Tuesday, August 25, 1998

In setback to Pepsi, Wendy's wants Coke for the next generation

By JOHN SEEWER Associated Press Writer

COLUMBUS, Ohio (AP) - Wendy's will make Coca-Cola its exclusive soda for the next decade, snapping a lid on Pepsi's inroads at the hamburger chain's restaurants.

"Our major competitors have exclusive agreements with single soft-drink companies," spokesman Denny Lynch said Monday from Wendy's International Inc. headquarters in suburban Dublin. "We're evening the playing field."

Terms of the agreement reached last week with Coca Cola Co. weren't announced. But Wendy's chairman and chief executive, Gordon Teter, said in a letter to franchisees that Coke will pour $42 million into Wendy's national advertising in the first year.

Lynch said all Wendy's restaurants will be serving the world's top-selling soft drink within two years.

About 85 percent of Wendy's restaurants in the United States already serve Coke products, but the switch will affect 700 to 800 franchises under contract with Pepsi distributors, Lynch said.

Pepsi executives weren't invited to bid, but they were preparing an offer "that will exceed anything that's in front of them now," spokesman Brad Shaw said Monday.

"We hope they will give us a chance," said Shaw, who called the Wendy's decision a minor setback.

Fountain drinks account for about one-quarter of the U.S. soft-drink industry's volume. Exclusive-rights deals with big restaurant chains are much sought after because they shut out the competition, said Gary Hemphill, a beverage industry analyst for Beverage Marketing Corp. in New York.

"That's why this is key," he said.

PepsiCo Inc., based in Purchase, N.Y., spun off its fast-food chains Pizza Hut, KFC and Taco Bell last year in order to focus on the fountain drink market. Part of Coke's success in the restaurant business had been its ability to argue that chains selling Pepsi were indirectly helping their PepsiCo-owned competitors.

In the last year, Pepsi has attempted to crack Coke's dominance in the restaurant market, where Coke's 65 percent share dwarfs Pepsi's 25 percent.

Atlanta-based Coke for years has supplied Wendy's 900 company-owned restaurants in the nation as well as most of its 3,700 franchises. But Pepsi had persuaded some franchisees to switch. Just three months ago Pepsi officials touted big wins in Wendy's system as proof that efforts to boost Pepsi's fountain business were paying off.

Pepsi has filed an antitrust lawsuit against Coke, saying Coca-Cola's contracts with independent distributors are unfair since they prohibit the distributor from handling Pepsi products. The case is pending in federal court in New York.

Whether customers care about the cola war is debatable.

Jan Benson, a Coke fan who collects the soft drink's memorabilia, said she doesn't make any restaurant choice based on what soft drink is served.

"We sort of drink what's available," she said after stopping for lunch at a Columbus Wendy's. "McDonald's is my favorite and I couldn't tell you whether they serve Pepsi or Coke."

McDonald's serves Coke, as does Burger King. Pepsi's exclusive contracts include its former fast-food outlets.