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5 Aug 2020

Why KFC only sell Pepsi?

Ron McEachern
Pepsi

Kentucky Fried Chicken (KFC) is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken.

It is the world’s second-largest restaurant chain after McDonald’s, with 22,621 locations globally in 150 countries as of December 2019. The chain is a subsidiary of Yum!

They operate 43,617 restaurants, including 2,859 that are company-owned and 40,758 that are franchised

There are two distinct reasons why only Pepsi sold at KFC.

Firstly, fast food restaurants use fountain dispense soft drinks instead of the cans and bottles that are sold in retail stores. This is far more profitable for the restaurant. However, fountain beverages require sophisticated and expensive equipment in order to blend and carbonate the beverage at the point of dispensing (syrup is blended with filtered water and carbonated in the restaurant).

Dispense equipment is expensive to purchase and install. Industry convention calls for the supplier to pay for the installation and ongoing servicing of the dispense equipment at no cost to the restaurant.

As a result, the soft drink contract is usually signed with only one supplier; in most cases, either the Coca-Cola Company or PepsiCo.

In the case of KFC, PepsiCo previously owned the restaurant chain. KFC was spun off, along with Pizza Hut and Taco Bell, into a company called YUM. For PepsiCo, maintaining a close relationship (and supply agreement) with YUM remained a top priority since the availability of PepsiCo soft drinks along with fast food is a key strategic imperative.

PepsiCo has continued to retain the dispense contract with KFC in most countries. However, renewal terms are hard fought every two years or so. There is no long term assurance that KFC will never convert to dispensing Coca Cola beverages in the future. And if KFC were to consider switching to another supplier, significant marketing funds and inducements would be required.

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