Fast-food chain KFC has agreed to serve Coca-Cola beverages at its US outlets, ending a decades-long partnership with PepsiCo. Under the agreement, around 4,000 KFC outlets in the US will begin switching to Coca-Cola drinks in January. The transition is expected to be completed across all American restaurants by spring. However, KFC outlets in international markets will continue to offer PepsiCo beverages, Bloomberg reported.
Coca-Cola gains another major customer
The agreement is a significant boost for Coca-Cola’s fountain beverage business, which supplies drinks to restaurants. Beverage consultant John Sicher told Bloomberg on Thursday, “This is a big win for Coke. It adds a major customer to Coke’s fountain business,” adding that Coca-Cola already had a much larger fountain business than PepsiCo.
Coca-Cola also supplies beverages to major restaurant chains, including Burger King and McDonald’s.
The latest deal follows other changes in Coca-Cola’s partnerships. In July, the company reached an agreement with Marriott International Inc., replacing PepsiCo as its beverage supplier. Costco Wholesale Corp. has also recently switched from PepsiCo to Coca-Cola.
PepsiCo faces challenges in its beverage business
The development comes at a difficult time for PepsiCo, which has been trying to improve the performance of its salty snacks business. The company has also faced weakness in its North American soft drinks division.
Last week, PepsiCo lowered its profit forecast for the year. Chief Executive Officer Ramon Laguarta acknowledged the challenges during a call with analysts, saying, “We don’t feel good about the beverage business.” He added that the company would increase investment in its soft drink brands to support growth.
Following the announcement, PepsiCo shares declined 0.7% in New York trading on Thursday. Coca-Cola shares gained 0.2%, while Yum! Brands Inc., KFC’s parent company, rose 2.8%.
PepsiCo continues its partnership with Taco Bell
Despite losing KFC’s US business, PepsiCo will retain its longstanding relationship with Yum! Brands – which supplies items such as the Doritos Locos Tacos shells for Taco Bell – and continue supplying beverages to KFC restaurants outside the US.
PepsiCo and Taco Bell have extended their long-standing partnership until 2036, the food and beverage company announced on Thursday.
The partnership between PepsiCo and Yum! Brands dates back several decades, when PepsiCo owned KFC and Taco Bell. The restaurant businesses were separated into an independent publicly traded company in 1997.
In a memo dated October 15, obtained by CNBC, KFC US President Catherine Tan-Gillespie said PepsiCo remained an important partner for Yum! Brands and KFC’s international operations.
Taco Bell has also built parts of its menu around its partnership with PepsiCo. Its offerings include Mountain Dew Baja Blast and Doritos Locos Tacos, which use PepsiCo brands.
The agreement also means Taco Bell restaurants in international markets, including Canada, the United Kingdom, Ireland and Thailand, will continue to serve Pepsi products.
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