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In 2016, against a backdrop of news headlines about child obesity and the cost of heart disease and diabetes to the NHS, the soft drinks industry found itself under scrutiny.
In his budget, the then Chancellor George Osbourne, announced that soft drinks manufacturers had two years to prepare for the introduction of a levy on added-sugar soft drinks.
Many of the wise were already changing formulations to cut sugar content, promoting new low and no calorie products, creating smaller pack sizes and investing in NPD.
Fast forward two years, the sugar tax is here.
What is the UK sugar tax?
From April 2018, soft drinks manufacturers will be taxed at 18p per litre on drinks containing 5g of sugar or more per 100ml, or 24p per litre if the drink has 8g of sugar or more per 100ml.
How have brands reacted?
Brands had a few obvious options… Hold fast and take the hit or reformulate or change bottle size to either reduce or remove liability. Most have applied a mix across their portfolio.
Ribena and Lucozade will both avoid the tax. Owned by the Japan-based Suntory Group, they have cut sugar levels by half, a plan the owner insist was on the agenda before the levy was announced.
Some consumers took to social media to complain about the new taste when the reformulated Lucozade recipe hit UK shelves almost a year ago. Suntory admitted a sales decline of more than 5% following the change, but interestingly also indicated that after the initial dip, sales are now back in growth.
AG Barr has controversially stopped making the full-sugar version of Iron Bru, cutting its sugar content by half through the introduction of sweetening agents like aspartame. The move has proved unpopular with Iron Bru traditionalists. In its Scottish homeland, where the drink is a traditional hangover cure and some disgruntled consumers are reported to be stockpiling the original product, a petition, ‘hands off our Iron Bru’, has garnered over 52,000 signatures.
Britvic has cut sugar across its range - including Robinson’s, J2O and Fruit Shoot, while the Pepsi and 7UP full sugar brands, which make up around 20% of Britvic's UK sales, will still be liable for the tax.
The Coke Tax
When the levy was announced in 2016, it looked like Coca-Cola would be hit hardest, to the extent that some began referring to the change as ‘the Coke tax’.
However, the firm has reformulated many of its key brands, like Dr Pepper, Fanta and Sprite, to fall below the 5g limit. It says this has had no impact on sales.
It has opted to leave the recipe of Original Coca-Cola as it is, instead choosing to sell smaller bottles of Original Coca-Cola at a higher price. A 1.75l bottle of Original Coca Cola will shrink to 1.5l, while the price will increase by 20p to £1.99.
Coca Cola, the firm everyone expected to shoulder over half of the revenue generated by the levy, also ploughed upwards of £10m into reformulating and promoting its Coke Zero brand in 2016 – its biggest UK launch in decades. It says Coke Zero is now in ‘strong growth’, (8% in Q3 2017).
In late 2017, Coca-Cola European Partners announced that 60% of its GB portfolio would fall below the 5g per 100ml threshold. CFO Manik Jhangiana told a quarterly earnings call that the firm had been proactively tailoring their portfolio to low and no-sugar variants for a number of years: “A lot of the top brands that are driving our growth are coming from the sugar-free variants,” he said (source. i).
Will it work?
A tax to reduce people’s consumption of sugary soft drinks isn’t a revolutionary idea. Around the world, various taxes have been implemented in the last decade.
What do they teach us? - That consumption of sugary drinks might decline for a short time… moderately. But, as any dieter will know, the effects are likely to be temporary.
France was one of the first to introduce a tax, in 2012, while a similar measure was adopted in Mexico in 2013, though both fell short of the UK’s levy, and well below the 20% sugar tax recommended by the World Health Organisation.
There are also predictive studies that hypothesise likely decreases in obesity following a tax being applied to soft drinks. And there's some evidence from France and Mexico that those levies preceded a decrease in consumption, but only moderately, and only for a short time.
