KFC predicts a ‘Kentucky fried comeback’ as it swaps Pepsi for Coca-Cola for the first time in 40 years

“The partnership marks another significant milestone in KFC’s broader Kentucky fried comeback, as the brand continues to modernize its menu, expand its beverage offerings and create more reasons for customers to visit,” KFC told Moneywise in a statement. “The agreement also creates new opportunities for beverage innovation and food-and-drink pairings as KFC works to strengthen its customer experience.”

Coca-Cola responded to Moneywise with a statement calling the partnership “an incredible opportunity to make every visit more refreshing, create memorable consumer experiences, delight KFC guests” and “unlock new growth possibilities together.”

Prior to 1986, KFC restaurants served Coca-Cola. But when Pepsi, which didn’t respond to a request for comment, purchased the chain that year, it became the beverage of choice. Pepsi sold KFC, however, along with Taco Bell and Pizza Hut in 1997.

The move, meanwhile, represents the latest salvo in the decades-long soft drink battle between Coca-Cola and Pepsi. But these days, as beverages add a significant boost to a restaurant’s bottom line, the soft drink switch could hold even greater implications for KFC’s future.

From finger lickin’ good to beverage bonanza

KFC opened its first franchise in 1952 and, with its smiling Colonel Sanders logo and signature blend of 11 herbs and spices, became a staple of classic Americana fast food dining. In recent years, however, the restaurant lost its place atop the fast food pecking order.

Last year, KFC placed fifth in sales among fast food chicken outlets, behind Chick-Fil-A, Popeye’s, Raising Caine and Wingstop, a report by trade publication QSR showed.

“The Colonel would not be happy about our market share, and we’re serious about reminding America exactly who we are,” Catherine Tan-Gillespie, president of KFC U.S., said last summer.

Switching from Pepsi to Coca-Cola may not seem like the way to get back to the top, but the National Restaurant Association noted that “drinks can drive traffic” as well as “strengthen loyalty and differentiate brands.”

Earlier this month, McDonald’s CEO Chris Kempczinski called beverages “a $230 billion category” in the fast food industry, with global market research company Circana forecasting that “beverage-only visits will rise 2.3% by 2028” — a trajectory “driven by innovation in both nutritional and indulgent options, such as modern sodas.”

But we aren’t just talking about a large Diet Coke here. Fast food outlets across the nation are loading up on specialty beverages like dirty sodas (mixing regular soda with coffee creamer, a flavored syrup or juices), fruity refreshers and energy drink options.

In fact, Food and Wine magazine says we’re in the midst of the “golden age” of specialty drinks, which now tend to bring in more customers than the food. The magazine attributes it to the so-called “little treat culture,” the trend popularized by Gen Zers who treat themselves with small luxuries when the big ones — like owning a house — remain out of reach.

Robert Byrne, who heads up foodservice research at the Technomic consulting firm, told Food and Wine that “the way to their hearts is definitely through beverages.” And if you don’t believe him, check out the “limited-edition beaded drink carriers” McDonald’s dropped in May for customers to carry their Strawberry Watermelon Refresher or Dirty Dr Pepper in style.

Specialty drinks are a customizable accessory for younger generations, and Coca-Cola is perfectly poised to help KFC get a foothold with them. In August, CNBC visited Coke’s “secretive labs” where the company is “working on a flood of innovation” in specialty drinks.

U.S. Coca-Cola executive Megan Tallman told the outlet that such beverages aren’t “a bonus now with consumers — it’s the norm,” adding that “When you think about Gen Z, they are okay paying $10 for a drink that is craveable and that they can show on their Instagram or on TikTok, which is helping our customers drive margin and also beverage attachment.”

KFC isn’t putting all its eggs in one basket

The odd brand out here is Pepsi, whose loss of the U.S. KFC locations is “​just a bad look” and the potential “optical straw that breaks the camel’s back,” one analyst told Reuters.