In the past three years, global soda consumption is down 12%. And yet, soda-related profits at The Coca-Cola Company (KO) are up 2% overall during this time period. Why have soda profits held steady while people are drinking less and less of it?
The answer is smaller servings. Traditional 12-ounce soda cans that you can get at most grocery stores sell at an average price of 31.5 cents. Meanwhile, the new 7.5-ounce cans that Coca-Cola is aggressively promoting sells at an average price of 40.8 cents. Coca-Cola, which earns 28% net profit margins on its flagship offerings, earns 36.4% net profit on its 7.5-ounce cans.
If it sells $1,000 worth of traditional sized soda cans, about $280 accrues to shareholders. When it sells $1,000 worth of the smaller cans, shareholders get $364 that can be used for buybacks, dividends, and product investment.
These smaller soda cans are only about 5% … Read the rest of this article!