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NYC soda ban another blow for drink makers

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CANDICE CHOI | May 31, 2012 06:09 PM EST | AP

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NEW YORK — Is the Big Gulp to blame for obesity in the Big Apple? New York City Mayor Michael Bloomberg thinks so.

But Bloomberg's proposal Thursday that the city prohibit restaurants, delis and movie theaters from serving large cups of sodas and other sugary drinks is a bitter twist for companies that make beverages like Coke, Dr Pepper and Pepsi. The ban, which would be the first of its kind in the nation, comes at a time when soda consumption has been declining.

The industry has struggled in recent years as more health-conscious Americans have shifted away from sugary sodas toward bottled water and sports drinks like Gatorade. That's led to a 20 percent reduction in the calories consumed per capita through carbonated beverages over the last decade, according to the industry tracker Beverage Digest. Under Bloomberg's proposed ban, soda consumption could slip further.

The ban would impose a 16-ounce limit on any sugary bottled or fountain drinks that contain more than 25 calories per 8 ounces. It would not affect diet soda and any drink that is at least 70 percent juice, or half milk or milk substitute, would be exempt. The proposal requires the approval of the city's Board of Health – considered likely because its members are all appointed by Bloomberg.

It's difficult to estimate the potential financial impact of the proposed ban because there's no breakdown of what percentage of drinks sold are over the proposed the size limit or how consumers and retailers would adjust if the ban were in place.

But Mark Kalinowski, an analyst with Janney Capital Markets who covers companies including McDonald's, said that sodas carry high margins for fast-food companies. Any successful effort by the government to ban large drinks, he said, would be bad for the industry.

And Kalinowski predicts an uproar if the proposal passes.

"Folks who want to buy Big Gulps and Frappuccinos, a lot of those customers, you're only going to be able to take it away from them by prying it out of their cold, dead hands," he said. "What are you going to do? Post a guard making sure that no patrons order no more than two or more beverages? Maybe the mayor can outlaw all soft drinks and outlaw all fun while he's at it."

City officials said some calorie-heavy drinks such as Starbucks Frappuccinos would probably be exempted because of their dairy content, while Slurpees and Big Gulp drinks at 7-Eleven wouldn't be affected because the convenience stores are regulated as groceries.

PepsiCo Inc., the nation's second largest soda maker, declined to comment on the proposal, referring questions to the New York City Beverage Association. But Coca-Cola Co., the largest U.S. soda maker, on Thursday blasted the move.

"The people of New York City are much smarter than the New York City Health Department believes," the Atlanta-based company said in a statement. "New Yorkers expect and deserve better than this. They can make their own choices about the beverages they purchase. We hope New Yorkers loudly voice their disapproval about this arbitrary mandate."

This certainly is not the first time the industry has had to defend itself from those blaming sodas for America's expanding waistline.

In announcing the proposal, Bloomberg's office said the single largest driver of rising obesity rates is sugary drinks, which have grown in size over the years. The mayor's office noted that the size of a large drink at fast food chains has doubled to 64 ounces. The Center for Science in the Public Interest said sugary soft drinks are "nutritionally worthless products" in applauding the proposal.

Meanwhile, the industry has scrambled in recent years to win back consumers – and fight off critics – by offering choices that address growing health concerns:

_ Pepsi earlier this year introduced its Pepsi Next, which has about half the calories of regular sodas (or 60 calories, versus 140). The Purchase, N.Y.-based company says the early reports on sales are positive.

_ Dr Pepper Snapple Group Inc. last year rolled out its "Dr Pepper Ten," which has just 10 calories. Based on the initial success, the company is testing the 10-calorie formula with other drinks including Sunkist and Canada Dry.

_ Coca-Cola is set to start testing its mid-calorie versions of its Fanta and Sprite in select cities in the coming weeks. In the past few years, the company has also offered its drinks in a variety of smaller sizes. For example, the company in 2009 introduced a 7.5-ounce "mini-can."

As of the end of last year, the company also had met is goals of printing the total caloric content on the front of its beverages, rather than making consumers do the math with the serving sizes on nutrition panels.

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