Burger King on Tuesday took the Pepsi challenge and chose Coke.
The nation’s second-largest fast-food chain dropped Pepsi-Cola as its soft drink supplier in the United States after six years and gave the business to rival Coca-Cola, which also supplies McDonald’s.
Burger King, which was acquired by London-based Grand Metropolitan as part of the 1989 takeover of Pillsbury Co., said such Coca-Cola products as Coca-Cola Classic, Diet Coke, Sprite and Minute Maid orange soda will begin showing up in restaurants within 30 to 90 days.
Analysts said the decision will do more for Coke’s prestige than its profits.
“It’s not relevant from an investor’s standpoint,” said Hugh S. Zurkuhlen, an industry analyst at Salomon Bros. “They don’t make much money on these contracts.”
But Coke will deprive archrival Pepsi of the exposure it gained by being the cola of choice at 5,400 U.S. Burger Kings. “You always want to make your brand available in places your customers might show up,” said food and beverage analyst John Maxwell at the securities firm Wheat First Butcher & Singer.
“The decision today did not come unexpectedly given the management changes that Burger King has been undertaking in recent months,” said Pepsi spokesman Tod MacKenzie. The fast-food chain has been restructuring since its purchase by Grand Met.
Pepsi will also lose another major soda fountain customer, Wendy’s, at the end of this year, when that fast-food chain also moves to Coke.
Burger King’s decision to award Coke a five-year contract comes only 10 months after the fast-food chain said it was sticking with Pepsi as its soft drink supplier. MacKenzie noted that Burger King had recently named Pepsi its “Supplier of the Year.”
But two months ago, Miami-based Burger King asked both firms to submit new proposals, said a Burger King spokeswoman.
“We selected Coca-Cola because of its ability to provide a powerful mix of global brand strength, state-of-the-art technological capabilities and distinctive service,” said Barry J. Gibbons, chief executive for Burger King, in a statement.
Burger King franchisees will also be required to buy their soft drinks from Coca-Cola, the company said.
Coca-Cola had been the original soft drink supplier to Burger King until it lost the contract to Pepsi in 1983.
Coke spokesman Carlton Curtis said Burger King’s switch was motivated in part by the growing presence of Pepsi’s corporate parent, Pepsico, in the fast-food industry. Pepsico owns the largest number of fast-food outlets in the world, including Pizza Hut, Taco Bell and Kentucky Fried Chicken.
“They are in direct competition with their fountain customers,” said Curtis. “There is not one major national (fast-food) account that Pepsi has other than the ones that (Pepsico) owns.”
Pepsi said the fact that its corporate parent competes with its clients in the fast-food industry has not affected its business relationships. MacKenzie said the company picked up Burger King as a customer when Pepsico was already in the fast-food business.
“Coke has tried to put that myth out there,” MacKenzie said.
A Burger King spokeswoman said Pepsico’s role in the fast-food business was “a factor, but not a deciding factor.”
Both Coke and Pepsi rely on soda fountain sales for 30% of their soft drink revenues. But Pepsi said the soda fountain business will account for only 26% of sales after the Burger King contract expires.
PEPSI VS. COKE AT THE SODA FOUNTAIN
Both Pepsi and Coca-Cola rely on fountain sales for about 30% of their overall soft drink sales.
Kentucky Fried Chicken
Little Caesar’s Pizza
* Will switch to Coca-Cola in 1991.
** Pepsi says it supplies 1,060 franchised Hardee’s outlets
Note: Taco Bell, Pizza Hut, and Kentucky Fried Chicken are owned by Pepsico.