Coca-Cola Wins KFC Fountain Business as Jefferies Weighs

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Jefferies Reaffirms Ratings After KFC Supplier Shift

Investing.com – Jefferies is maintaining its positive stance on Coca-Cola (NYSE:KO) and a more cautious view on PepsiCo (NASDAQ:PEP) after KFC decided to move its U.S. beverage business from Pepsi to Coke.

The research firm keeps a Buy rating on Coca-Cola and a Hold rating on PepsiCo, characterizing KFC’s decision as a surprise. Jefferies highlights that this development comes on the heels of Marriott’s changeover to Coca-Cola a few months earlier, ending a beverage partnership with Pepsi that had lasted about three decades.

Estimated Financial Scale of the KFC Contract

Jefferies views the immediate volume implications as modest, noting that KFC accounts for roughly 1% of the quick-service restaurant market. Using KFC’s U.S. system-wide sales of $4.7 billion and an assumed beverage contribution of 8-12%, the firm estimates that the switch corresponds to between $375 million and $560 million in beverage-related sales.

The report emphasizes that foodservice contract losses affect financial dynamics differently than retail distribution, pointing out that such losses do not reduce system leverage in the same way as lost shelf space in retail channels.

Competitive Dynamics in Foodservice Partnerships

Jefferies says the KFC decision raises broader strategic questions about the stability of long-standing exclusive beverage relationships in the foodservice space and whether these arrangements are now more open to competitive bidding.

The firm notes that Pepsi recently secured Subway as a customer, displacing Coca-Cola. In a separate development, McDonald’s chose Red Bull as its energy drink partner instead of Coca-Cola’s Monster offering. Together, these shifts suggest to Jefferies that the foodservice channel has become less locked in to traditional supplier alignments.

Brand Exposure, Perception, and Valuation Implications

According to Jefferies, the more significant risk for Pepsi from the KFC loss lies not in near-term volumes but in diminished brand presence and how the move is perceived by consumers and investors. The firm underscores that restaurants, hotels, and other foodservice venues remain key environments where customers engage directly with beverage brands.

Jefferies also observes that Coca-Cola has been demonstrating momentum in this arena and has been active in chasing away-from-home placements and contracts.

On valuation, Jefferies notes that PepsiCo shares are currently trading at 15 times forward two-year earnings per share, which is five multiple turns below the company’s five-year average. While the firm does not see the KFC contract change as materially altering its financial forecasts, it cautions that the deal could exert pressure on PepsiCo’s valuation multiple given the potential negative impact on sentiment and public perception.