated the idea that the North American beverage division should be spun off as a standalone business to receive the dedicated focus they feel it currently lacks. Internally, PepsiCo has acknowledged the logistical shortcomings. Products have often been unavailable on shelves even when demand existed, leading to lost sales and consumer frustration. In response, PepsiCo appointed food division chief Steven Williams in December 2024 to head a new operational unit combining food and beverage logistics. This move aims to reduce costs and enhance distribution efficiency by avoiding redundant shipments—like sending separate trucks for snacks and drinks to the same store. Ram Krishnan has also led a reorganization of the beverage sales team to ensure better consistency and visibility in stores. Yet, the challenge remains daunting, especially with competitors like Coca-Cola having long mastered distribution efficiency. While initial retail sales of Pepsi classic and Zero Sugar variants are beginning to show improvement, long-term resolution of bottler tensions and distribution gaps will be essential for sustained recovery.
Complex Strategic Overhaul Amid A Shifting Global Landscape
PepsiCo’s recovery efforts are taking place amid a broader, highly complex strategic overhaul as the company seeks to modernize operations, expand internationally, and meet evolving consumer preferences. The company’s $92 billion in 2024 revenue is now nearly 40% international, and its overseas operations are growing faster—10% annually—than its North American divisions. As part of its “Faster, Stronger, Better” framework, PepsiCo has increased its annual investments in CapEx, A&M, and R&D from $8 billion to $12 billion since 2017. A key initiative is the integration of its food and beverage operations into a unified logistical and technological infrastructure. This includes merging delivery networks, implementing shared IT systems, and rolling out SAP across the U.S. to facilitate end-to-end planning. The company is also leaning into automation, digital twins in manufacturing, and global capability centers to reduce costs and improve forecasting. On the consumer front, PepsiCo is emphasizing portion control, functionality (such as hydration and protein), and multicultural snacks tailored to regional preferences. It’s investing heavily in powders, sachets, and direct-to-consumer personalization models—like Gatorade powders and SodaStream—to cater to on-the-go lifestyles and healthier consumption trends. However, these efforts require extensive resource allocation and time, and they may distract from immediate challenges in the core soda business. Despite the structural progress, the U.S. beverage segment continues to face headwinds, and international success may not fully offset domestic erosion. Furthermore, macroeconomic uncertainties, geopolitical tensions, and changing regulations add layers of complexity to the execution of these long-term strategies. The balance between modernizing the business and reviving a legacy brand remains precarious.
Final Thoughts
Source: Yahoo Finance
PepsiCo’s stock continues to fall along with broader markets while the company is navigating a crucial inflection point. The management’s efforts to revitalize its beverage segment, especially its namesake cola, are extensive but unfold against a backdrop of legacy challenges, market share erosion, and internal restructuring. While international growth and snack category strength provide resilience, the soft drinks business—long the company's iconic identity—faces fundamental issues around relevance, distribution, and consumer engagement. Recent investments and leadership changes may offer a path forward, but execution risks and industry headwinds remain. Hence, we believe that PepsiCo’s stock is best avoided at current levels at least while the company attempts to course-correct while managing a global transformation.