Soft Drinks and the UK Sugar Tax

What Can Beverage Companies Do?soft drink bottle zero sugar

For the past few years, sugary drinks have been in the firing line in the war against obesity. While there’s evidence that sugary drinks contribute obesity, there are differing ideas on the best ways to prevent it.

In a budget announcement in March 2016, the UK Government included a sugar tax on carbonated drinks. The idea behind the tax is to help tackle obesity, particularly in children. The levy will apply to both producers and importers.

Sugar Tax Legislation

The sugar tax legislation will be part of the Finance Bill 2017. It is scheduled to come in to force in April 2018. This gives soft drinks manufacturers and importers less than two years to take action. That’s if they feel it is prudent to do so.

The tax will apply to specific drinks which are high in sugar and popular among children, teenagers and young people. The tax will also be also banded: the more sugar, the higher the tax. There will be a main rate charged for drinks containing more than 5 grams of sugar per 100 millilitres. There will also be a higher rate charged for drinks with more than 8 grams of sugar per 100 millilitres.

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Some soft drinks, despite being high in sugar, are excluded. These include pure fruit juices, coffee, and some milk-based products. In addition, certain smaller producers will also be exempt.

Reducing Sugar Consumption

The legislation is designed to reduce sugar consumption, and so lower obesity levels and other conditions related to excessive sugar intake. The UK government is hoping that by introducing the tax, soft drinks manufacturers affected by it will lower the amount of sugar in their products. This could be by changing their recipes, reducing portion sizes, or getting the people who drink their products to change to lower sugar alternatives.

So, what, in practical terms, can soft drink producers do to make sure their businesses don’t suffer because of the tax?

Options for Soft Drink Companies

The first option is to accept the tax and do nothing. Consumption, price and buying patterns are complex in the soft drinks market. The price increase could be absorbed within the production and retail channels. There is sugar drinkalways the chance that the extra tax won’t actually make any difference to consumption of some products, especially those with strong brand loyalty. Although arguably it’s not a strategy many companies are likely to adopt, it is a potential option.

A similar option, but again going against the spirit of the legislation, would be to accept the tax while increasing marketing of the offending products. This is also a risky strategy. It’s been tried, even before the prospect of a tax. In some markets, despite aggressive marketing tactics, high sugar soft drink sales are still declining.

If the ‘acceptance’ options happen, the costs will have to be borne by the manufacturers and retailers or partly or fully passed on to the consumer. If passed directly on to the consumer, the UK Office for Budget Responsibility estimates the tax may add 18 to 24 pence on to the retail price of a litre bottle of standard product.

Some companies may choose to oppose the legislation. While this may appear attractive to those that are against altering their recipes, it could be a long and costly battle. Whatever the rights and wrongs of the tax (as well as being applauded by many, it has also received its fair share of criticism), a legal battle would be a heavy gamble. While legal opinion may differ, it would inevitably be expensive, and could cost in terms of brand image and reputation as well as hard cash.

So, the easiest path, although not without its difficulties, would seem to be to accept the tax while reducing sugar. This could either be through reformulation or reduced portion size. And for security, also providing an alternative by offering and promoting less sugary choices which don’t attract the levy.

Problem or Opportunity?

Coca Cola is one of the soft drink manufacturers that is likely to be hit hardest by the tax unless it takes action. But rather than fighting, it is seeing the tax as something of an opportunity.

Coca Cola is innovating and adapting, particularly with its low and zero sugar products. At the same time it is promoting alternatives within its brand portfolio: waters, juices and its other drinks that the tax won’t apply to. So, publicly at least, Coca Cola has decided to collaborate, going along with the ethos of the sugar levy strategically and practically.

For the larger soft drinks producers, this, or fairly similar strategies,  are likely to be the most common.

Trends Toward Healthy Options

Whether taxation reduces the number of overweight kids in our society or not, consumers themselves are already moving away from drinks they consider unhealthy. In Australia for example, concerns about the negative health effects of sugar is causing millennials to significantly reduce their consumption of soft-drinks.

The trend towards perceived healthy food and drink is becoming more pronounced. Healthy food categories are growing faster than those considered indulgent. What’s more, consumers, particularly younger consumers, are more likely to pay a premium for food and beverages with health attributes. So moving away from sugar and towards alternatives is a strategy many larger beverage producers are following anyway.

Time Will Tell

The UK government is consulting on the details of the sugar levy this summer. While the UK isn’t the only country that’s taxing fizzy drinks, many other nations will be watching carefully.

Whatever happens, it will take a long time to see what, if any, influence the tax has on reducing overweight and obesity rates children.

HPS Product Recovery Solutions works with a wide range of businesses that process beverages, including fizzy drinks, fruit juices, dairy and fruit concentrates. Our customers include Britvic, Coca Cola and many others. Our product recovery and pigging systems for soft drinks companies increase yields, reduce waste, speed up changeovers and help towards sustainability goals.

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While our solutions won’t get you out of paying the sugar tax, they will improve your operational efficiency, no matter what liquid you process.

For more information about improving your liquid processing through product recovery, pigging and liquid transfer solutions, please contact HPS.