KFC will drop Pepsi for Coca-Cola at its U.S. restaurants, ending a tie that dates to 1986

KFC will replace PepsiCo drinks with Coca-Cola products at its U.S. restaurants starting in January 2027, ending a beverage relationship that began when PepsiCo bought the fried-chicken chain in 1986 and that survived the restaurants' spinoff into what became Yum Brands.

What changes, and when

KFC will begin moving the drinks at its U.S. restaurants from PepsiCo to Coca-Cola products in January 2027, The Coca-Cola Company said Thursday, with Coca-Cola beverages expected to be served in all 3,600 KFC restaurants in the U.S. by spring 2027. KFC U.S. President Catherine Tan-Gillespie said the chain expects to be pouring Coke drinks in every U.S. restaurant by the end of the first quarter of 2027, CNBC reported. Financial terms were not disclosed, according to Reuters.

The change applies only to KFC's U.S. restaurants. Some of KFC's international markets already serve Coca-Cola products, CNBC reported. A PepsiCo spokesperson told Reuters that Yum Brands and PepsiCo had just renewed agreements covering Taco Bell and KFC's international restaurants, including a 10-year agreement for Taco Bell. Tan-Gillespie said PepsiCo remains an important partner for KFC's parent company and the chain's international markets, according to CNBC.

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

A partnership that outlasted a spinoff

KFC's U.S. restaurants have served PepsiCo drinks since PepsiCo bought the chain in 1986. At the time, KFC was Coca-Cola's second-largest fountain account, behind only McDonald's, CNBC reported. PepsiCo spun off its restaurant division, which included KFC, Pizza Hut and Taco Bell, in 1997 as Tricon Global Restaurants, renamed Yum! Brands in 2002, according to Yahoo Finance. KFC kept PepsiCo as its U.S. drink supplier through all of it.

KFC has been trying to win back U.S. diners who have moved to rivals such as Chick-fil-A and Popeyes, CNBC reported, and drinks have become a way for fast-food chains to draw customers. KFC recently unveiled new drinks, including iced coffees and shakes, at Open House, its innovation restaurant in McKinney, Texas, according to CNBC.

"This decision is a critical step in the Kentucky Fried Comeback," Tan-Gillespie wrote in a memo to franchisees and employees obtained by CNBC. "A new beverage offering, with a new partner in Coca-Cola, gives us a platform to innovate, meet changing tastes and give customers more reasons to choose us."

What it could cost PepsiCo

Analysts' estimates of the lost business depend on what they measure. Evercore ISI analyst Robert Ottenstein estimated that the revenue PepsiCo loses could be about $50 million, which he said suggests retail revenue of between $350 million and $400 million, Yahoo Finance reported. BofA analysts estimated that the KFC account represents about $500 million in annual sales, roughly 3% of Pepsi Beverages North America's concentrate sales, and that it would lift Coca-Cola's North America sales by about 2.5%, according to Reuters.

Jefferies analysts said the bigger concern for PepsiCo is the "loss of brand interaction and public perception" rather than the immediate financial impact, Reuters reported. "A longstanding Pepsi customer switching raises questions whether other accounts that have been historically off-limits are now up for grabs," the analysts said. Ottenstein said the move "underscores Coca-Cola's strong brand equity as well as a relative brand equity gap vs. PepsiCo."

The loss comes as PepsiCo works to revive its North American business. Chief Executive Ramon Laguarta said earlier this month that growth and margin recovery was taking longer than planned, Reuters reported, and activist investor Elliott Investment Management has pressed the company to improve its performance in North America.

Large chains rarely change soda suppliers, but it does happen. PepsiCo won Subway from Coca-Cola in 2024, and Coca-Cola has taken Culver's, Arby's and Panda Express from PepsiCo in recent years, CNBC reported. In April, Coca-Cola also won Marriott's business from PepsiCo, according to Yahoo Finance.

How the shares traded

PepsiCo shares fell 0.7% on Thursday to $128.38, then rose 2.4% on Friday to close at $131.49 on the Nasdaq. Coca-Cola shares rose 0.2% on Thursday and 2.1% on Friday, closing at $93.90 on the New York Stock Exchange. Yum Brands shares rose 2.8% on Thursday to $150.83 and slipped 0.2% on Friday to $150.51, according to market data.