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How will the ‘Sugar Tax’ affect pricing of Soft Drinks brands?

sugar tax soft drink brands

On 16 March 2016 George Osborne announced controversial plans to implement a new ‘Sugar tax’ on soft drinks in 2018. The tax will be focused on carbonated and energy drinks – fruit juices and milk-based drinks will be exempt from the tax, as will products from small manufacturers.

There will be two tax bands enforced:

  • Drinks with 8g of sugar per 100ml or more will be in the higher tax band
  • Drinks with 5g of sugar or more, but less than 8g, per 100ml will be in the lower tax band

The higher rate of tax is expected to be 24p per litre and 18p per litre for in the lower tax band. Drinks with less than 5g of sugar per 100ml will not be taxed.

The announcement has reportedly led a number of Soft Drinks manufacturers to consider legal action against the Government. According to The Sunday Times, its source will likely argue that the tax is prejudiced, as fruit juices and milk-based drinks are exempt.

Analysis of products in each tax band

Brand View has reviewed the sugar content of the Carbonates and Energy Drinks categories in Asda, Morrisons, Ocado, Sainsbury’s, Tesco and Waitrose.

As published in The Grocer, the analysis shows that more than half of the Carbonates and Energy Drinks listings across the six retailers would fall into either of the tax bands.

Based on retailers’ listings on 22 March 2016, 42.1 percent of products across the six retailers would fall into the higher tax band and incur the 24p per litre charge. Some 12.2 percent of products would fall into the lower tax band and 45.7 percent of products would incur no tax at all.

sugar tax of soft drinks by tax band

Of the manufacturers with 20 or more listings across the six retailers, Fentimans and Merrydown would be heavily impacted as all of their products would be taxable. More than three quarters (75.6 percent) of Fentimans’ products would fall into the higher band of tax, as would 67.6 percent of Merrydown’s products.

Almost half of Coca-Cola’s products (49.7 percent) would not be taxed, whereas rival brand Britvic would not be taxed on 63.5 percent of its range.

Which products are just within the proposed tax bands?

George Osborne’s proposals will not be enforced until 2018, which gives Soft Drinks manufacturers time to adjust their product ranges or reformulate products to avoid, or reduce, the potential financial impacts of the tax.

Fentimans’ Dandelion and Burdock and Victorian Lemonade have exactly 8g of sugar per 100ml, just inside the higher tax band, as does Fever Tree Indian Tonic Water. Reformulating the products slightly, to reduce the sugar content to just below 8g, would bring them into the lower sugar tax band.

soft drink brand grams of sugars

The Shloer Light Red and White Grape drinks have 5.3g of sugar per 100ml, just 0.3g into the lower tax band. Asda and Tesco also have a number of Own Label products that only just fall within the lower tax band. Minor reformulation of these products, so that they contain less sugar, would help the retailers avoid the 18p per litre tax.

sugar content by soft drink brand

 

Impact of the ‘Sugar tax’ on soft drinks pricing

Brand View base price data, from 22 March 2016, shows that the sugar tax would increase the average base price per litre, of the Carbonates and Energy Drinks category as a whole, by 6.3 percent.

When looking specifically at key brands in the category (excluding products within the brand portfolios that would be tax exempt) we can see that the average base price per litre of Coca-Cola and Pepsi would increase by 15.4 and 15.5 percent respectively. The average base price per litre of Coca-Cola Life would also increase by 12 percent.

Brands such as Belvoir, Fentimans and Fever Tree would have a smaller percentage increase, as the base price of the product is higher than the other brands analysed.

percentage change of average base price soft drinks sugar tax

*Brands reviewed excluding products in range that are exempt from the sugar tax

Once introduced, Soft Drinks manufacturers may well pass on part of, or all, the extra cost of the ‘Sugar tax’ to shoppers, which presumably, in turn, George Osborne and his peers hope will decrease public consumption of these products.

The move by some retailers to reduce the number of ‘complicated’ promotions would allow Soft Drinks manufacturers to phase out multi-buy promotions. The introduction of simpler promotions could help them mitigate the impact of the ‘Sugar tax’ to the shopper.

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