For many years, soda was an unstoppable force in the beverage industry, but now the sugary drink is facing local taxes that have accelerated a decline in its consumption. Starting in 2005, several cities began implementing taxes, beginning with Berkeley, California, which introduced a one-cent-per-ounce tax specifically targeting sugary soft drinks. This trend has continued with similar taxes being enacted in places like Philadelphia, San Francisco, Oakland, and Cook County, Illinois, which encompasses Chicago. In June, Seattle’s City Council also approved a tax with a 7-1 vote after extensive discussions regarding the intricacies of a soda tax. Major soda companies like PepsiCo, Coca-Cola, and Dr Pepper Snapple, which stand to lose millions in revenue, argue that these taxes unfairly target their products, viewing them as a cash grab by local governments. They contend that if the goal is to reduce sugar consumption, sweets such as candy and ice cream should also be taxed.
Brian Kuz, the chief marketing officer of Talking Rain Beverage Co, makers of Sparkling Ice fruit-flavored waters, emphasized that while obesity is a pressing issue, soda is not the sole factor contributing to it. He noted, “Sugar is only a small part of the problem, along with other fatty foods, an imbalanced diet, and a lack of exercise.” He believes it’s arbitrary to focus solely on soda for taxation.
Proponents of the soda tax argue that it is essential for community welfare. Mike Dunn, deputy communications director for Philadelphia, explained that poverty, inadequate education, and struggling neighborhoods plague the city, and the soda tax aims to address these issues. “The beverage tax is imposed on an industry that has profited from low-income communities in a city where one-quarter of residents live below the poverty line,” he stated. “This tax redirects some of those profits back into the communities by funding urgently needed programs.”
Simultaneously, local retailers are reporting significant losses due to the taxes. In Berkeley, a study found that sales of all sugar-sweetened beverages dropped by approximately 9.6% in the first year following the implementation of the one-cent-per-ounce tax. Similarly, in Philadelphia, where a 1.5-cent-per-ounce tax was enacted, PepsiCo announced plans to lay off 80 to 100 workers after experiencing a 40% drop in sales.
With ongoing debates surrounding soda taxes, opinions are divided. Jim O’Hara, director of health promotion policy for the Center for Science in the Public Interest, argues that such taxes are necessary due to the detrimental effects of excessive sugar consumption on public health. “We know it increases the risk of obesity, heart disease, Type 2 diabetes, and tooth decay,” he stated. “By providing communities with resources to combat these chronic diseases, the tax will collect the social costs associated with what the industry has marketed to consumers.”
O’Hara highlighted that in areas with soda taxes, sugar drink consumption has decreased while healthier beverage purchases have surged. A study conducted by the Public Health Institute in Oakland corroborated his findings, showing a 9.6% decline in sugary drink purchases and a 3.5% increase in healthier beverage consumption since the Berkeley soda tax was enacted. Nancy Brown, CEO of the American Heart Association, has urged the beverage industry to recognize the positive impacts these taxes have on community health.
The beverage tax in Philadelphia is expected to support critical investments in quality pre-K programs, community schools, and the renovation of parks and libraries. Dunn mentioned that investing in public spaces has been linked to improved safety, enhanced educational opportunities, and job creation. Since the tax’s implementation, Philadelphia has created 251 pre-K jobs, provided quality early education to 1,870 children, and initiated its first cohort of nine community schools.
Researchers from Harvard University and Tufts University predict that with eight local jurisdictions in the U.S. having approved taxes on sugary beverages, more areas will likely follow suit. Just five years ago, soda tax initiatives were largely dismissed as failures before any campaigning commenced. Today, however, they are viewed as having a fair chance of being enacted.
The beverage industry has invested millions in opposing new taxes, and some of their efforts have succeeded. In a recent election, Santa Fe voters rejected a proposed tax increase on sweetened beverages. Lauren Kane, a spokesperson for the American Beverage Association, argued that soda taxes disproportionately affect working families and those living paycheck to paycheck. “You also have to consider how this impacts small businesses and retailers, and we’re seeing significant fallout in Philadelphia,” she stated. “These taxes have real consequences for real people and harm the economic engines of small businesses and communities.”
In Philadelphia, Kane reported that beverage sales at local Shop Rite stores have dropped between 10% and 25% since the tax was introduced. She added that the tax has also prompted consumers to shop outside the city for better prices. Critics of the tax argue that the government should not dictate consumer choices through taxation. Al Soricelli, CEO of True Citrus, remarked that while proponents may advocate for the revenue generated from the tax to support community efforts, there is no guarantee the funds will be used as promised.
Soda manufacturers and retailers are feeling the pressure from the soda tax, with Pepsi ceasing the distribution of two-liter bottles and 12-packs of soda to Philadelphia retailers just three months after the tax took effect. The company has also laid off around 100 workers in the area. Canada Dry Delaware Valley, a soft drink distributor in Philadelphia, was forced to cut one-fifth of its workforce after business fell by 45% in the first five weeks of 2017. One grocer operating six supermarkets in the city reported a 15% sales drop within just over a month, calling the impact “devastating.”
Kuz from Talking Rain Beverage emphasized that soda has historically been used to attract shoppers to grocery stores, where they would often purchase additional items. “With a tax comes a drop in volume and profitability,” he noted, suggesting that price increases in other categories may be necessary to make up for lost sales. He argued that the shift towards healthier beverages will not compensate for the decline in sales of products subject to the sugar tax, meaning nobody truly benefits financially.
After a contentious legal battle, the soda tax in Cook County, Illinois, finally went into effect this week. The penny-per-ounce tax, approved by the county council in November, faced opposition from the Illinois Retail Merchants Association and several grocers who found it confusing. A recent court ruling went against the retailers, although they have appealed the decision. The tax was initially deemed necessary for stabilizing the county’s finances, with projections of $67.5 million in revenue for 2017 and $200.6 million for the following year.
Due to the complexity of the tax—applying to both sugar-sweetened and artificially sweetened drinks, while exempting beverages made by individuals—the implementation faced delays. During this time, the Cook County Board President issued layoff notices to 300 employees, and it remains uncertain how many will be recalled.
As the tax began to be enforced, shoppers in the Chicago area expressed confusion over the increased prices for drinks. Some have already stopped purchasing taxable products, while others plan to shop outside the county. The future of the appeal and the financial implications for Cook County remain uncertain. Given that soda taxes have been shown to lower consumption and studies suggest a significant impact, whether this tax will alleviate the budgetary challenges in the Chicago area will take time to determine. The true effects on retailers, soda manufacturers, and public health will also unfold in the coming months.
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