Pepsi loses more ground in the soda wars, as KFC switches to Coke

By Bill Peters

KFC joins Marriott and Costco's food court in swapping out Pepsi for Coca-Cola

PepsiCo's stock is down around 10.6% so far this year.

As more people switch to Coke, some analysts are getting more worried about the state of archrival Pepsi.

Yum Brands' (YUM) KFC on Thursday became the latest to make that move. The fried-chicken chain announced that that it plans to partner with Coca-Cola (KO) starting in January, with plans to serve the beverage giant's drinks at all its U.S. restaurants by the spring.

That decision ends a years-long relationship with PepsiCo (PEP). KFC, in a statement, said the switch was part of its efforts to refresh its menu, as the chain and others try to stand out among consumers navigating a fast-food discount war but higher costs of living elsewhere.

PepsiCo's drinks will still be available at many KFCs abroad, as well as Taco Bell restaurants, the Wall Street Journal reported. Earlier this year, hotel chain Marriott International (MAR) also switched to Coke from Pepsi, while Costco Wholesale's (COST) food courts did the same last year.

TD Cowen analyst Robert Moskow, in a note late Thursday, said his firm's own retail data showed that Coca Cola had gained 70 basis points' worth of market share for carbonated soft drinks over the past two years, while Pepsi's share had declined by 130 basis points, or around 1.3%. Keurig Dr Pepper (KDP) had also gained share when including energy drinks, he said.

Moskow also suggested in that note that Pepsi had different priorities.

"We perceive these two as investing more heavily and consistently in the U.S. beverage market to drive revenue growth, while PepsiCo often describes cost-cutting and margin expansion as significant priorities," he said.

He said KFC's switch would affect around 3,700 U.S. restaurants.

Shares of PepsiCo finished 0.7% lower on Thursday. However, PepsiCo's stock is down around 10.6% so far this year, as inflation-battered shoppers have recalibrated their snack budgets and gravitated toward cheaper private-label brands.

The company earlier this year cut prices on snacks like Doritos and Cheetos to boost demand, but as of last month reportedly planned to raise prices on certain snacks, sodas and dip, leaving some analysts confused. Last week, PepsiCo cut its profit outlook and said it would try to cut costs with "a high sense of urgency."

But Moskow said he was still wondering what, exactly, had caused Pepsi's weaker execution. "And what are they going to do fix it? We continue to find it difficult to hone in on the specifics for these important questions."

He noted that Subway in 2024 chose to ditch Coca-Cola in favor of Pepsi at around 20,000 of its locations. "However, neither company called it out as a material factor in their shipment growth during the course of the year," he said.

Yum's stock finished up 2.8% on Thursday. Coca Cola's stock crept 0.2% higher during the day.

-Bill Peters

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10-15-26 1933ET