The classic fast-food pairing of KFC and Pepsi, which accompanied many people’s childhoods, is set to disappear from the US market. KFC’s US business has officially announced that it will end its nearly 40-year partnership with Pepsi, switching all outlets nationwide to Coca-Cola from January 2027. The transition across about 3,600 restaurants is expected to be completed by spring that year, sending shockwaves through the industry.
The change applies only to the US market and does not affect KFC’s global operations. Pepsi responded that it has successfully renewed long-term supply agreements with KFC’s overseas markets and Taco Bell, including a 10-year contract with Taco Bell. KFC outlets in Hong Kong will continue to be supplied under the existing arrangement, with no plans for a change.
The relationship between the two companies went far beyond an ordinary commercial partnership. In 1986, Pepsi paid US$840 million to acquire KFC, while also owning Pizza Hut and Taco Bell. The deal gave Pepsi an extensive physical distribution network that helped drive soft drink sales. In 1997, Pepsi spun off its restaurant business to form Yum! Brands, ending the equity relationship, but the beverage supply partnership continued until now — a rare example of a long-lasting business alliance.
History has come full circle in dramatic fashion. After Pepsi acquired KFC, rival Wendy’s switched to Coca-Cola because it objected to Pepsi’s model of operating fast-food brands while also supplying soft drinks. Four decades later, KFC — once a core Pepsi-owned brand — has chosen to partner with its former owner’s biggest rival, underscoring the enduring rule that business interests come first.
The supplier switch forms part of KFC US’s brand revival plan. Over the past decade, the US fried chicken fast-food market has expanded substantially, but KFC’s market share has continued to shrink, falling from 20 per cent in 2015 to just 8 per cent today as competitors diverted its customer traffic. To reverse the decline, KFC has been revamping store services and broadening its menu. Surveys have found that younger consumers place great importance on beverage options, making them a key factor in dining choices.
Compared with Pepsi, Coca-Cola offers a more comprehensive product portfolio, a mature research and development system and established food-service supply channels, better matching KFC’s upgrade and transformation needs. It is also another major loss for Pepsi in recent years, following Costco and Marriott, which have also ended their partnerships with Pepsi and switched to Coca-Cola.
The performance and share price trends of the two soft drink giants show a clear contrast. Pepsi shares have fallen nearly 10 per cent this year, extending a four-year decline, while its core North American beverage sales continue to shrink and profit forecasts have been lowered. Coca-Cola, by contrast, has seen its share price surge more than 30 per cent this year, with global sales and revenue growing steadily. Backed by its strong distribution network and brand influence, Coca-Cola continues to consolidate its market leadership, completing a reversal in the industry landscape.
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