Pepsi gets dumped by KFC for archrival Coca-Cola after 40 years of partnership – but Taco Bell saves the day with a major new deal
Pepsi’s appeal in the fast-food world appears to be going flat after one of its oldest restaurant partners dumped the beverage giant for archrival Coca-Cola.
KFC will begin replacing PepsiCo drinks at its 3,718 US restaurants starting in January 2027, bringing to an end a partnership that lasted nearly 40 years.
But just as the company takes fresh body blow in the cola wars, PepsiCo scored a major lifeline as Taco Bell agreed to stick with the company for another decade.
The deal is a sweet victory as Taco Bell generated around $17 billion in US systemwide sales last year, compared with roughly $5 billion at KFC.
Ironically, both fast food chains are owned by Yum! Brands, making the split an awkward family feud.
PepsiCo originally bought KFC in 1986 before spinning off its restaurant operations in 1997, but the two companies continued working together on drinks for decades.
Under the new deal, Coca-Cola favorites including Coke, Sprite and Fanta are expected to replace Pepsi, Mountain Dew and Starry at KFC restaurants nationwide by spring 2027.
The financial terms have not been disclosed, and the switch applies to US restaurants, meaning KFC outlets overseas are not affected.
Pepsi is getting a serious fizzing out in the fast-food world after one of its oldest restaurant partners dumped the cola giant for archrival Coca-Cola
PepsiCo CEO Ramon Laguarta
For PepsiCo, the timing could hardly be worse, as its North American beverage business struggles to get back on track.
The company reported a two percent decline in beverage volumes in its most recent quarter, while chief executive Ramon Laguarta admitted that it was ‘not competing well in soft drinks.’
He has promised to give the drinks business more attention, with Pepsi, Mountain Dew and prebiotic soda Poppi among the brands the company hopes to revive.
The figures show just how far Pepsi has fallen behind its fiercest rival, with the brand accounting for 8.1 percent of the US carbonated soft drinks market by volume last year, compared with Coca-Cola’s 18.5 percent.
Pepsi also slipped behind Dr Pepper into third place in 2024, a remarkable reversal for a brand once at the heart of America’s famous cola wars.
In their heyday, Pepsi’s celebrity-packed advertising campaigns featuring Michael Jackson and supermodel Cindy Crawford helped turn the rivalry into pop-culture gold.
Now, Coca-Cola has pulled ahead while PepsiCo’s sprawling food and drinks empire faces pressure on multiple fronts.
Its snack business, which includes Fritos and Doritos, is also struggling as inflation-weary shoppers balk at higher prices, prompting the company to cut prices on selected products this spring.
KFC will begin replacing PepsiCo drinks at its 3,718 US restaurants in January 2027, ending a partnership that has lasted nearly 40 years
But just as the soda wars appeared to deliver another bruising blow, PepsiCo scored a major lifeline, with Taco Bell agreeing to stick with the company for another decade
That leaves the drinks division under even greater pressure to deliver growth as consumers increasingly gravitate toward energy drinks and beverages marketed for their functional benefits.
Taco Bell, meanwhile, is betting that drinks can become a major attraction in their own right, targeting $5 billion in beverage revenue by 2030.
The chain has already introduced its Refrescas range and plans to develop more drinks with PepsiCo, including new twists on its cult-favorite Baja Blast.
The tropical-colored Mountain Dew spin-off has become a $1 billion brand, giving the partnership a lucrative signature drink that rivals cannot easily replicate.
Taco Bell and PepsiCo plan to collaborate on new food and beverage offerings through 2036, including future flavors linked to the Doritos Locos Tacos range.
Their plans also include energy and functional drinks aimed at younger customers, as well as beverages designed to encourage visits outside traditional lunch and dinner hours.
Elizabeth Lafontaine, director of research at location analytics firm Placer.ai, previously told CNN that Taco Bell’s Baja Blast lineup had often been a key differentiator for the chain.
She added that exclusive products could help fast-food brands attract customers as competition intensifies and diners search for better value.
Online, the KFC switch has sparked debate among soda fans, with some questioning whether Coca-Cola will actually improve the drinks selection.
One Reddit user complained: ‘The problem isn’t with it being Pepsi, it’s with it being diet only.’
Another declared, ‘Pepsi max is the king of drinks,’ while a less enthusiastic fan griped about its ‘horrible aftertaste.’
Others were relieved that the change would not affect Britain, with one commenter celebrating: ‘Thank god. Pepsi over coke is one of the reasons I actually go to KFC.’
PepsiCo may have held on to Taco Bell’s lucrative business, but with Coke stealing the spotlight at KFC, the pressure is on to prove it can still bring the fizz.
