Is today’s Levy a soft option in the war against obesity, and what effect will it even have on pubs and bars across the UK?
It’s been nearly two years since the sugar tax was announced in the Spring Budget 2016 – much to the dismay of many. Former chancellor of the exchequer George Osborne cracked open the Soft Drinks Levy bottle, the government’s plan of attack on the UK’s obesity epidemic, and while you may not be selling 2l bottles of the stuff like most off-trade retailers, your drinks selection and price points in the on-trade will certainly feel its effects.
Our drinking culture has been slowly changing. And no, I don’t mean less relentless binge drinking on alcopops among 18-year-olds (although that’s been noted); rather, the soft drinks manufacturers have been dizzily releasing copious amounts of low and no sugar variants of their signature serves in preparation.
“Since 2012, we have invested £30m in reformulation and have introduced 29 reformulated or new low or zero sugar soft drinks since 2005,” explains Rob Harris, out-of-home director at Coca-Cola European Partners. “We have helped our pub and bar operators to increase sales by providing a greater choice of low and zero sugar options to offer their customers.”
Harris notes the introduction of the soft drinks tax comes at a time when health-conscious consumers are demanding more low and zero sugar options to choose from anyway, which is why manufacturers have taken it so seriously and pre-emptively invested.
“Licensees should focus on getting their range right by offering a larger number of low and zero sugar soft drinks as well as zero sugar variants of their best-selling soft drink lines,” he adds. “It is key that publicans provide staff training so that employees can help consumers understand the choices available to them.”
Some operators have been keeping a beady eye on the general shift towards lower sugar intake, making preparations to ensure they aren’t hit with a sweet surprise today.
“We are always looking at consumer trends,” explains a spokesperson for Fuller’s. “Consumers are definitely looking for healthier options these days, regardless of what the government is doing. As a result, we did change to Pepsi MAX on our soda guns some time ago and we do look to give our customers a good range of ‘better for you’ soft drinks, alongside established favourites.”
A soft touch?
This steady transition is probably one of the reasons there hasn’t been sheer panic from operators and manufacturers – despite some problematic outlooks with regards to potential job loss and financial damage to the soft drinks industry. But the way in which soft drinks are served and dispensed will be greatly different, come this month.
“This is especially seen across draught soft drink suppliers,” highlights Paul Weston, national sales controller for Frobishers Juices. “Standard ‘bag in box’ syrups are moving to low cal or no cal formulas, and original full sugar variations are increasingly only being available via more premium glass bottle options within fridges. For mainstream brands, therefore, more of a default purchase to low cal options will be experienced by operators. This will hopefully negate the need for operators to push up prices of standard ‘on tap’ soft drinks.”
So, while there’s no shortage of soft drinks available to operators now who want to stock drinks with no added sugar, the question remains as to whether an extra few pence on a drink affected by the sugar tax will have any effect on society’s healthy drinking habits at all? Or is the whole move just a way for the government to rake in around a potential extra £863m from retail sales alone? Either way, the Levy’s simplistic approach will have a drastic effect on a drinks industry that is multifaceted.
Bitter sweet symphony
If you’re still not convinced, you only need to pay attention to the recent reaction of some major industry figures. ALMR CEO Kate Nicholls made it clear when speaking to New Statesman earlier this year: “The sugar tax will affect almost all of our members,” she warned. “Collectively, we estimate 4,000 jobs will be at risk across the sector as a result.”
Jobs will indeed be under threat – from the rural workers nurturing the home-grown sugar present in much of our soft drinks, to the staff serving guests at the bar. But it’s not only jobs that are at risk.
The financial burden that the on-trade already faces will increase as a result of the Levy – as Brigid Simmonds, chief executive of the BBPA pointed out in her column in Pub & Bar back in June 2016: “The new Levy will increase the burden of taxation on pubs – and put up prices of soft drinks for pub goers,” she stated. “As well as penalising soft drinks customers, we certainly don’t want the Levy to create a new incentive to steer customers towards stronger drinks, or penalise drinks that contain considerably less sugar than the drinks that are its real target.
