Comment - Soft Drinks - Industry Can Avoid Rising Tide of Regulation

Soft drinks are becoming a target for health campaigners in the same way as tobacco and alcohol are. Increased taxes are now a real threat. But, as Richard Corbett argues, if producers move swiftly they can see off these threats.

If you want to make a soft drinks operator wince mention the word tax.

Increasingly, sugary soft drinks are being talked about in the same breath as tobacco and alcohol - and a tax on soft drinks is seen by many as a natural progression to tackle our children’s expanding waistlines and an assortment of other health concerns.

The threat of a tax is very real in many markets. Only last week in Ireland, a 10% tax on soft drinks was put forward by lobbyists. Meanwhile, in the neighbouring UK earlier this year, the Academy of Medical Royal Colleges advocated a tax that would push up the price of sugary drinks by as much as 20%.

If the Irish and UK governments do bring in a tax, they will be following the French, who introduced a well-publicised soft drinks tax at the beginning of last year. In France, the tax undoubtedly had the desired effect and the carbonated soft drinks market dropped by 5% in volume, according to Canadean. Significantly, in the previous year the market had grown by more than 3%.

But first-quarter figures show that the downward trend is continuing albeit at a more modest rate. The tax on soft drinks in France has undoubtedly lowered soft drinks consumption. This is probably, however, more down to the psychological effects than the financial one. Essentially, it is not good PR to have your industry taxed for health reasons.

But, look elsewhere in Europe, and there are hints of hope.

Back in January 2012, I wrote about the tax in France and suggested that the French should look to Denmark to see the side effects of a tax on soft drinks.  Well, in Denmark there has been a dramatic twist and the soft drinks tax is not just being halved from July, it is being abolished altogether in 2014.

As policy U-turns go, the Danish government’s decision is up there with St Paul’s change of heart on the Road to Damascus. The government were elected in 2011 with a mandate to make the Danish a slimmer nation and tax was their weapon of choice.

The government's first move had been to bring a ‘fat tax’ on saturated fat and it was when the public turned against this measure and the government ditched it, that soft drinks operators sensed they had a chance to put their case forward.   

A coalition of stakeholders  was formed in the brewing and soft drinks industry and although the tax on soft drinks increased as planned in 2013, the government was now definitely listening. The feared sugar tax that was due to be implemented was abandoned and in late April the dialogue came to fruition when it was announced that as part of new growth strategy, the long standing soft drinks tax in Denmark was on its way out. 

It was definitely a sizeable victory for the Danish soft drinks industry which will hearten many. The main factor behind the abolition can be traced to the fact that the soft drinks tax discouraged Danes buying soft drinks in Denmark and encouraged them to go to the border shops in Germany.

The nearer you got to the German border, the less soft drinks were purchased domestically. And the more the tax went up, the more the Danes flocked to Germany. Just how much volume was coming over from the German Border shops is not easily measured. But, sensible estimates put it at nearly a third of the total Danish consumption of fizzy drinks.

The government for many years was in denial and it was only when the exports to these shops from Danish producers were leaked to the media that the scale of the trade became apparent. Tax coffers were being adversely affected and governments are, at the end of the day, just like consumers; if you hit them in the pocket then they are likely to change their behaviour. 

Not surprisingly the Union of European Soft Drinks Associations (UNESDA) is delighted but the issues facing the industry still need to be addressed. Tax is still on the agenda in countries across the globe and there are also other options open to the lawmakers who have to be seen to be responding to the drip drip of negative publicity. Restrictions on advertising come to mind or limitations on portion sizes similar to the ones that were recently rejected in New York.

The industry must be seen to be acting and reducing serving sizes. It's something that can be done voluntarily and, if handled shrewdly, margins can be increased. The calorie content of your drinks cans also be lowered and this is the road that UK players GlaxoSmithKline and AG Barr announced that they would be going down for brands in their portfolios.

Again, this too can boost margins. Probably the most straightforward way of countering the adverse media can be achieved by continuing to broaden the range of low-calorie options available to consumers. The advent of stevia has provided opportunities to do just this and many operators are focusing new product development budgets on new stevia-sweetened products.  

Meanwhile, the Coca-Cola Company has, like the fox running with the hounds, joined the fight against obesity. A new adversiting campaign has acknowledged the company has a role to play in tackling what's seen as an epidemic both sides of the Atlantic. 

And not aiming its adverts at children is good practice and should provide some immunity from regulation. The strapline “If you eat and drink more calories than you burn off you'll gain weight” highlights that it is a global problem of idleness in our children that is also a key factor in rising obesity levels.

Perhaps governments will now look at taxing games consoles in future?