Why the sugar tax falls flat

As recently covered by Beverage Daily.com, the UK sugar tax has impacted 326 businesses​​ since it was introduced in April 2018. 

Alongside this, it was reported the Government has revised predicted income from the Soft Drinks Industry Levy (SDIL) from £520m ($670m) down to £240m ($309m). The shortfall is due to drinks companies reformulating drinks to reduce sugar levels, meaning there’s fewer products liable to the taxation.

On the surface it seems like the SDIL is win-win. It’s led to less sugary drinks on the market and funding will still be made available to help tackle childhood obesity.

As a drinks manufacturer affected by the tax and one that invests heavily in consumer research, we think the impact of the SDIL is still far from clear cut.

Natural sugar vs artificial alternatives​

A small part of our range of Franklin & Sons premium soft drinks, tonics and mixers was liable to the higher taxation of the SDIL.

We took the decision to only reduce sugar content in our drinks where this wouldn’t compromise the flavour. We also didn’t consider trying to replace sugar with artificial alternatives as the range only features 100% natural ingredients.

Having reviewed sales pre and post-April 2018, across a range that features SDIL exempt, low and high tax band products, we concluded that the sugar tax has had no noticeable impact on sales. Our sales have continued to go from strength to strength both before and after the reformulation. 

We’ve not seen any sales spikes in low sugar products or dips in demand for the few products that are liable to the 24p per litre levy.

Similarly, in the small number of products where we reduced sugar, whilst keeping the flavour, we remained 100% natural throughout and didn’t compromise our product integrity for the sake of the sugar tax. 

Why haven't our sales been affected?​

The obvious question at this point seems to be; have sales remained unaffected because we’ve absorbed the sugar tax and it’s not been passed-on to consumers?

The answer is no. We don’t sell direct to consumers, but like many of our off and on-trade customers who sell our drinks, we run a lean operation.

The reality is, sales remained unaffected by the SDIL for a key reason; consumers are able to make decisions for themselves. They don’t like being dictated to in terms of choice and also don’t want to be priced-out of being able to make their own decisions.

Our research showed us that between 40% - 50% of drinkers are willing to pay more for premium quality and natural flavours. We knew that taking a price-first approach to the SDIL wouldn’t benefit us or our customers. 

Replacing natural sugar with artificial sweeteners isn’t something that consumers necessarily want. Consumers seem to have more confidence in natural ingredients and so we made the conscious decision not to replace natural sugars with artificial sweeteners.

We had to remain focused on flavour and natural ingredients, and judging by sales before and after the levy, this seems to have worked for customers.

It’s important to tackle obesity, but this must be done in a more consumer-focused way and which avoids trying to force people’s hand.  Supporting them in their decision making will prove more effective than trying to control or limit their choices.

About the author: ​

Mark James has been part of the Global Brands team since its beginning, co-founding the company with chairman Steve Perez in 1997.

In the UK off trade, Global Brands’ drinks are stocked by the majority of the country’s major multiple grocery retailers, convenience stores, premium retailers, and cash and carries. The company is also a leading supplier of drinks to the UK on trade, with its drinks sold in many of the UK’s major high street bar chains, hotel operators, late night venues and large regional brewers.  

Looking beyond the UK, Global Brands’ drinks are sold in 57 countries around the globe. The company prides itself on market-leading innovation. In 2015, it launched a range of premium quality tonics, mixers and soft drinks, Franklin & Sons. These are now sold in 35 countries globally.

In 2017, the company evolved the RTD category to create a new offer of alcoholic soda, the Crooked Beverage Co, which is made using real fruit juice and no artificial sweeteners or flavours to provide consumers with an alternative to fruit ciders and craft beers.