PepsiCo’s beverage division is struggling to compete with Coca-Cola, chief executive Ramon Laguarta has acknowledged, after KFC announced it would switch to Coca-Cola products at its 3,700 US restaurants.
The move ends a 40-year partnership between KFC and PepsiCo and represents a significant setback for the drinks group. Taco Bell, however, has renewed its US agreement with PepsiCo for a further 11 years.
Speaking on PepsiCo’s third-quarter earnings call, Mr Laguarta said: “We’re not competing well in soft drinks.”
PepsiCo’s soft drinks challenge
PepsiCo’s difficulties have been linked to a gradual loss of focus in its drinks business as the company expanded into a broader food and beverage conglomerate.
Steve Reinemund, who led PepsiCo from 2001 to 2006, widened the portfolio through the 2001 merger with Quaker Oats, bringing Gatorade into the business. But the deal also created a more complex organisation and a less flexible distribution structure.
During the same period, Coca-Cola secured a deal to replace Pepsi at Subway in 2003, taking business from the sandwich chain, then PepsiCo’s largest fountain customer. PepsiCo regained the Subway account last year.
Mr Reinemund’s successor, Indra Nooyi, continued to promote a strategy built around three categories: “Fun for You” products, “Better for You” lower-calorie or lower-fat alternatives, and “Good for You” foods such as oatmeal and hummus.
That approach placed greater emphasis on changing health trends and crop yields, while attention to cola diminished as sugary drinks faced pressure from proposed restrictions and taxes.
Coca-Cola, meanwhile, sold off its lower-margin bottling plants and concentrated on becoming a wider “total beverage company”. It now has 32 brands generating at least a billion dollars in annual sales.
PepsiCo has fewer billion-dollar brands but generates more than twice Coca-Cola’s revenue. Its market value, however, is about half that of its rival.
The company’s diversification could still offer advantages as demand grows for healthier food and drink, including amid increased use of GLP-1 treatments. PepsiCo also remains a major force in innovation, marketing and talent, but the competitive edge it once enjoyed during the cola wars has weakened as its focus has become more diffuse.
