Undaunted by repeated knock backs from the firm's board and management, PepsiCo's outspoken activist shareholder and Mondelez board member continues to agitate for the company to split its food and beverage arms into separate businesses.
Following a terse letter from PepsiCo on February 19 criticizing his plan, Peltz hit the warpath again last Thursday with another lengthy letter to the PepsiCo board criticizing its “dismissive tone” apropos his proposals and reliance on “platitudes and rhetoric” to support Indra Nooyi's ‘Power of One’ strategy.
"We believe that if management stays on the current path and delivers the promised high single digit EPS growth over the next few years without another reset, they will materially weaken (and perhaps even destroy) the North American Beverage business because they will have done it by not competing on innovation, speed and price, thereby losing market share to Coke," Peltz says.
Repetition is a common verbal device used to drive home a point, and (rather ironically given his attack on Pepsi’s board for ‘rhetoric’ and his mastery of the medium) Peltz uses it to effect in this new March 13 letter to savage PepsiCo’s beverage business, which he insists is underinvested and underperforming.
Given his belief that PepsiCo should adopt a ‘disruptive’ marketplace position vis-à-vis Coke, some of Peltz’ phrasing reminds me of Black Rebel Motorcycle Club’s raucous tune ‘Whatever Happened to my Rock ‘n’ Roll?’.
‘Whatever happened to…Gatorade’s market share and SoBe?’
Perhaps this rock ‘n’ roll association isn’t entirely redundant, given Peltz’ demand for a smarter, faster and sassier PepsiCo standalone beverage business - a "disruptive innovator".
“Explain what happened to Gatorade’s market share since the re-branding campaign. Explain what happened to SoBe – once a strong competitor in the fast-growth non-carbonated segment,” Peltz asks rhetorically.
Just before this, Peltz demands that PepsiCo provide data showing ‘robust growth’ for Pepsi MAX and all other Pepsi diet brands versus Coke Zero and other no-calorie Coke brands.
“Describe how Nielsen data is mistaken when it shows Coke’s regular calorie colas delivered solid value performance in 2013 despite challenging carbonated soft drink market conditions, while Pepsi’s competing colas continued to erode,” he says.
“Provide data that shows Tropicana has not ceded significant market share to Simply Orange, a brand that did not exist in 2000 – especially in the most profitable ‘premium’ category,” Peltz adds.
‘Whatever happened to…competing with Coke on price?’
All these strands feed into Peltz’s broader argument – that PepsiCo is losing significant volume share to Coke, and that far from being overwhelmed by Coke in the aftermath of any separation from snacks, “we believe PepsiCo’s beverage business is already being overwhelmed by Coke”.
“If PepsiCo’s beverage volumes continue to decline to hundreds of basis points per year, the bottling system will lose its relevance and the beverage business risks being permanently impaired,” he says.
The answer according to Peltz? – who cites Sanford Bernstein support suggesting 54% support among shareholders for a split; analysts are divided and Warren Buffet opposes any such move – PepsiCo should re-establish its beverage business as a “disruptive innovator” under standalone management.
Corporate cost savings could be invested in price, marketing, innovation and packaging, Peltz insists, while dedicated management would stop ceding market share to Coke as per today.
“They would understand that you must compete on price to survive and that you must keep overhead costs low in order to invest in marketing, new products and packaging,” he says.
PepsiCo board 'confident in management's analysis and leadership'
A PepsiCo spokesperson reaffirmed board level support for management in a statement sent to BeverageDaily.com this morning: “PepsiCo has a strong, independent board of directors that is committed to the highest standards of corporate governance and transparency. Under our corporate governance guidelines major shareholders may consult with our presiding director at any time," they said.
"In fact, our independent presiding director and one other independent board member have already met with Trian without management present. The board has thoroughly reviewed Trian’s proposals and has concluded that they would not maximize shareholder value," the spokesperson added.
"The board of directors is confident in the thoroughness of management’s analysis and leadership, and in the conclusion that PepsiCo’s value is best maximized as an integrated food and beverage company. Our board and management continues to be open to engagement with shareholders,” they said.
You can read Nelson Peltz' latest letter in full here.
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