DineEquity Inc. (DIN) has inked a 10-year contract with PepsiCo Inc. (PEP) to be the exclusive provider of most soft drinks for the company's Applebee's and IHOP restaurants, amid growing heat in the soda wars.
The deal ends a decades-long supplier agreement between pancake chain IHOP and Coca-Cola Co. (KO). Applebee's has been in partnership with PepsiCo since 2003.
DineEquity Chief Executive Julia Stewart said by consolidating its business with PepsiCo, the restaurant company achieved better terms for its franchisees and the widest variety of beverage options.
After seeing beverage sales slump for years, PepsiCo has said it would pour up to $600 million into marketing and advertising this year, and analysts have expected the company to ratchet up competition, and possibly discounting, in an effort to gain ground from Coca-Cola.
DineEquity is in the middle of an effort to remodel its restaurants and menus to drive traffic, while selling underperforming company-owned locations to franchise operators to boost profit margins. Both of its restaurant chains have been pressured by higher food costs, rising gasoline prices and persistent unemployment.
Applebee's has more than 1,800 restaurants in the U.S., while there are around 1,500 IHOP restaurants.
DineEquity's share closed at $48.44 on Friday, and are up around 1% in the past six months. PepsiCo's shares closed at $66.10, and are up 4.6% in the past six months. Both were inactive in premarket trading.
-By Kristin Jones; Dow Jones Newswires; 212-416-2208; firstname.lastname@example.org