No one denies the desperate statistics regarding obesity in the United States.  The National Institute of Health (NIH) says, “Among children and adolescents between the ages of two and 19, about one in six (17.2 %) are considered to have obesity and about one in 17 (6%) are considered to have extreme obesity.” The World Health Organization found “just under 20% of American girls and more than 23% of American boys are obese, making American children among the fattest in the world.”  For adults the numbers are equally startling.  “More than one in three adults is considered to be overweight and more than two in three adults are considered to be overweight or have obesity; and one in 13 adults are considered to have extreme obesity,” says the NIH.

 

These facts sit at the heart of the soda tax issue and other legislation aimed at curtailing obesity and its link to diseases such as diabetes (where almost 90% of people living with Type 2 diabetes are overweight or have obesity), high blood pressure, heart disease, addiction, cancer or depression.  Fizzy, sugary drinks that contain empty calories are of the main villains at the core of these issues according to the retail tax. Taxing some items, such as soda and other sweetened beverages ranging from tea to sports drinks to fruit juices with less than 50% fruit, has had a wide range of ramifications leading to heated debate and arguments between those who support the retail tax and those who don’t.

 

Over the past several months, Sobel & Co., LLC has authored a series of articles that were relevant for consumers, and grocery retailers specifically, regarding the Philadelphia soda tax. Through this we have thoughtfully reflected on the commotion caused in the city that has pioneered this controversial tax. Chicago law makers waded into the fray as well.  Only to see the retail tax repealed after just two months in action. One can find few parallels between the strategies employed by these two cities.  And thus far, the failure in Chicago has no influence on the situation in Philadelphia.  However, it is hard to project what might occur in other cities that have similar efforts underway, such as San Francisco, Oakland, Albany and Berkeley CA as well as Boulder, CO, and Seattle, WA.  It's difficult to measure if any momentum is gained from the trend. However they can track the amount of money spent.  In fact this turned up the heat more than ever now in Philly.  Reports are circulating that it has cost those on both sides millions of dollars in advertisements since the battle began!

Recap

How did we get into this contentious situation? This began when Philadelphia passed a 1.5 cents per ounce tax on sweetened beverages – often dubbed the “soda” tax.  This somewhat new phenomenon for cities in the United States uses a retail tax increase of the foods and beverages that contribute to a situation, like obesity, to combat it . To generate enthusiasm from the start, the city designated the revenue from the tax (which has currently grown to around $59 million) to be go towards the Rebuild Program to improve Philadelphia community schools, pre-K centers, parks, libraries and recreation centers along with funding a training program for people entering building trades and to help businesses owned by women, minorities and people with disabilities.

Detractors have plenty to say despite the lofty goals for the tax revenue, which by all indications may have fallen short of their budgets. Senator Mario Scavello, Republican from Monroe County, congratulates the city on these important efforts.  But says, “The tax remains as an extreme burden for grocery stores and convenience stores.”

 

With the passage of the tax, Philadelphia became one of the first major cities in the U.S. to take up the battle and advocate against obesity in this manner.  Putting up a fight, the American Beverage Association has been aggressively lobbying and protesting.  Thus fueling the hotly contested tax even after a year has passed since its enactment.

 

Currently the Association is the plaintiff in a lawsuit that is before the Pennsylvania Supreme Court over the tax. Although there was strong early support for the tax and the principle of fighting obesity (Pew Charitable Trusts found that 54% of Philadelphians supported the tax), resistance has grown in this tumultuous climate (with a recent poll showing 62 % support repeal) spawning the “Ax the Bev Tax” campaign. For the most part, the complaints center around loss of revenue and jobs.  Citing the fact that resilient Philadelphia consumers are not changing their eating/drinking habits by opting for healthier choices, but instead are crossing state lines to shop for soda elsewhere in order to avoid the onerous tax – with a resulting decline in beverage sales in the city of Philadelphia.

Where Does Soda Tax Stand Now?

The leadership of some of the area’s grocery chains, convenience stores and other retailers point to a decline of in-store revenue and job losses. They place the blame directly on the implementation of the beverage tax.  Stating in the first six months of 2017 total sales dropped 13% and sales of sweetened beverages dropped by 57% compared to 2016. They claim that the soda tax has needlessly impacted certain businesses in the city.

Other studies conducted by the Kenney administration and others like Revenue Commissioner Frank Breslin have cast doubt on the concept that the retail tax actually is having a negative impact on local business profits.  They claim the anti-tax studies compiled by Controller Alan Butkovitz contain biase.  Instead they offer their own research that demonstrate the many positive aspects of the tax.  

 

The reality is that all of the studies conducted offer their own unique perspectives and data. The two sides often announce results that conflict with each other’s findings.  This makes it difficult to know which side is presenting the facts.  Especially when both sides are suspected of not being impartial.

Despite confusing report results and the lack of clarity on impact and the broader concern over why the tax only applies to soda and selected sweet drinks and ignores other high sugar foods like candy, cereals, cookies, snacks and a myriad of other items, nonetheless Philadelphia continues to hold off any repeal of the retail tax, having already survived two legal challenges.

What Store Leaders are Saying

In a recent conversation with Jennifer Colligas-Moyer, Co-Owner and COO of Colligas Family Markets which operates the Shoprite of Whitman Plaza in Philadelphia, PA., she commented the following.

“When we re-located and opened our new store in September of 2016, we were surpassing our projections.  We put together detailed budgets that our lenders scrutinized since we had financing associated with the re-location.  When January 2017 came along, the city decided to implement this tax.  Which is not only on soda, but on over 4,000 items that we sell in our store.  Now those budgets and projections became completely flipped.  So we have to be especially careful that we are meeting our financial obligations and cash flow needs."

 

"As a result, we are losing approximately $60,000 per week.  That loss comes from lost soda and beverage sales, but also from the loss of entire baskets.  Customers go outside the city to get their groceries to avoid the tax on the soda they are purchasing.  Of course the situation has not only affected sales.  Now we have to watch what we are spending, which includes what we give back to the community.  Where we may have previously provided large donations to an organization in the past.  We now may only be able to donate a food tray or a gift card to them.”

 

So what can be done?  “To combat the tax, we have been looking internally at all aspects of our business.  We have run promotional ads to show the community that we are more than just a supermarket.  In addition we offer things like catering, a full service floral department, and cake programs from our bakery.   Also we re-merchandised where possible in order to create more impulse buys by cross merchandising products to create additional sales.  We also have been focusing on in-store product demos.  It allows people to really see, taste, and smell some of the products we sell.”

Conclusion

The growth of concern by industry leaders will clearly influence future retail tax regulations.  But, so far, the decision in Philadelphia has support of information from reliable sources.  Those sources such as the Harvard University and Politico study now shows another shift in support.  With 57% of American support taxing soda and other sugary drinks.    

 

We will continue to keep you updated on the soda tax saga as it continues across the country.