* Bloomberg proposes banning drink cups bigger than 16 oz
* Coke, McDonald's say consumers should have choices
* Analysts see move as potential hindrance to growth
By Martinne Geller
NEW YORK, May 31 Coca-Cola Co and
McDonald's Corp slammed a proposed limit on soft drink
sales in New York City that would turn a small McDonald's drink
into the new large and could trigger a wave of similar
restrictions aimed at curbing obesity.
"New Yorkers expect and deserve better than this. They can
make their own choices about the beverages they purchase,"
Coca-Cola said in a statement on Thursday. Coke dominates the
U.S. fountain drink market, and would likely be the most hurt.
On Wednesday, Bloomberg proposed amending the city's health
code to ban the sale of soft drinks in cups larger than 16
ounces, a size equal to what McDonald's calls small. The chain's
medium is 21 ounces, and its large is 32 ounces. Its kids' size
is 12 ounces.
"This raises the specter of this going to other cities as
well," said Bernstein Research analyst Ali Dibadj. "These
companies may have to start playing whack-a-mole if this gains
Heather Oldani, a spokeswoman for McDonald's, the world's
biggest hamburger chain, said fighting obesity requires "a more
collaborative and comprehensive approach".
"Public health issues cannot be effectively addressed
through a narrowly focused and misguided ban," Oldani said.
She declined to say how much of McDonald's revenue comes from
soft drinks, but Edward Jones analyst Jack Russo put it at
around 5 percent.
The ban would apply to restaurants, mobile food carts,
delicatessens and concessions at movie theaters, stadiums and
arenas where sales of fountain drinks are common. It would not
apply to convenience, grocery or drug stores, which mostly sell
beverages in bottles and cans.
The proposal, which would exclude diet and dairy-based
coffee drinks, must be approved by the city's Board of Health.
"You can still be a beast. We're not keeping you from eating
fattening foods or drinking 32-ounce bottles of full-sugar
drinks," Mayor Bloomberg told the All Things D i gital gathering
in Rancho Palos Verdes, California on Thursday via video
conference. "We are just telling you that this is detrimental to
your health and making you understand that by portion size."
Bloomberg's assault on super-sized sodas opened a new front
in the battle over how local governments regulate in the name of
health what people eat and drink.
Public health advocates who have been fighting America's
growing obesity problem say portion control is key to weight
"There's very strong scientific evidence that when people
are served more they eat more, or in this case drink more," said
Kelly Brownell, director of Yale University's Rudd Center for
Food Policy and Obesity. Brownell applauded the proposal.
"My guess is this will affect enough people in a strong
enough way to create a pretty significant public health
benefit," he said.
Dr Pepper Snapple Group Inc did not return a call
for comment. PepsiCo Inc referred questions to the New
York City Beverage Association, which characterized the proposal
as zealous and unlikely to work.
"The city is not going to address the obesity issue by
attacking soda because soda is not driving the obesity rates,"
said Stefan Friedman, an association spokesman.
Beverage companies have several arguments on which to base
possible legal challenges, including that the ban would affect
interstate commerce by impacting supplies such as soda syrup and
cups, said Marc Scheineson, a former associate commissioner at
the U.S. Food and Drug Administration and head of the food and
drug practice at the Washington, D.C. law firm Allston & Bird.
That argument could be outweighed by the city's interest in
public health, he said.
Other Bloomberg initiatives to improve public health, such
as forbidding smoking in restaurants and requiring chain
restaurants to post calorie counts, were the subject of
lawsuits, but the city prevailed.
Regardless of whether it mounts any legal challenges, the
industry is likely to spend a lot of money fighting the proposal
like it has fought ongoing efforts to tax soft drinks, said Tom
Pirko of Bevmark Consulting.
"This is a challenge to the basic premise of their business
plan, all predicated on selling sweet drinks in the largest
volumes possible," Pirko said.
"New York is a mega-market, but more importantly it is New
York. It sets the pace. What happens in New York has a strong
influence on the rest of the country," he said.
Coke controls 70 percent of the U.S . fountain drink market,
according to Beverage Digest, followed by Pepsi with 19 percent
and Dr Pepper Snapple with 11 percent.
Fountain business accounts for about 24 percent of the 9.3
billion cases of soda sold a year, Beverage Digest said, in a
market worth $75.7 billion.
Coke has been boosting its fountain business with its new
Freestyle dispenser that lets customers pick from over 100
flavor combinations. It is unclear how the Freestyle machine
would work if the ban passed, since diet drinks are not
"To me, it puts a really big wrench in that," said Moody's
analyst Linda Montag.
Like draught beers, fountain sodas are often more profitable
for suppliers than those sold in bottles and cans because they
require less packaging and often have higher markups. That means
the ban could constrain profits as well as sales.
"Maybe you make up for it in pricing. You can't sell as much
anymore, but you up your price a little bit so it doesn't impact
the company all that much," Montag said.
The proposal is to be submitted on June 12 to the New York
City Board of Health, which will have a three-month comment
period before voting on it.
If approved, the ban would take effect six months later and
be enforced by the city's restaurant inspectors. Restaurant
owners would have nine months after adoption of the ban before
facing fines of $200 for violations, Bloomberg said.