Correction – Updated Version 3: KFC will discontinue using Pepsi in its US stores, Coca-Cola becomes the new supplier (October 15)

Correction in paragraph 10: Deleted references to PepsiCo losing to Coca-Cola and failing to secure a deal with Dunkin.

Juveria Tabassum

Reuters, October 16 - Fast food chain KFC (YUM.N) announced on Thursday that it has reached an agreement with Coca-Cola (KO.N), which will become its beverage partner for U.S. locations, marking the end of KFC’s nearly forty-year partnership with PepsiCo (PEP.O).

Losing the beverage partnership with KFC, which operates 3,718 locations in the United States, may be a setback for PepsiCo as the company strives to boost U.S. carbonated drink sales while its snacks business faces challenges from high prices and consumers shifting toward healthier choices.

Rising costs have also heightened concerns for PepsiCo CEO Ramon Laguarta, who said earlier this month that the time needed to restore growth and profit margins will be longer than expected. (link)

The partnership began when PepsiCo acquired KFC to expand its food and snack business. Although PepsiCo spun off KFC in 1997, it continued as the beverage partner for its parent company, Yum Brands.

“Losing such a well-known brand partner is not a good look for PepsiCo ... This could be the straw that breaks the camel’s back,” said Jay Woods, chief market strategist at Freedom Capital Markets.

“It’s rare to see two industry giants diverge this dramatically,” he added. Freedom Capital Markets holds shares in Coca-Cola.

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PepsiCo is also under close scrutiny from activist investor Elliott Investment Management (link), which disclosed a stake in PepsiCo last year and has called for the sale of underperforming assets (link) and an improvement in its North American operations.

A spokesperson for PepsiCo told Reuters that Yum Brands and PepsiCo have just renewed agreements covering Taco Bell and KFC International outlets. Reportedly, the agreement with Taco Bell is for 10 years.

PepsiCo also has beverage partnership agreements with sandwich chains Subway and Jersey Mike’s Subs JMKE.N. Additionally, the company supplies sodas for Pizza Hut—which only recently separated from Yum Brands (link) this year, and switched from Coca-Cola to Pepsi products in 2011.

Coca-Cola stated that by spring 2027, its products will be available in KFC’s U.S. restaurants. The financial details of the partnership between the two companies were not disclosed.

Coca-Cola is a long-term beverage partner for burger chains McDonald’s MCD.N and Wendy’s WEN.O.

The Wall Street Journal was first to report the news on Thursday, citing sources.

(To facilitate readers whose first language is not English, Reuters has automatically translated this report into several other languages. As automatic translations may be inaccurate or lack required context, Reuters does not guarantee the accuracy of the automatic translation and provides it only for the convenience of readers. Reuters assumes no responsibility for any damage or loss caused by the use of automatic translation functions.)