PHILADELPHIA – A new tax on sweetened beverages is giving Philadelphia residents sticker shock – and putting a pinch on restaurant and retail profits. The 1.5 cents-per-ounce tax took effect on New Year’s Day on beverages with sugar and low- and no-calorie sweeteners, to the dismay of disgruntled shoppers who took to social media to voice their concerns. Many posted photos of beverage receipts that as much as doubled, seemingly overnight.

James Freeman, a Philadelphia resident, said he doesn’t understand “how a $1 two-liter bottle can go up to $2.”

“It’s definitely affecting the way I’m shopping,” he added during a recent trip to Shop Rite.  

Fran McGorry, president and general manager, Tri-State Metro Operating Unit for Coca-Cola Refreshments, said residents are "surprised and, frankly, angry. Most thought the tax was a nominal amount, but a penny-and-a-half per ounce adds up quickly.” 

The tax is hurting business owners, too. Frank E. Oliveri, the fourth-generation proprietor of the original Pat’s King of Steaks in South Philly, said he was forced to raise his soft drink prices for the first time in five years.

“Now the (wholesale) price of soda has increased $53 per five gallons (of bag-in-box fountain syrup) in additional tax," he explained, "so unfortunately we’ve had to pass that on to the customer.”  

‘It Has Literally Killed Our Business'

Mom-and-pop convenience shops and restaurants have been hit especially hard. “It has literally killed our business,” said Samuel Kuttab, owner of a Quick Stop Market. “We’ve not only had to comply with the tax, but we’ve had to justify to our customers who are very unhappy, and we’ve seen a major drop in sales since the first of the year.”

'We’ve not only had to comply with the tax, but we’ve had to justify to our customers who are very unhappy, and we’ve seen a major drop in sales since the first of the year.'

 

 

 

And while mass retailers and large grocery chains are highlighting the increased price from the tax on shelf displays and as a separate line item on receipts, smaller businesses with limited resources and technology are unable to do so. Some have even decided to remove everything but bottled water from their shelves.

Many Philadelphia residents didn’t realize how many drink categories would be taxed at the start of 2017. More than 1,000 beverages – from sports drinks and teas, to juice boxes and diet soft drinks – are impacted. “Even almond milk,” McGorry added. “This is billed as a soda tax, but what we’re hearing is ‘Wait a minute, I’m not even buying a soft drink!’"

Restaurants with fountain beverage equipment – a major source of revenue for the foodservice channel – are struggling, too. “In many cases, they’ve eliminated free refills,” McGorry said. “And some have even asked us to help move their dispenser behind the counter.”

Philadelphia residents protest the 1.5 cents-per-ounce sweetened beverage tax outside city hall in 2016.

American Beverage Association

Shopper Frustration

The tax is sending many frustrated shoppers outside the city limits – which in some cases may be across the street or around the corner from stores subject to the tax – in search of a better beverage value. Many stores outside the city limits are posting “no soda tax here” signs on their front doors to lure in passers-by. 

A sign outside a Philadelphia convenience store that has stopped carrying soft drinks due to the sweetened beverage tax.

“It’s pushing business here,” said Joe DiGirolamo, mayor of the neighboring Bensalem Township. “A lot of folks I talk to call it ‘Silly Philly’. They’re angry… it’s a tough tax hurting a lot of people, and they’re coming out of Philadelphia into Bucks County and other surrounding counties.” 

The sudden influx of traffic to stores outside Philadelphia is leading to out-of-stocks – and more shopper frustration. “It’s impacting some retailers’ ability to manage and forecast their beverage inventory,” said Stuart Kronauge, senior vice president, brand marketing, Coca-Cola North America. “When their customers are unhappy for whatever reason, it reflects poorly on both them and us.”

The Philadelphia City Council passed the beverage tax in June 2016 despite a poll showing that nearly 60 percent of residents were against it. This sentiment is consistent across the U.S.; over the last eight years, 43 soft drink tax proposals have been rejected across the country. A recent Harris Poll found that 62 percent of Americans oppose these taxes.

'It’s absolute sticker shock. Consumers are surprised and, frankly, angry. Most thought the tax was a nominal amount, but a penny-and-a-half per ounce adds up quickly.'

Discriminatory taxes that single out beverages are not a reliable solution to funding important programs like pre-K education, Kronauge said.

“We disagree with singling out any single set of products and think government should explore ways to apply taxes fairly across categories,” she added.

Listening to Consumers

Coca-Cola is stepping up efforts to both reduce the sugar content in its sparkling beverages and expand its diverse beverages portfolio through innovation and investments in brands like fairlife milk and Suja juice. More than 250 of Coke’s 800 beverages sold in the U.S. are low- or no-calorie, and still beverages account for roughly one-third of the company’s sales volume in its flagship market.

'Consumers and their preferences are at the heart of our long-term growth strategy. What we’re seeing is a desire for smaller packs like 7.5-oz. mini cans, and consumers drinking low- or no-calorie brands like Honest Tea, Dasani and smartwater. It’s our job to meet consumers where they are and give them the beverage choices they want, on their terms.'

“Consumers and their preferences are at the heart of our long-term growth strategy,” Kronauge said. “What we’re seeing is a desire for smaller packs like 7.5-oz. mini cans, and consumers drinking low- or no-calorie brands like Honest Tea, Dasani and smartwater. It’s our job to meet consumers where they are and give them the beverage choices they want, on their terms.”

In the Philadelphia market, McGorry said Coca-Cola is doubling down on mini cans, which carry a lower per-serving tax while helping shoppers manage their calories and portions, and boosting availability of untaxed brands like Dasani, Core Power and unsweetened varieties of Gold Peak and Honest Tea.

Mini Can Coke Zero

Photo by Amy Sparks

Reducing Sugar in Beverages… Effectively

The Coca-Cola Company is taking steps to help people reduce their sugar intake, which is the stated goal of many beverage tax proponents. As a company, and in partnership with America’s beverage companies, Coca-Cola is making changes to the way it makes, advertises and sells beverages.

Here are a few of the company’s recent highlights:

  • Led the industry in adopting clear, front-of-pack calorie labeling for all of its beverages. 
  • Offering more drinks in smaller sizes across its portfolio.
  • Reducing sugar in a number of existing beverages.
  • Innovating to create more low- and no-calorie product choices.  

Along with industry partners, the company is reducing beverage calories consumed per American by 20 percent by 2025 through the Balance Calories Initiative (BCI). The single-largest voluntary effort by any industry to fight obesity and related health issues, BCI aims to change consumer behavior and drive interest in lower and no-sugar beverages, and smaller packages. Pilot programs are underway in five markets with above-average obesity rates – New York, Los Angeles, Little Rock, Ark., Montgomery, Ala, and the Mississippi Delta.

These efforts by Coca-Cola and America’s beverage companies are not new. In the last decade, they have voluntarily taken steps to benefit communities, especially on the issue of obesity. Those efforts include partnering with former First Lady Michelle Obama on her Let’s Move campaign and introducing the Clear on Calories Initiative that puts prominent calorie labels on the front of every bottle and can from The Coca-Cola Company. And the industry’s School Beverage Guidelines removed 90 percent of the beverage calories shipped to schools.