In truth, the existing levies are too diverse and too recent for their effects on consumer behaviour and health to be measured with any certainty, a point the UK Soft Drinks Association has been making stridently for two years (source. ii).
The way forward
The sugar tax is a detail in the wider narrative against sugar. Kantar data suggests that overall sugar intake from soft drinks is down by almost a fifth in the last four years. And this year, the Foresight Factory estimates that over half of UK consumers plan to cut their consumption of sugary soft drinks; among women and older consumers, that number rises to over 60%.
For the best part of a decade, considerable investment has been funnelled into low and no-sugar acquisition and NPD. PepsiCo’s Naked Juice, available in ‘antioxidant’ and ‘superfood’ varieties, is predicted by many to become the company’s next $1 billion-dollar brand.
Last year, Fortune reported that while Pepsi Cola accounts for 12% of PepsiCo’s revenue, 25% came from “so-called everyday nutrition products that include bottled water and foods and drinks that are packed with grains, fruits and vegetable” (source. iii).
In January this year, Coca-Cola announced it would launch three new products in the UK, none will be subject to the sugar tax. An iced tea drink Fuze Tea. A cold, ready to drink coffee, Honest Coffee, to sit alongside its Honest Tea and Honest Kids fruity drink brands. And a diary-alternative smoothie AdeZ that evokes the trend more perfectly than anything else.
The winds of change
For those determined to drive headlong into the prevailing wins, there’s still a navigable course.
Previous legislative instances indicate that the sugar tax storm, if it manifests at all, will be short-lived, and the UK soft drinks industry should emerge largely unscathed.
However, the trend away from sugar is real and established, now enshrined in law; and brands would do well to look at how their established attributes can be repositioned to fit consumers’ changing relationship with food and drink.
The indulgence equation
On all sides, government, media, and now through technology like health tracking apps, today’s consumers can’t get away from being told about the impacts of an indulgent lifestyle. As a result, indulgence is under scrutiny like never before, and the pursuit of pure pleasure, disregard for fat, salt, sugar, cholesterol, UV exposure, is seen as flagrant and reckless.
However, the appetite for indulgence remains an ever-present force, albeit evolved in terms of how consumers understand it. People still find excuses for well-earned treats. Research from NVision suggests that almost half of young adults make an effort to eat and drink healthily during the week so they can indulge at weekends. Over 40% said that because they exercise regularly, they didn’t need to worry so much about what they ate or drank.
This offsetting behaviour is increasingly a mark of how consumers live their lives today. And it comes in two forms: A treat as a reward for a job well done, however minor, a wholesome or healthy task completed; or the addition of a healthy, wholesome act or commitment as penance for a recent transgression (source. iv).
How do you say 'healthy'?
There’s significant disconnect between the messages consumers receive about health and wellness, particularly when it comes to food and drink. Official public health messages promote healthiness through the reduction of certain ingredients like sugar and fat, while laws governing what brands can say about their products prohibit them from making any health claims on this basis.
In the eyes of the law, reducing sugar, or any of the target ingredients, does not make a product ‘healthy’, so for on-pack positive health messaging, marketers must utilise what’s been added.
The result is that consumers looking for healthy choices risk being misled by on-pack health claims, where ‘contains real fruit’, doesn’t mean the product isn’t riddled with excessive amounts of sugar.
These regulations need to be looked at and a consensus reached on how we talk about healthy food and drink, so we can be clearer about health benefits on-pack and communicate them in ways that make sense to consumers.
Gemma Atkinson-Brown is a Senior Strategic Planner at Bray Leino. To find out more about how we can help your brand face up to latest food and drink trends, contact Business Development Director Austen Donnellan.
i.Beverage Daily - ‘Coca-Cola: 60% of portfolio will fall below sugar tax threshold’.
ii.The Journal - ‘Fact Check: Do taxes on soft drinks actually work’.
iii.Fortune - ‘Bottled water continues to take the fizz out of soda’.
iv.Foresight Factory- The indulgence equation