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Coke, Pepsi try to fatten bottom line with smaller servings

By Anjali Athavaley

NEW YORK (Reuters) - About a year ago, Texas rancher George Krueger worried about his weight, and decided it was time to downsize - his Coke cans, that is.

Like increasing numbers of U.S. consumers, Krueger bet that by switching from regular-sized soda cans to 7.5 ounce "mini"-sized ones, he could make a dent in his daily calorie intake.

“It’s kind of a happy medium,” said the 62-year-old, who generally drinks a can a day, but sometimes goes for an extra one for more caffeine. “I can have my sweet fix but not feel guilty for having so much.”

U.S. soft drink companies are betting that soda drinkers like Krueger and their willingness to buy smaller cans, even for a higher unit price, will be a potential antidote to weak sales as consumers shift away from sugary soft drinks.

The mini-can is the latest move by food and beverage companies to boost their product offerings of smaller portion sizes that supposedly help consumers limit their caloric intake - even if there are signs that some end up reaching for another package or can.

Mini can sales grew 3 percent in 2013 while the rest of the carbonated soft drink category dropped, according to market research firm Euromonitor International.

Coca-Cola and Pepsi said the cans were one of the few bright spots in U.S. soda sales in their second quarter earnings calls last month.

“Consumers are paying more and more attention to calories now,” said Simon Lowden, chief marketing officer at Pepsi Beverages North America, in a phone interview last week. While such concerns might have once helped diet drinks, growing health worries about artificial sweeteners have hurt that category, experts say.

Coke, the world’s largest soda maker, said there was double-digit growth in mini cans even while sales volumes of sparkling beverages in North America were flat. Smaller sizes, which include mini cans, accounted for more than 60 percent of the volume growth in traditional Coke.

Pepsi’s mini can business in the United States has grown 24 percent year-to-date in 2014 and was up 34 percent last year. The company said that this year, it has also seen a significant increase in the number of in-store displays of mini cans.

There's still a lot of room for growth. In 2013, mini cans comprised just 3 percent of carbonated beverage cans sold in the U.S., according to Euromonitor International.

Earlier this year, the mini can was featured for the first time in a television ad starring actor Cuba Gooding Jr. which ran during the Oscars, the second most visible time frame behind the Super Bowl, Lowden said.

Even beer companies are experimenting in the U.S. with smaller packaging. MillerCoors, a U.S. joint venture between SABMiller Plc and Molson Coors Co, offers 7-ounce bottles of Miller High Life as well as 10-ounce cans of Redd’s Wicked Apple and Coors Light Summer Brew.

Heineken has rolled out a new 8.5-ounce “slim” can, citing “explosive growth” in smaller sized cans in the international market.

PACKAGING COUNTS

The shift toward smaller cans “is almost the industry admitting that volume is not going to be growing very much,” said Ali Dibadj, a beverage analyst at Sanford C. Bernstein.

It is one way that companies can drive higher prices and larger margins: Consumers may feel as though they’re buying a cheaper, smaller soda, but they are often paying more per fluid ounce, analysts said.

Indeed, there is a price difference between mini cans and regular cans at retail. At a Fairway grocery store in Manhattan last week, 7.5-ounce cans of regular Coke and Pepsi were $4.49 for an eight-pack. Twelve-ounce cans, on the other hand were $4.89 for a 12-pack. That works out to roughly 7 cents per ounce versus 3 cents an ounce.

Teresa Votaw, 47, of Sugar Land, Texas, doesn't mind the higher prices. "I shop a lot at Whole Foods and am very particular about my children's diet," said Votaw. "I don't want my kids drinking sugary drinks, but I don't want them to be completely deprived."

Jennifer Harris, director of marketing initiatives at the Rudd Center for Food Policy and Obesity at Yale University, said that smaller package sizes can help reduce soda consumption. “Studies show that people drink whatever package it comes in,” she said.

That’s not necessarily the case with all food products, such as 100-calorie snack packs. A 2008 study by Arizona State University researchers found that dieters actually consumed more of the food in smaller packages than they would if it was regular sized.

Krueger, the Texas rancher, hasn’t lost weight as a result of the mini cans but said they are likely keeping him from gaining more bulge.

“If I was really sensible, I wouldn’t drink them at all, but I just love the taste," he said.

(Reporting by Anjali Athavaley; Editing by Jilian Mincer, Bernard Orr)

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