KFC switch to Coke puts PepsiCo's food service ties in focus, analysts say

Oct 16 (Reuters) - KFC's decision to switch from Pepsi sodas to Coca-Cola KO.N at its US restaurants could raise questions about PepsiCo's PEP.O other longstanding food service partnerships, analysts said, even as they expect the financial hit to be manageable.

The loss of KFC comes as PepsiCo grapples with sluggish demand and higher costs in North America, where a recovery in growth and margins is taking longer than expected and has prompted the company to deepen cost cuts.

• BofA analysts estimate the loss of the KFC account represents about $500 million in annual sales, equivalent to roughly a 3% hit to Pepsi Beverages North America's concentrate sales, while boosting Coca-Cola's North America sales by about 2.5%

• Brokerage Jefferies says the bigger concern for PepsiCo is the "loss of brand interaction and public perception" rather than the immediate financial impact

• "A longstanding Pepsi customer switching raises questions whether other accounts that have been historically off-limits are now up for grabs," Jefferies analysts said

• "Investors see this (move) less as a seismic commercial loss for PepsiCo and more as the natural order of... (a brand) reasserting itself," says Richard Exon, founder and partner at Joint, an independent creative  agency