For Coke, a big advantage pours out of smaller bottles

COCA-COLA executives have a reason to smile.

For years, they've battled an anti-soda trend. But now they are starting to see global soda volume rise - and the reason may actually be a lesson about why less is more.

Coca-Cola, you see, has been adopting a new practice: It's selling products in smaller packages. And that's giving rise to hopes that global sales will take off even more, perhaps even in the United States, where soda had been plummeting amid a growing distaste for carbonated drinks.

For decades, soft drink manufacturers nudged people to drink more with ever-larger cans, bottles and cups. That strategy has failed as the narrative about health problems related to drinking soda has intensified. So makers have opted to do the opposite, shipping carbonated drinks out in smaller servings in hopes that will make soda sexy again.

The strategy might seem a bit wacky - downsize containers to supersize sales? - but it's actually ingenious.

For Coca-Cola, it means a more profitable product, since packaging is such a significant contributor to price. "Certainly, they make more money per ounce this way," said David Just, a professor of behavioral economics at Cornell University who studies consumer food choices.

Many other big food brands, including Kraft, General Mills and Campbell's Soup, have employed a similar strategy: shrinking package sizes in order to boost profit margins. But this is particularly important to a company like Coca-Cola, given the steady decline in soda consumption.

The mini cans and bottles allow Coca-Cola to save money on aluminum and glass, most or even all of which it pockets. Look no further than the pricing of its different offerings for evidence.

A quick search on Amazon - and a bit of simple math - shows the premium consumers have to pay for the smaller cans. A 12-pack of regular 12-ounce cans costs $4.99, while an eight-pack of the new 7.5 ounce cans costs $2.99. On a per-can basis, that doesn't look so bad - it comes out to roughly 42 cents and 37 cents, respectively. But the cans are different sizes, which obscures the markup. On a per-ounce basis, the new cans are actually about 42 percent more expensive, running roughly 5 cents an ounce, instead of the 31/2 cents an ounce it costs when buying the larger cans.

But the mini cans are also a welcome change for consumers who are drinking less soda. The smaller servings offer a middle ground between the soda people have been drinking and the soda they should be drinking (none at all). The new portions are, in other words, a great way for self-conscious soda drinkers to achieve - or pretend to achieve - whatever soda drinking goal they have set for themselves.

And here's where things get interesting: Selling soda in smaller cans might not only help Coca-Cola make more money on the soda people buy, it could push people to buy more soda.

Just points to various studies that he and his colleague Brian Wansink, the director of the Cornell Food and Brand Lab, have performed over the years. In one from 2013, the two showed that people are incredibly responsive to labels. Having been told that the food put in front of them was "double-size," participants in the study left 10 times as much food on their plates as those who were told their serving was "regular," even though both groups were given the exact same amount.

The opposite, Just says, happens when servings are labeled as small. "If they are marketed as minis, as I believe they are, they can actually increase consumption," he said.

"People upon consuming them are either left wanting or feel they have done something virtuous by not consuming more," Just added. "If they are left wanting, they may be much more likely to move to a second can, which could be a bad thing for the consumer but a good thing for Coke. If they feel they have done something virtuous, they might feel they have a license to consume more elsewhere, and most often overcompensate."

It's unclear if the miniature cans will be enough to offset the increasing coolness toward soda around the world, especially in places such as the United States, where the distaste has been particularly severe. But thus far, they certainly seem to be helping.

Last week, Kathy Waller, the company's chief financial officer, expressed enthusiasm about the smaller packaging. "In the United States, in particular, we have a price-pack architecture strategy promoting the mini cans and the eight-ounce glass bottles," she told Reuters. The strategy, she said, has been helping to boost sales in the country.

It was hardly the first time Coca-Cola has touted the success of its new approach. Last year, the company published a piece on its website highlighting how receptive soda drinkers have been to the smaller cans and bottles. Sales of mini cans, it noted, have grown in the double digits since they were introduced in 2007. In the first half of 2015, they grew by almost 20 percent in North America alone.

"The consumer is very much approving the smaller packages," Muhtar Kent, Coca-Cola's chief executive, told Wall Street analysts over the summer. "Smaller packages are growing much faster than larger packages."

Strangely, that could mean more, not less, soda-drinking down the road.