MEDIA & MARKETING
September 19, 2011
Coke Tailors Its Soda Sizes Backing Off of 'Supersizing,' Company Aims for Wider Range of Ounces, Prices
Mike Esterl
The Wall Street Journal
ATLANTA—Coca-Cola Co.'s KO -0.16% growth recipe in the U.S. soda market for much of the past decade included "supersized'' offerings and new flavors such as Coke Zero and Black Cherry Vanilla Coke
These days the beverage giant's sales formula revolves around more package sizes on store shelves. And many of its new bottles and cans are smaller and cheaper, in a nod to how more Americans are counting both their calories and their pennies.
Coke will announce this week the launch of 12.5-ounce, 89-cent bottles to accompany the 16-ounce, 99-cent bottles it rolled out nationally last year as an alternative to 20-ounce bottles in U.S. convenience stores. It will also slash the suggested retail price on its recently introduced eight-pack of 7.5-ounce Coke "mini'' cans in supermarkets by about 20% to $2.99 to try and lure more customers.
The proliferation represents a departure from years of relying heavily on three basic packages—20-ounce bottles in convenience stores and two-liter bottles and cases of 12-ounce cans in supermarkets—as it battled rivals PepsiCo Inc. PEP -0.55%and Dr Pepper Snapple Group Inc. DPS -1.76%in the $75 billion U.S. retail soda market.
Coke is importing the strategy from Mexico, where bottling partners began diversifying package sizes more than a decade ago to offer more price options in the wake of the 1994 peso devaluation and economic crisis. In Mexico, the company's top market by per-capita consumption, Coke is now sold in more than 30 packages, ranging from 6.75 ounces to three liters.
"In the U.S.A., we're really just at the beginning,'' said Sandy Douglas, president of Coca-Cola North America, of the increasingly segmented price-package strategy for the company's Coke, Sprite and Fanta soda brands.
Coke is betting it can boost revenue and profits in the U.S. even as it scales back volume per transaction amid rising costs for commodities such as plastic and high-fructose corn syrup. Although the smaller packages carry lower sticker prices, the consumer pays more per ounce. At the same time, Coke is raising prices on larger bottles and cans for consumers with more money in their pockets.
Many consumer-product companies are tweaking their packaging in a sluggish economy. Kimberly-Clark Corp. KMB -1.15%has lowered the number of tissues and diapers in some of its packages to ease sticker shock, even as it introduces more expensive premium products for affluent consumers.
Many Americans were already scaling back on colas and other sodas for health reasons before the economy soured. U.S. soda volumes have fallen for six years in a row.
PepsiCo, the No. 2 player, recently began rolling out 16-ounce bottled sodas to match Coke. It has also launched a 1.5-liter bottle to compete with the 1.25-liter bottle Coke began introducing last year.
"Price-package architecture is absolutely core to what we do,'' said Simon Lowden, PepsiCo's chief marketing officer for North American beverages.
But many industry observers say Coke has been pushing the strategy earlier and more aggressively, with better results. The company's share of the soda market in U.S. stores rose 1.1 percentage points to 34.3% in the first half of this year, while PepsiCo's slipped 0.2 percentage point to 32.8%, according to Beverage Digest, a trade publication and data service.
"You can't just do this overnight. It takes time,'' said Carlos Laboy, a beverage analyst at Credit Suisse, of PepsiCo's catch-up efforts.
Coke executives speak in terms of "Occasion, Brand, Price, Pack, Channel," or OBPPC. To capture a range of sales,Coke has identified more than 30 drinking "occasions'' ranging from "family home meal'' to "gotta have it to go.''
Outside a convenience store at a Shell station in Atlanta last week, red Coca-Cola signs touted 16-ounce cola bottles for 99 cents. Inside the store, 20-ounce and 1-liter bottles were $1.49 and $1.89, respectively. A bundled "combo meal'' included a 24-ounce Coke fountain drink and two hot dogs for $2.99, among several other pitches at different price points.
"Bring 'em in and then trade them up,'' said Glen Walter, Coke's chief region sales officer, of the multi-price-point strategy.
Coke is hoping the 89-cent price for the 12.5-ounce bottle will be an even stronger magnet. It also expects the stores will increase prices on Coke's 16- and 20-ounce and one-liter cola bottles to around $1.19, $1.69 and $1.99, respectively.
Coke is also attempting to reel in new and lapsed customers in supermarkets with its 7.5-ounce cans, which were rolled out nationally last year but still represent less than 5% of its sales mix. The mini cans replaced eight-ounce cans to bring the calorie count below 100, hopefully attracting more weight-conscious drinkers.
While the retail price of the eight pack of 7.5-ounce cans will fall to just below $3 in coming weeks, consumers will still pay a per-ounce premium. The smaller cans will cost 37 cents each, the same as 12-ounce cans.
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