“The government has already recognised this, and indicated that cans and bottles of shandy or spirit-mixed drinks will be exempt. However, a lot of pub and bar drinks are ‘post-mixed’ in front of the customer and, as currently planned, these won’t enjoy relief from the Levy. That is why we have already held discussions with Treasury officials on the Levy and strongly pressed for pubs to be able to claim relief for ‘post-mix’, so drinks that form part of an alcoholic drink. We don’t want to see this new tax morph into a ‘shandy tax’.”
The industry certainly doesn’t need a new narrative of Levy avoidance, with operators feeling they have to stock more cans and bottles, removing the theatre of drinks-making that draws so many people out of their own homes every day. Will some operators choose to press their suppliers to bear the brunt of the additional Levy – keeping their own wholesale price the same despite the increased cost in production?
Perhaps the prices of diet drinks will also rise, narrowing the gap between exempt drinks and affected serves? The soft drinks selection has the potential to become an incredibly lucrative area of a bar menu – and trade media has been pushing the premium soft drinks message for some time now.
Using soft drinks consumption as a kind of tool to measure sugar intake for the population will likely further divide the sector into two classes of drink – and it’s probable that companies manufacturing products aimed at the premium end of the market will face a dilemma: reformulate and risk consumer backlash against taste, or soak up the tax and pass on the cost. The suppliers’ decisions will directly affect the range stocked by operators, who now need to serve balanced ranges suited to all types of guests.
“Our recent focus group research indicated, that, just as in the purchase of alcoholic drinks, customer choice can be dramatically affected by mood and sense of occasion,” explains Weston. “A lower calorie, ‘healthier’ choice may be considered during lunchtime trade for example, but a more treat-based, higher sugar soft drink may be chosen on a night out or for celebrations. With drinks above the sugar threshold liable to go up in price once the Levy is implemented, it is those that continue to offer superior taste profiles and quality that I feel customers will continue to seek out and be happy to pay that little bit more for.”
The whole conversation is educated guesswork. The industry is looking at current drinking trends, which have been meandering along the path to increased wellbeing for years, and at other countries who have already implemented a similar tax. Take Mexico, for example, which has recorded an average decrease of 7.6% in the purchase of sugary drinks in the two-year period following its implementation. But, then again, Mexico suffers from +70% of the population being overweight or obese (with nearly three quarters of their sugar coming from sugar-sweetened drinks). The UK’s appetite for sweet drinks is as different as its socioeconomic structure to the Central American country.
Our population has more disposable income, and while internet shopping continues to take its toll on British high streets – people continue to seek drinking experiences in your establishments, away from their smart devices. So, while there are numerous concerns about the sugar tax’s lasting impact on our industry, for now, operators should embrace the opportunity to create engagement around the soft drinks menu.
Launch a new soft drinks menu, experiment with innovative long drink recipes with products that are exempt from the tax, and find responsible ways to stock and serve drinks that will remain at the same sugar content post-Levy; make this transition a positive one.
Communicate your efforts properly to customers and who knows, you might even see your soft drinks sales bubble over. If this sugar tax is targeting products with little or no nutritional value, then the onus is on operators to deliver a different type of value on their menu, in the form of theatre, signature serves and staff engagement, with every drink.
Let’s talk about… tax
It might not be the sexiest subject to see in the new year, but it’s going to affect your business. So, just what exactly is the Soft Drinks Levy?
- It takes effect from today, 6 April 2018
- It is expected to add around a quarter of a percentage point to Consumer Price Index growth in 2018 to 2019
- It will not apply to any drink where no sugar is added (milk, water, natural fruit juice)
- It will apply to the producers and importers of drinks, but the cost may be passed on to operators
- A lower rate will apply to added sugar drinks with a total sugar content of 5g or less per 100ml, and a high rate for drinks with 8g or more per 100ml (so, an extra 18p or 24p per litre respectively)
- Alcoholic drinks with an alcohol by volume of up to 1.2% are included in the Levy (the government will make a provision to exempt certain drinks)