Updated version 3 - KFC selects Coca-Cola as its soda supplier in the United States, ending its long-term partnership with Pepsi.

Paragraphs 5 to 6 include analyst commentary, and background information has been added throughout the article.

Juveria Tabassum

Reuters, October 15 - Fast food chain KFC (YUM.N) signed an agreement with Coca-Cola (KO.N) on Thursday, appointing it as the beverage partner for its U.S. outlets, officially ending a partnership with PepsiCo (PEP.O) that has lasted nearly forty years.

For PepsiCo, losing the beverage partnership with KFC (which has 3,718 stores in the U.S.) could be a setback, as the company is striving to boost carbonated beverage sales in the U.S., while its snack business faces challenges from high prices and consumers opting for healthier choices.

Rising costs have also added to the concerns of PepsiCo CEO Ramon Laguarta, who said earlier this month that it would take longer than planned for growth and profit margins to recover. (link)

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

“For PepsiCo, losing such a well-known brand partner truly hurts the image… This could be the last straw,” said Jay Woods, chief market strategist at Freedom Capital Markets.

“It’s rare to see two giants in the same industry move in such different directions,” he added. Freedom Capital Markets holds shares in Coca-Cola.

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PepsiCo is also under close scrutiny by activist investor Elliott Investment Management (link). Last year, the firm disclosed its stake in PepsiCo and demanded that it divest underperforming assets (link) and improve its performance in North America.

A PepsiCo spokesperson told Reuters that Yum! Brands and PepsiCo have just renewed agreements involving Taco Bell and KFC international stores. Reportedly, the Taco Bell agreement is for 10 years.

PepsiCo has also signed beverage partnership agreements with sandwich chains Subway and Jersey Mike’s Subs JMKE.N. In addition, PepsiCo is responsible for soda supply for Pizza Hut—which only left Yum! Brands earlier this year (link) and switched from Coca-Cola to PepsiCo back in 2011.

In 2012, after five years with the donut chain, PepsiCo lost Dunkin’s business to Coca-Cola (link).

The company said that by spring 2027, Coca-Cola products will be served at KFC restaurants in the U.S. The specifics of the financial arrangements between the two parties were not disclosed.

Coca-Cola is the longtime beverage partner for burger chains McDonald’s MCD.N and Wendy’s WEN.O.

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

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