KFC Ends Four-Decade Relationship With Pepsi, Says It Needs Someone Who Pairs Better With Chicken

THE TRADING FLOOR (MY KITCHEN) — I was up at 4 a.m. Thursday, doing push-ups between earnings calls, when the biggest breakup in fast food hit my phone. KFC is leaving Pepsi. For Coke.

KFC will start pouring Coca-Cola at its U.S. restaurants in January, with every location switched over by spring, according to reports that followed The Wall Street Journal’s scoop. That is about 3,700 restaurants. It ends a relationship that has lasted nearly four decades.

Every breakup has a backstory. This one is a doozy. Pepsi bought KFC in 1986, CNBC noted, at a time when KFC was the second-largest fountain customer Coca-Cola had, behind only McDonald’s. In other words, Pepsi bought Coke’s second-best customer.

Then, in 1997, Pepsi spun off its restaurants, including KFC, Pizza Hut and Taco Bell. The chicken stayed on Pepsi anyway, out of habit, the way you keep a gym membership you have not used since the Clinton administration.

Now, 29 years after the spinoff, the chicken has moved on. And it went straight back to its ex.

KFC calls it part of its “Kentucky Fried Comeback.” The chain’s U.S. president, Catherine Tan-Gillespie, described the deal as part of an effort to strengthen restaurants, update the menu and make the experience more relevant. In my industry, we call that “seeing other people.”

The two companies say they will work on food-and-drink pairings. KFC has already been testing iced coffees, boba and shakes at its Open House test restaurant in McKinney, Texas. That is a lot of new drinks for a company that just got out of a 40-year relationship. Everybody processes differently.

Pepsi keeps the kids. Taco Bell, KFC’s sibling at Yum Brands, will keep serving Pepsi, and so will many KFC restaurants overseas. Pepsi also gets custody of Mountain Dew, which, frankly, was always going to be Pepsi’s.

The market took the news calmly. PepsiCo shares slipped about 1 percent on Thursday. PepsiCo is down 11 percent this year. Coca-Cola is up 32 percent. If you are keeping score at home, and I always am, one of these two is thriving after the divorce.

Pepsi has had a rough year in the dating market. It recently lost Marriott and the Costco food court, according to Newser. It did add Subway. Analysts at TD Cowen said the KFC deal shows Coca-Cola is winning in North America. I say Pepsi is rebuilding. That is bullish. Every comeback story starts with a guy alone in his apartment eating a footlong.

I put my money where my mouth is. At 4:15 a.m. I bought both stocks. My thesis is simple. Coke is winning, so I am long Coke. Pepsi is losing, so it has nowhere to go but up, so I am long Pepsi. My financial adviser, who is my podcast co-host, who is also me, agreed with both positions.

My crypto portfolio is still down 98 percent, which means it is due.

For KFC, the logic is clean. Fried chicken and Coca-Cola is a classic pairing. I did a taste test at 5 a.m. with a bucket I bought the night before. It held up. So did I.

Some customers will miss Pepsi. They will get over it. They will have a Coke and a biscuit and move on with their lives, the same way KFC did, the same way I did when my podcast co-host quit the show for a week, which was hard, because he is me.

I am bullish on Coke. I am bullish on Pepsi. I am bullish on the chicken. I am, as always, bullish on love.