For Coke, Smaller Packages May Be Better

By Mike Esterl 

The world's largest beverage company is finding smaller might be better when it comes to package sizes.

Coca-Cola Co. said Wednesday that U.S. sales of its namesake cola's smaller, premium-priced packages, including 7.5-ounce "mini cans" and 8-ounce glass bottles, have risen 9% this year through October in dollar terms.

Sales of its 12-ounce aluminum cans and 2-liter plastic bottles, long mainstays at supermarkets, are up just 0.1% over the same period, according to Coke, which cited Nielsen store-scanner data.

The Atlanta-based soda giant is increasingly pushing smaller packages as more Americans fret about calories from sugary drinks amid high obesity and diabetes rates. Earlier this month, Berkeley, California, became the first U.S. city to approve a penny-per-ounce tax on sugar-added beverages.

"Health and wellness is a permanent trend," Sandy Douglas, Coke's North America president, told investors Wednesday at a conference hosted by Morgan Stanley.

Mr. Douglas added that mothers in particular are buying 7.5-ounce Coke cans for their children. The diminutive cans pack about 90 calories, compared with 140 calories for the more widely sold 12-ounce cans.

The introduction of smaller packages in recent years isn't helping reverse falling U.S. soda consumption, which is expected to slip for a 10th straight year industrywide. Mr. Douglas said Coke's smaller package sizes only represent about 20% to 25% of its overall mix, with larger packages still dominating, keeping a lid on overall sales.

But Coke charges more on a per-ounce basis for the smaller packages, giving the company a boost. A 12-ounce can of Coke, typically sold in 12 or 24 packs, has cost the consumer $0.31 on average this year. The 7.5-ounce can, often sold as an eight pack, has been priced at $0.40 on average, according to the company.

Coke said last month the company's North American soda volumes contracted 1% in the third quarter, but that the "price mix" rose 3% on a combination of price increases and the growth of smaller packages.

Much of the downsized packaging has been around for a while. Coke rolled out the 7.5-ounce cans nationally in 2010, the same year it began selling a 1.25-liter plastic bottle as an alternative to the 2-liter bottle and a 16-ounce plastic bottle as an alternative to the 20-ounce bottle.

The packaging proliferation is part of a strategy that Coke executives call OBPPC, short for "Occasion, Brand, Price, Pack, Channel." Coke has identified more than 30 drinking occasions from "family home meal" to "gotta have it to go." The strategy of giving consumers more package choices was pioneered by Coke's bottlers in Latin America during the 1990s.

Mr. Douglas reiterated Wednesday that Coke doesn't expect the U.S. market to change overnight. Alongside 12-ounce cans and 2-liter bottles at supermarkets, 20-ounce plastic bottles remain a top seller at convenience stores. None is likely to disappear from store shelves any time soon.

Coke points to this year's sales data as evidence the smaller packages are gaining traction. Recent sales of 16-ounce Coke plastic bottles have been "explosive," Mr. Douglas said Wednesday. Coke has also done a brisk business in the U.S. in recent years with 12-ounce glass bottles that are imported from Mexico and sweetened with sugar instead of high-fructose corn syrup.

Write to Mike Esterl at [e-mail]

Access Investor Kit for The Coca-Cola Co.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US1912161007

Subscribe to WSJ: http://online.wsj.com?mod=djnwires