Taco Bell Extends PepsiCo Partnership Through 2036

Taco Bell will maintain its beverage partnership with PepsiCo through 2036, the companies announced Thursday, securing a long-term collaboration on drinks and food products. The agreement comes as PepsiCo loses its longstanding contract with sister chain KFC to Coca-Cola and faces declining beverage sales in North America.

The extended agreement includes plans to develop new beverages and food offerings, including additional flavors for Doritos Locos Tacos, according to a joint statement from Taco Bell and PepsiCo. The companies also highlighted Baja Blast, Taco Bell's signature beverage, which has grown into a brand generating $1 billion.

The deal represents a significant commercial relationship for PepsiCo because Taco Bell generated $17 billion in US system-wide sales last year, compared with approximately $5 billion at KFC. Both restaurant chains are owned by Yum! Brands.

PepsiCo's beverage business in North America declined 2% in its most recent quarter, according to the company's financial results. CEO Ramon Laguarta acknowledged the company's competitive challenges during its earnings call.

PepsiCo CEO Ramon Laguarta said the company is "not competing well in soft drinks," including its newly acquired Poppi brand.

The loss of KFC's business adds pressure to PepsiCo as it works to strengthen its beverage portfolio. Retaining Taco Bell provides continued access to a major restaurant chain with plans to expand its drink offerings.

Taco Bell has been increasing its focus on beverages as consumers contend with rising food prices and seek ways to manage spending. The chain is targeting $5 billion in beverage revenue by 2030, according to the report.

Last year, Taco Bell introduced its Refrescas beverage lineup to attract customers looking for drinks between meals. The company also plans to develop additional Baja Blast varieties with PepsiCo, including a limited-time pink lemonade associated with singer Olivia Rodrigo.

Elizabeth Lafontaine, director of research at location analytics firm Placer.ai, previously described Taco Bell's beverage strategy as an important part of its competitive positioning.

"Taco Bell's Baja Blast lineup has often been a key differentiator for the brand, and leaning into product exclusives can help drive visitation to quick service restaurant chains," Elizabeth Lafontaine, director of research at Placer.ai, told CNN.

Lafontaine linked the importance of exclusive products to the challenges facing fast-food restaurants as competition intensifies and customers become more selective about spending.

"Especially as the industry faces steeper competition and consumers who are on the hunt for more value from fast food offerings," Lafontaine added.

The companies also plan to pursue emerging beverage categories, including crafted drinks, functional beverages and energy drinks. Their joint statement said the strategy would include energy offerings designed to appeal to Gen Z consumers and create more opportunities to purchase drinks during morning and afternoon visits.

Taco Bell has performed relatively well within the fast-food industry but experienced a decline in customer traffic over the summer. The downturn followed a cyclospora outbreak linked to lettuce served at multiple restaurants, according to CNN.

The company is expected to provide a more detailed assessment of the outbreak's sales impact when it releases its next earnings report next month.