PepsiCo Was Just Dealt Another Blow by Coca-Cola
Key Points
It's the third big loss for PepsiCo this year, putting a dent in its turnaround strategy.
PepsiCo is also proving more vulnerable than its rival to GLP-1's effect on eating habits.
PepsiCo (NASDAQ: PEP) has been having a difficult year, with sluggish sales of soft drinks and snack foods as well as decreasing margins. And now, it just got some more bad news.
On Oct. 15, fried chicken chain KFC announced it will switch from serving Pepsi products to serving Coke products in its 4,000 U.S. locations. That's a big win for Coca-Cola (NYSE: KO). Though the loss in overall sales from the switch is fairly modest relative to PepsiCo's overall beverage sales, it's more significant symbolically.
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In terms of revenue, the KFC-Coca-Cola deal is expected to cost PepsiCo some $50 million. The company's North American Beverages unit had sales of $7.7 billion in the third quarter.
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Keep in mind, however, that PepsiCo once owned KFC, as well as Pizza Hut and Taco Bell, but spun the three off in 1997 to create a company that later became Yum! Brands. So the company had a long and special relationship with the chicken chain known for its founder and brand ambassador, Colonel Sanders. The KFC decision ends a 40-year friendship that began when PepsiCo acquired the chain back in 1986.
It's the third big loss for PepsiCo to Coke this year
It's not PepsiCo's first loss to Coca-Cola this year. In July, Marriott International announced a deal with Coca-Cola to switch from Pepsi products, and Costco Wholesale recently did the same.
Interestingly -- and perhaps tellingly -- KFC made the switch in an attempt to help its own flagging fortunes. The chain is trying to win back customers it lost in recent years to rivals Popeyes and Chick-fil-A, and it believes switching to Coke products will help that effort.
PepsiCo reported third-quarter earnings earlier this month, and they were slightly better than expected. Revenue of $25.3 billion was 5.6% higher than a year ago, and earnings per share were $2.34, compared to $2.29 a year ago. Both were slightly higher than Wall Street forecasts. Management, however, lowered its full-year 2026 guidance for both organic revenue and earnings growth.
PepsiCo's major snack brands are also highly exposed to people cutting back on processed snacks due to changing consumer habits and the rapid adoption of appetite-suppressing GLP-1 drugs. Lay's, a major brand of the company, is considered one of the products most exposed to the shift in calorie intake due to GLP-1s.
Coca-Cola has held up better against these trends. While studies show that people using GLP-1 drugs consume less full-sugar soda, some 68% of the company's portfolio consists of low- or no-calorie options. Perhaps that's why PepsiCo's stock is down 8.7% this year, while Coca-Cola shares have climbed 34%.
It seems PepsiCo still has a lot of work to do to turn things around.
Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends Marriott International and Yum! Brands. The Motley Fool has a disclosure policy.