April 13, 2017
The Sugary Drink Tax: How to Keep Your Profits from Going Flat
On Jan. 1, 2017, Philadelphia became one of the first U.S. cities to pass a tax ($0.15 per oz.) on sugary drinks, including artificially sweetened beverages, such as diet soda. Berkeley, California; San Francisco; Oakland; Albany, California; Boulder, Colorado; Cook County, Illinois; and Seattle, Washington have also joined Philadelphia in this initiative. Even those across the pond are starting to take notice in the benefits of the tax, and on March 8, 2017, the British government confirmed that it too would establish a new sugary drink tax, known as the Soft Drinks Industry Levy (SDIL). This measure will pass two separate taxes of 18 pence and 24 pence per litre ($0.23 and $0.30 per 33.814 oz.) for sugar-added drinks. Other countries that are following suit include: Denmark, France, Hungary, Ireland, Mexico, Norway, and South Africa.
It is not shocking that the beverage industry will feel the sting from these taxes, especially since the demand on sugary drinks has been in steady decline for the past 10 years. However, this will likely have a beneficial impact on the health of nations worldwide. In fact, according to a 2012 study in the journal Health Affairs
, it is estimated that a penny-per-ounce tax on sugared beverages could prevent 2.4 million cases of diabetes per year, 8,000 strokes, and 26,000 premature deaths over 10 years. And, besides the immediate health benefits, the tax money will be put to good use towards funding universal pre-K, jobs, and development projects.
But for manufacturers, these taxes, combined with the gradual consumer shift towards flavored waters and non- sweetened juices, are slowly draining soft drink companies’ shares of the beverage market. Data from Beverage Marketing Corp.
shows that companies are expected to ship 13.5 million gallons of water this year (an increase of almost 1 million since 2016), compared with 12.2 million gallons of carbonated beverages (a decrease of 200K since 2016). In Europe, sales have dropped by over 5%, and by 10% in the U.K. alone, BBC
reported. And, in Mexico, sales have diminished by 12%, after the country introduced a $0.05 tax per 35 fl. oz. on sugar-sweetened beverages in 2014, according to the British Medical Journal.
For the last 10 years, it has become increasingly clear that manufacturers must absorb some of the sugary drink taxes in their major markets or invest in new product development (NPD) to avoid being subject to the taxes. Either way, money is being lost and these companies are looking for ways to recoup the losses. Fortunately, the manufacturing process offers ways for organizations to keep potential losses to a minimum.
To start, these companies need to refine their manufacturing operations and invest in an effective enterprise Quality Intelligence solution to help safeguard profits. With a Quality Intelligence solution, beverage manufacturers can leverage statistical process control (SPC) methodologies to not only improve product quality, but also optimize manufacturing processes to positively impact the company’s bottom line. The analyses will help manufacturers to quickly identify opportunities to increase efficiencies and control filling processes across operations, resulting in reduced overfill and millions in cost savings on ingredients. These savings can offset, if not supersede, the cost of the sugary drink taxes, enabling manufacturers to maintain their competitive advantage in the beverage industry and avoid the negative effects of the taxes, such as employee layoffs.
In the second installment of this three-part blog series, we further discuss how an effective Quality Intelligence solution is essential to stopping profits from going down the drain for the beverage industry.