Key Takeaways
- PepsiCo Inc. (NASDAQ:PEP) renewed its U.S. beverage partnership with Taco Bell for 11 years, through 2036, one week after sister chain KFC said it will switch to Coca-Cola Co. (NYSE:KO).
- The deal protects an existing account rather than adding new revenue, but it limits the risk of further defections within the restaurant system of Yum! Brands Inc. (NYSE:YUM).
- PepsiCo’s North American beverage volume fell 2% last quarter, keeping pressure on the company to defend its restaurant and fountain business.
PepsiCo Inc. (NASDAQ:PEP) has extended its beverage partnership with Taco Bell in the U.S. for another 11 years, running through 2036, the companies announced Thursday, Oct. 22. PepsiCo shares rose roughly 2.5% to 2.9% in intraday trading on a day when the Nasdaq Composite fell more than 2%. Rival Coca-Cola Co. (NYSE:KO) gained about 2.4%, and Taco Bell parent Yum! Brands Inc. (NYSE:YUM) added about 1.2%.
What the Agreement Covers
The renewal keeps PepsiCo’s drinks, including Pepsi, Pepsi Zero Sugar, Mountain Dew and Starry, in participating Taco Bell, Taco Bell Cantina and Live Más Cafe locations nationwide. It also preserves the chain’s exclusive Mountain Dew Baja Blast and Baja Midnight flavors. PepsiCo will remain Taco Bell’s beverage partner in Canada, the United Kingdom, Ireland and Thailand.
The companies said they will focus new development on crafted, functional and energy drinks aimed at younger consumers, particularly for morning and afternoon visits. Financial terms were not disclosed.
Why the Timing Matters
On Oct. 15, KFC said it will move its U.S. restaurants from Pepsi to Coca-Cola starting in January 2027, with the switch expected to be complete by spring. That ends a relationship dating to 1986, when PepsiCo bought the chicken chain. PepsiCo spun off its restaurant businesses, including KFC, Pizza Hut and Taco Bell, into what became Yum! Brands in 1997.
The KFC loss raised a reasonable question: whether other Yum chains might follow. Locking in Taco Bell, Yum’s biggest U.S. brand, for more than a decade largely answers that question for the most valuable piece of the relationship.
Taco Bell is also more strategically important to PepsiCo than a typical fountain customer. The two companies have co-developed products for years, from Baja Blast, which CNN reported has become a $1 billion brand, to Doritos Locos Tacos, which link PepsiCo’s snack and beverage businesses. Taco Bell is pushing hard into drinks, with a target of $5 billion in beverage revenue by 2030, according to CNN, which gives PepsiCo a growing outlet for new products.
Financial Context
The renewal is more defensive than transformative. In the third quarter, PepsiCo Beverages North America generated $7.71 billion in revenue, up 5% year over year, but that growth came mainly from acquisitions made in 2025. Organic beverage volume, which strips out deals and measures how much product was actually sold, declined 2%. Chief Executive Ramon Laguarta said North America performed below the company’s expectations.
Against a business of that size, fountain sales to any single chain are a small slice of revenue. What the Taco Bell deal does is prevent a second, more damaging loss while the North American beverage unit is already struggling to grow volume. Keeping high-visibility restaurant placement also supports brand awareness for products sold in grocery and convenience stores.
The broader competitive picture still favors Coca-Cola in the fountain channel. Restaurant pouring contracts change hands infrequently, which makes KFC’s move notable, and PepsiCo will have to absorb that lost volume starting next year.
Why Investors Should Care
For PepsiCo shareholders, the announcement removes a near-term risk rather than adding a new growth driver. The key measure remains whether North American beverage volume can return to growth, and that depends far more on the company’s core brands and its push into functional and zero-sugar drinks than on any one restaurant contract.
Investors should watch PepsiCo’s fourth-quarter report for commentary on the KFC transition and its expected impact in 2027, as well as any update on other foodservice renewals. Yum! Brands reports third-quarter results on Nov. 3, which may offer more detail on how the two beverage decisions affect its U.S. chains.
Thursday’s gain in PepsiCo shares came alongside a similar rise in Coca-Cola on a weak day for the broader market, so the renewal alone does not explain the move. The more durable signal will come from PepsiCo’s volume trends over the next few quarters.