Coke’s Fine Young Cannibals

Cannibalization appears to be eating away at Coca-Cola. The No. 1 soft drink maker, coming off a year in which Coke sales volume shrank 3%, is looking to shrink one of its most profitable items.

Coke’s bottlers are currently testing a 16-oz. bottle priced at 99 cents. Analysts have said in a country of expanding waistlines and shrinking pocket books that 20 ounces is more soda than consumers want at too high a price (up to $1.49). Thus the need for the new packaging innovation.

The 16-oz. package has been available in 1,700 stores for the past month within the Coke Consolidated bottling system. Lauren Steele, rep for Coke’s No. 2 bottler, said, “The preliminary results are very promising.”

Morgan Stanley research suggests otherwise. “The 16-oz. merely cannibalizes the higher margin 20-oz. package,” analyst William Pecoriello wrote in a report last week. He estimated the rollout of the new package could cost No. 1 bottler Coca-Cola Enterprises up to $30 million in operating profits during the next 12 months.

Sales of 20-oz. bottles currently make up 43% of Coke’s dollar share at convenience stores, per Beverage Digest, Bedford Hills, New York. But throughout the year, sales of 20-oz. soft drinks like Coke, Diet Coke and Sprite have declined in the high single digits, per Morgan Stanley. “It makes sense to try and shake the single-serve market from its doldrums,” said Beverage Marketing managing director Gary Hemphill. “Packaging innovation is one way to do that.

To bolster its noncarbonated portfolio, Coke bought Glac