Inside a Yum Brands meeting room across two days in Plano, Texas, KFC executives and franchisees tasted samples from the biggest rivals in soda -- Coca-Cola and PepsiCo.
The goal: to choose which company would fill beverage fountains at more than 3,000 U.S. restaurants. While Pepsi had the business for decades, its 10-year contract with the chicken chain was ending soon, people familiar with the agreement said.
The stakes for all parties were high. KFC's U.S. sales have sagged and many in the restaurant industry see beverages as a way to excite consumers and generate stronger profits.
Coke could steal a big contract from its rival, cutting Pepsi's reach in fast food. Coke represents around 70% of U.S. carbonated soft-drink fountain sales by volume, according to industry publication Beverage Digest. KFC's chicken competitors, including fast-growing brands Wingstop and Popeyes, serve Coke.
For Pepsi, its beverage business has been slumping. A loss of KFC business would hit close to home: The fast-food chain was once owned by Pepsi.
The two soda giants had been here before. When KFC's last 10-year U.S. beverage supply deal was about to end, Yum considered bids from Coke as an alternative vendor to Pepsi, the people said.
Back then, Pepsi was heavily favored to keep the business going into the negotiations, the people said. Beating Coke kept Pepsi's beverages in most KFC restaurants worldwide. KFC also got its own signature drink from Pepsi -- Mountain Dew Sweet Lightning -- in 2019, helping to cultivate newer customers.
Earlier this year, KFC told a group of franchisees that they would hold a new competition.
A Pepsi-Coke rematch took place in June, with representatives from both companies making pitches over two days at Yum's headquarters.
The beverage companies each had its own day up to bat, with roughly two hours to present their proposal on how KFC could better increase drinks sales, along with some financial terms. They each poured samples of innovative beverages for franchisees to sip.
KFC executives and franchisees then had a decision to make. Both companies' bids were attractive when it came to the numbers, a person familiar with the talks said. Coke stood out for its promises for future sales growth, the person said.
Pepsi's presentation included its legacy work with KFC, as well as plans to boost crafted beverages and innovating with ice tea and lemonade, another person said.
Eventually KFC told both companies that Coke had won the contract. "It's a bold step," said Tabbassum Mumtaz, a Texas-based owner of restaurants -- including around 100 KFCs -- who supports the move toward Coke.
It was the culmination of Coke's development of a well-oiled food-service operation and a new feather in the cap of Dagmar Boggs, who oversees Coke's food service relationships across North America. Boggs and her team helped Coke earlier this year become the global beverage partner for Marriott, one of the world's largest hotel chains.
Next, Coke and KFC started working on logistics. The matters were complex.
Pepsi owns the thousands of fountains featured in KFC's kitchens and dining rooms, and they would need to be removed and replaced with Coke's equipment. Service lines would need to be changed.
In the end, the announcement was accelerated after The Wall Street Journal asked the companies about the deal. The companies went public with the change Thursday afternoon.
In an internal message, KFC U.S. President Catherine Tan-Gillespie said that beverages are a critical part of the decades-old chain's work to make its menu more contemporary and boost franchisees' businesses.
"A new beverage offering, with a new partner in Coca-Cola, gives us a platform to innovate, meet changing tastes and give customers more reasons to choose us," Tan-Gillespie said.
The next few months are critical for KFC. Franchisees across the country expect to learn more about the switch-over to Coke in coming weeks, getting details on the cost of syrup and what kind of rebates Coke would provide. Equipment changes are scheduled to begin in January and last through April.
Pepsi, which had ties to prior Yum Brands directors and executives, now is trying to win new restaurant customers, building on successes landing Subway and Dunkin' in recent years. Pepsi is evaluating other partnerships as well, according to people familiar with the matter.
Losing Pepsi could mean KFC consumers missing out on a beloved offering -- Mountain Dew Sweet Lightning. The peach and honey-flavored Mountain Dew variant is only sold at KFC.
Colin VanCourt, 33, of Utica, N.Y., said he rushed to KFC on Thursday night to grab his favorite drink, unsure of the yellow-hued beverage's future. He pairs Sweet Lightning with a five-piece order of chicken tenders, describing it as a good mix of sweet and savory flavors.
"I do like KFC's food but I would probably go there a lot less if not for Sweet Lightning," he said.
Pepsi's answer to customers: Stay tuned.
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