Bottles of Pepsi are displayed on a shelf in a supermarket in Sarajevo, Bosnia and Herzegovina October 29, 2024. REUTERS/Dado Ruvic

By Juveria Tabassum

Dec 8 (Reuters) - Beverages giant PepsiCo announced a review of its North America supply chain on Monday, and said it would aggressively reduce costs to drive growth after weeks of discussions with activist investor Elliott Investment Management.

Elliott had disclosed a $4 billion stake in PepsiCo in September, and pushed the company to take several steps including refranchising or spinning off its bottling operations, as well as consider selling non-core assets in its food business.

PepsiCo has lagged rival Coca-Cola over the past five years as consumers increasingly prefer healthier snacks and sodas, and have traded down to smaller pack sizes as inflation squeezed budgets.

PepsiCo also said it would be making structural changes to its business, which would affect some U.S. and Canadian jobs in the company.

The plan includes ensuring affordable price tiers and simpler ingredients for its snacks. PepsiCo is also looking to slash costs by reducing nearly 20% of its product lines in the United States by early next year, and closing several manufacturing lines.

"We are carefully evaluating an integrated model and intend to take a nuanced approach factoring in key components such as return on investment, scale and market share at a U.S. state level," PepsiCo said, adding it would provide an update on the North America supply chain review in late 2026.

Elliott will not be getting any board seats and there are no plans for a proxy contest, a source familiar with the matter told Reuters.

"We are confident that PepsiCo will create substantial value for shareholders as it executes on this plan, and we look forward to continued engagement with the Company," said Marc Steinberg, partner at Elliott.

Apart from cutting costs, the company said it would ramp up automation and digitization in its production which would provide at least 100 basis points of core operating margin expansion in aggregate over the next three fiscal years.

In October, PepsiCo had said interactions with Elliott had been collaborative, but CEO Ramon Laguarta did not provide a clear answer to the activist investor's idea to spin off PepsiCo's large North American bottling network to help grow margins.

(Reporting by Juveria Tabassum in Bengaluru and Jessica DiNapoli in New York; Editing by Krishna Chandra Eluri)