KFC picks Coca-Cola as US soda supplier, ditches longtime partner PepsiCo

LOUISVILLE, (United States): Fast-food chain KFC on Thursday signed Coca-Cola as its beverage partner for US stores, bringing to a close a relationship with PepsiCo that dates back about four decades.

The loss of the beverage partnership with KFC, which has 3,718 US locations, could be a setback for PepsiCo as it works to improve soda sales in the country, while its snacks business grapples with high prices and a shift to healthier options.

Higher costs have also added to concerns for PepsiCo CEO Ramon Laguarta, who said earlier this month that growth and margin recovery was taking longer than planned.

The partnership began when PepsiCo acquired KFC in a bid to expand into food and snacks. While PepsiCo later spun off KFC in 1997, it continued to be a beverage partner for its parent Yum Brands.

"It is just a bad look for PepsiCo... when you lose a big-name brand partner like that. This could be the optical straw that breaks the camel's back," said Jay Woods, chief market strategist at Freedom Capital Markets.

"It is very rare that you have two giants in the same industry take such a different turn," he said. Freedom Capital Markets holds shares in Coca-Cola.

PepsiCo is also under scrutiny from activist investor Elliott Investment Management, which disclosed a stake in the company last year, and has asked it to sell underperforming assets and improve its performance in North America.

Yum Brands and PepsiCo just renewed agreements across Taco Bell and KFC International stores, a spokesperson for PepsiCo told Reuters. Taco Bell is a 10-year agreement, they said.

PepsiCo has beverage partner agreements at sandwich chains Subway and Jersey Mike's Subs.

It also runs the soda fountain at Pizza Hut, which left the Yum Brands umbrella only this year and switched to PepsiCo from Coca-Cola in 2011.

In 2012, PepsiCo lost Dunkin to Coca-Cola after a five-year run at the donut chain.

Coca-Cola products will be available at KFC US restaurants by spring 2027, the company said. Financial details of the partnership were not disclosed.

Coca-Cola is a long-standing beverage partner at burger chains McDonald's and Wendy's.

The Wall Street Journal first reported the news on Thursday, citing people familiar with the matter.