sugar tax

Soft Drink Industry Levy and Price Rises

The long-anticipated tax on fizzy drinks has finally come into effect in the UK, meaning many soft drinks firms are now facing hefty tax bills on the high sugar-sweetened beverages they produce or import.sugar tax UK

The Soft Drinks Industry Levy (commonly referred to as ‘The Sugar Tax’) will add an extra 18-24p per litre on some fizzy drinks, depending on their sugar content.

Prices of drinks in pubs and restaurants are also included in a bid to try and tackle the UK’s obesity epidemic.

A while back when the levy was first announced, we looked at the options available for soft drink manufacturers to ensure their businesses don’t suffer because of the sugar tax. Some of these options included reformulation using sugar substitutes or putting prices up and risk putting off customers.

This blog article provides an update on the sugar tax and how the industry has responded to the levy.

Companies Rushing to Reformulate

The Office for Budget Responsibility (OBR) expects the sugar tax will raise around £240 million in its first year, which is proportionally less than the £520 million that was originally put forward when the government first announced the proposal at the 2016 budget.

This is largely due to soft drink manufacturers embracing a proactive approach to the levy and reformulating their product portfolio or launching no/low-sugar alternatives. In fact, more than 50% of manufacturers have modified their formulas to ensure their products are below the sugar tax threshold.

As a reminder, the lower band requires soft drink companies to pay a tax on drinks containing 5 grams per 100 millilitres of sugar whereas the higher bracket requires companies to pay tax on drinks containing 8 grams or more of sugar on every 100 millilitres. Drinks with low levels of sugar are below the threshold, and therefore are exempt from the tax.

So, how did the soft drinks industry react to the Sugar Tax?

Replacing Sugar with Artificial Sweeteners

The majority of manufacturers have gone down the route of replacing sugar with artificial sweeteners. AG Barr, maker of Irn-Bru, an iconic Scottish soft drink, has reduced the sugar content by over half and it now has 4.7 grams of sugar per 100ml instead of 10.3 grams.soft drinks sugar tax

However, this controversial move has caused uproar amongst its large fan base, with thousands of individuals signing an online petition called “Hands Off Our Irn-Bru”. There were also reports in January of Irn-Bru fans stockpiling cans of the original soft drink in preparation for the sugar tax.

A similar manoeuvre was made by Ribena, who, in the two-year transition period, cut its sugar content by half. It’s modified recipe now contains less than 5 grams of sugar per 100ml bottle having been replaced by the artificial sweeteners Acesulfame K and Sucralose in a bid to maintain its taste.

Some Companies are Refusing to Budge

However, not all companies have gone down the route of reformulation. For instance, Coca-cola and Pepsi are two prime examples of soft drinks who’s recipes are remaining intact.

Coca-Cola’s reluctance to modify Cola-Cola is understandable, considering the last time the company changed the formula of the world’s most popular soft drink, it was a marketing disaster.

The Coca-Cola company replaced their signature soft drink with a sweeter version referred to as ‘New Coke’, which marked the first recipe modification in 99 years. While its customer research had suggested people prefer the modified version, it soon faced huge customer backlash with many consumers resenting the formula change.

Following this, the company swiftly reversed course and put its original soft-drink formula back on the market.

Offering No Sugar Alternatives

So, instead of reducing the sugar content, Coca-Cola is getting around the tax by reducing the size of its original coke bottles and putting prices up.

This doesn’t apply to all Coca-Cola brands, as a large percentage of their product portfolio will be exempt from the tax. For instance, the company have modified Fanta considerably to reduce the sugar content in a bid to combat the levy. At the same time, Sprite Regular has also been tweaked to contain fewer calories and sugar.

Long before the levy was even announced, Coca-Cola had already been proactively cutting sugar from their soft drinks and focusing their marketing efforts on the low and zero-sugar variants.

Time Will Tell

Soft drink manufacturers will be anxiously monitoring sales after the price rises. After all, it’s the consumers who will be forced to absorb the sugar tax at the checkout. Therefore, when prices do rise, sales of sugary beverages are likely to decrease.sugar tax

How consumers will react to modifications that, in many cases, are altering the taste of long-time favourites, only time will tell.

At the same time, it’s too early to say whether the sugar tax will be a success or not. After all, there is no evidence that suggests imposing taxes on sugary drinks reduces obesity rates. It’s also important to note that the sugar people consume from fizzy drinks has fallen considerably over the last decade, whereas obesity rates have continued to increase.

Taxing soft drinks is certainly not going to provide an overarching solution to the UK’s obesity epidemic, but it’s the first step. The big question remains – what comes next?

How Product Recovery Can Benefit Soft Drink Manufacturers

HPS Product Recovery Solutions help many businesses that process soft drinks, alcoholic beverages, fruit juices, dairy, non-dairy drinks and fruit concentrates increase profitability by improving operational efficiency, reducing waste and increasing product yields.

Our pigging and product recovery solutions also speed up changeovers, minimise downtime, reduce cross-contamination risks and improve environmental sustainability.

Our proven solutions have helped leading brands such as Coca-Cola, Britvic and many others. Here you can find some case studies on product recovery systems used in soft drinks manufacture.

As well as working closely with the beverage industry, HPS’s other key industries include food, chocolate and confectionery, cosmetics, personal care, pet food, household good plus paint manufacture.

To bring the benefits of pigging to your organisation, then please get in touch!

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