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Coca-Cola finds smaller is better (and more profitable)

[ Regular and mini cans of Coke and Pepsi are pictured in this photo illustration in New York / Reuters ]

When Coca-Cola announced its earnings this week, the soda brand found an unlikely source of boosted sales – smaller cans.

Despite a rising tide in North America to skip over soft drinks in exchange for healthier choices, the company’s net income for the 2015 fourth quarter was $1.2 billion, up 60.6 per cent compared with the same period a year ago.

“It is somewhat surprising that smaller cans can have a strong impact on Coca-Cola’s earnings, but when we look at what Canadians identify CSDs (carbonated soft drinks) with, it absolutely makes sense,” says Joel Gregoire, a senior food and drink analyst at market insight firm Mintel.

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He points out that in Mintel’s 2014 report examining carbonated soft drinks in Canada, Canadians were more likely to identify CSDs as being a treat relative to other beverages such as bottled water, fruit juice/drinks and energy drinks.

“This combined with the prevailing sentiment that CSDs contribute to obesity, makes smaller cans a middle ground between over-indulging and shunning CSDs all together,” he says. “Smaller cans play to CSDs strengths allowing consumers moments of indulgence while mitigating the guilt they may associate with drinking CSDs.”

It also, obviously, results in higher profits.

Though the actual cost of the liquid isn’t much, cutting content by two or four ounces adds up when spread out over a vast number of countries, says Alan Middleton, assistant professor of marketing and executive director of the Schulich Executive Education Centre at York University.

“It’s a part of an ongoing thing we’ve been seeing across a whole lot of categories, which is in order to manage price points, especially in uncertain times, the tendency is to reduce the content,” he says.

But downsizing can come at a cost, says Middleton, pointing to the packaged candy industry.

“If you go back ten or fifteen years ago, the confectionary people tried that and they actually just reduced, reduced and reduced until [people started noticing],” he says. “They had to rebuild their credibility by rebuilding the size – there is a danger always of reducing volumes and keeping the price but initially and certainly for the first couple of years, the response to the reduction in size is pretty minimal.”

But the trend toward smaller portions is not limited to carbonated soft drinks, says Gregoire.

In Feb. 2015, Nestlé announced a new packaging design that promoted ‘appropriate portion sizes’ by dividing its packages into three separate compartments with 15 Smarties – each totaling 70 calories.

“Again, allowing consumers to have moments of indulgent responsibly,” says Gregoire.

But it’s not just the packaging.

“Coca-Cola has also announced that it will be reducing the corn syrup in its Canadian offering, bringing it in line with Coke products found elsewhere,” says Gregoire. “These efforts on the part of Coke balance the concerns that consumers have in CSDs’ contribution to obesity and plays to theirs – and the category’s – strength.”