Soft drink sizing and pricing has undergone revolutionary changes in the last five years, but the foodservice industry has generally been slow to respond to the changes. What are the trends, and what is the optimum equation of sizing and retail pricing? Here we will examine those issues with an emphasis on informing QSR and fast casual.
What Soft Drink Companies are Doing
In general, soft drink companies have been taking sizes down and charging more per ounce for their products. Recent moves by Coke, Pepsi, and Dr. Pepper have included the introduction and promotion of the 8oz can multipacks in grocery stores. The 8oz can represents a departure from the 12oz can which held the position as the standard for many years.
The rationale given for this move was related to their anti-obesity efforts. Smaller sizes mean less calories per serving. But the real impact is a price increase. One ounce of the product in an 8-ounce size costs the consumer 42% more than the 12oz package. The cost per ounce for the 8oz is $0.05 versus $0.035 for the 12oz.
Importantly, smaller has been a trend for the last five years. While the soft drink companies employ this strategy to boost their profits…it amounts to a price increase…they have not recommended this approach to their foodservice customers. That’s because the revenue model is different. The only way for soft drink companies to increase their fountain revenue in foodservice is by selling more syrup to you. If they recommend a size reduction, it will negatively impact their revenue and profit.
What Should Foodservice Operators Do?
What about YOUR revenue and profit? Can you benefit from a fresh look at your sizing and pricing?
A recent survey conducted by BevTrust found that foodservice operators are largely in the same sizing and pricing mode as they have been for the last 25 years. Most operators have either two or three sizes, with the smallest size being in the 20-24oz range and the largest in the 32-44oz range.
But sizing in foodservice appears to be way out of sync with the standard in choice venues like grocery. The smallest foodservice size is usually 2.5 times the size of the standard grocery store single serving size. The largest foodservice size is 5.5 times the grocery single serve standard.
Foodservice operators may be beginning to catch on, though. In the same recent BevTrust survey, two of the largest QSR operators in the world seem to have caught the change and acted upon it. Both of them reduced their smallest size to 16oz and the largest size to 32oz. Such a move would significantly raise their profit even if they lowered their pricing. See the following chart:
By lowering overall food cost and shifting the mix back to the middle size, this operator gained a 5% improvement in gross soft drink profit. And that included keeping the price steady on the largest size while dropping prices on the two smaller sizes.
Conclusion
For foodservice operators, paying attention to what the soft drink companies do in grocery makes good sense. Following their lead on sizing and pricing can have a significant impact on how much money you make selling drinks.
For more information and help in analyzing the impact, contact Ben Kitay, COO of BevTrust Associates at ben@bevtrust.com