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Large Sweet Drink Ban Standing On Dissolving Legs

|Includes: DPS, The Coca-Cola Company (KO), MNST, PEP

Reading through New York City's Mayor Michael Bloomberg's proposal to ban the sale of sugary drinks larger than 16 ounces, I find myself asking if the Mayor really thinks New Yorkers are that stupid? Is obesity and diabetes an epidemic, absolutely, but is it the government's responsibility to limit our options, I do not believe so. Many people that are in favor of the ban cite the city's smoking ban as a successful government control, and it was. The difference here is that I am not personally at risk from someone grabbing a 20-ounce bottle from the bodega around the corner from his or her apartment. Smokers' secondhand smoke would stay inside a bar for a few hours until it was filtered out or breathed in by other patrons.

Mayor Michael Bloomberg has made sugary drinks his crusade of sorts. After failing to get the state legislature to enact a sugary drink tax, the Obama administration denied Mr. Bloomberg's request to prevent food stamps to be used to purchase sugary drinks. The Department of Health of New York City is not under the state's control, but is appointed by Mayor Bloomberg, so one would think that this would pass easily. The ban could go into effect as early as March 2013 (Bloomberg leaves office December 2013).

The ban will have more of an effect on consumers in New York City than the soda companies. The Coca-Cola Company (NYSE:KO), PepsiCo (NYSE:PEP), Dr Pepper Snapple (NYSE:DPS), and even energy drink maker Monster (NASDAQ:MNST) are under the microscope as the 20-ounce bottle is the most popular item on the shelves. If the ban is successful it could spread to different markets, but that is a long shot. If 20-ounce bottles are out, do consumers migrate back to aluminum cans, or will the companies introduce a smaller bottle? Regardless, consumers can expect that new hypothetical 16 ounce bottle to cost roughly the same as the 20-ounce bottle, so Mr. Bloomberg's plan for a soda tax has reared its head, but in another form.

New York City is a huge market, and the ban would affect many different types of retailers from stadiums to restaurants to convenience stores and bodegas and even to food trucks. I know I normally buy one 20-ounce soda with lunch and it is the perfect size. If the ban works, and the government alters consumers' choices, then it is going to be the city that sees financial trouble. This is an extreme example, but if people purchased a 12-ounce can instead and drank water on top of that, how much revenue would be lost for those stores, and how much revenue would be lost for the city and the state in the form of taxes? So now, the Mayor isn't only going after the sugary drinks, he is going after the businesses that sell them.

It is not only the soda's that would be subject to the ban; it would impose a 16-ounce limit on any sugary bottled or fountain drinks that contain more than 25 calories per 8 ounces. Arizona iced tea would be banned, but Snapple would be allowed. Lipton iced tea, which was thought to be a "safe" alternative would see its 20-ounce bottles pulled from the shelves. In a sign that this is a stupid idea, an 8.3 fluid ounce can of Red Bull has more sugar in 8.3 ounces that a 20-ounce bottle of Coca-Cola does. A grande café latte with nonfat milk from Starbucks would still be sold, and so would a tall iced caramel macchiato flavored coffee drink, but a Gatorade would be pulled from the shelves.

The more I research which drinks would be pulled and which ones would stay, the more I see how stupid this ban is in its current form. Beer has more sugar than the 25 calories per 8 ounces, but a pint has 16 ounces, so that is apparently still allowed. Again, it is making big news lately, but I do not expect this ban (even if it goes through) to have a significant effect on beverage makers.

Disclosure: I am long KO.