Costco Wholesale Corp. COST announced plans to replace PepsiCo Inc. PEP with Coca-Cola Co KO as its food court beverage supplier, marking a significant shift in the retail giant’s strategy and highlighting Coca-Cola’s growing market momentum.
What Happened: The change, announced by Costco CEO Ron Vachris at the company’s annual shareholders meeting, will take effect this summer, returning Coca-Cola products to Costco’s food courts after a decade-long absence.
"We will be converting our food court fountain business back over to Coca-Cola," Vachris said, according to CNN.
The move comes as Coca-Cola demonstrates strong growth potential, particularly in emerging markets.
The beverage contract, which includes fountain drinks, cups, and straws, has been held by PepsiCo since 2013. The switch back to Coca-Cola coincides with analysts’ bullish outlook on the beverage maker.
Why It Matters: Piper Sandler analyst Michael Lavery recently initiated coverage of Coca-Cola with an “Overweight” rating and a $74 price target, citing the company’s strong position in North America and Latin America, which contribute approximately 70% of its operating income.
The transition aligns with Costco’s commitment to maintaining its iconic $1.50 hot dog and soda combination, a loss-leader that sold approximately 150 million units last year. This pricing strategy, unchanged since 1985, remains central to Costco’s customer value proposition, despite inflationary pressures affecting other food court items.
Coca-Cola’s return to Costco’s food courts could further strengthen its market position. The company’s significant exposure to emerging markets, where roughly 68% of the population doesn’t consume commercial beverages, represents a growth opportunity of about 4.5 times its current consumer base, according to Piper Sandler’s analysis.
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