Taxing times in the drinks aisle

As the sugar levy on soft drinks comes into effect, Scottish Grocer asks some retailers how it is working

Lifestyle Extra Motherwell
Lifestyle Express, Motherwell is just one store that has been affected by the sugar levy

AFTER much debate and planning the sugar levy on soft drinks came into effect at the start of April this year.

In an attempt to mitigate the impact of the levy, brand owners have taken steps to combat price increases by reformulating their drinks to reduce the sugar content.

The proof of this reformulation is in the Treasury’s pudding, as the Government has repeatedly downgraded its estimates of how much revenue the levy will raise since the policy was first announced.

The latest figures suggest the tax will total nearer to £240m than the £520 previously forecast.

No one knows the trade like the retailer, and while it’s still early days, effects of the new tax are already being felt.

Winner of the Soft Drinks retailer of the year category in the Scottish Grocer Awards 2017, Natalie Lightfoot of Londis Solo Convenience in Baillieston said she has already seen evidence of changing shopper habits.

She explained: “The majority of baskets being bought in our shop have soft drinks in them, so it is a very important category for us.

Soft drinks are big business at Londis Solo Convenience in Baillieston

“Among the drinks that have changed formula, Boost and Irn-Bru have had the biggest reaction. And those reactions have not been favourable.

“Irn-Bru is such an iconic drink – it’s where the Glasgow term ‘ginger’ came from – that it’s inevitable any change would cause a reaction and sales have definitely fallen since the sugar content was reduced.”

Natalie said that they are still sourcing supplies of the old formula and as soon as word gets around that they have arrived they are flying off the shelves.

As her customers are turning away form Irn-Bru other Barr drinks, like Limeade, are selling more.

Other customers are choosing Coca Cola, but the sugar tax has had an effect there, too.

The latest figures suggest the tax will total nearer to £240m than the £520 previously forecast.

Natalie explained: “People are buying the Coke multi-packs but where it was previously £3.99 for a ten pack, it is now £3.99 for an eight pack.”

Natalie agrees that tackling health issues is worthwhile but she is disappointed that the cost is having an effect on business.

In fact she was re-assessing her meal deal packages to make them more healthy before the drinks levy hit, but now she is having to factor in the higher cost of a drink.

She said: “When the tax was first mentioned we were told that it was a tax on the manufacturers but the prices are going up, so it is affecting us.”

Phil Hammond
Chancellor Philip Hammond revealed in March that the estimate for first year revenue from the sugar tax had been downgraded yet again

Uzair Ali of Lifestyle Extra in Motherwell said that, along with cigarettes and alcohol, soft drinks are one of the three most important categories in his store and he has already noticed a difference in sales since the sugar levy was introduced.

He said that when the reformulated drinks first arrived on the shelves people did complain about them but others took to them without any comment at all.

He has noticed, though, that while some people have switched to different drinks, a significant number have stopped buying soft drinks at all.

He said: “Irn-Bru was the one that caused the most interest but while we have noticed a fall in the amount of regular Irn-Bru, people are picking up more Irn-Bru Extra in cans and 2L bottles.”

Uzair reckons Irn-Bru Extra is now selling about twice as much as Irn-Bru Sugar Free in his shop.

The reformulation that has caused him the most concern is the reduction of sugar in Lucozade.

“We used to sell four to five cases of Lucozade Orange a week but we are now down to one or one and a half cases a week since they reduced the sugar,” he said.

Uzair says he is losing more sales on changes to recipe than he is on price.

He said: “If someone likes Coke they are still going to buy it even if it is 20p dearer.”

Scott Graham’s McLeish store in Inverurie is known for its food to go range and, with 200 to 300 school kids passing through the shop every day his lunchtime meal deal of sandwich, crisps and a drink is very popular.

Knowing that the cost of a full sugar drink would be going up, Scott bulk bought in advance but even when this stock is exhausted he has decided that he will not be passing on the extra cost to his customers.

He said he has heard that in future some of the big supermarkets will be offering only diet options with their meal deals but he doesn’t want to go down that road.

Not changing the price means taking a bit of a hit on the margin, but I don’t want to dictate to the shopper.

He explained: “We do a range of different meal deals throughout the day, some with a hot drink included, but the vast majority, around 70% are the lunchtime deals that include a soft drink.

“Not changing the price  means taking a bit of a hit on the margins for the meal deal but I don’t want to be dictating to the shopper. I will continue to offer regular and diet drinks and leave the choice up to them.”

Scott hasn’t noticed any significant difference in before and after sales of drinks that have been reformulated but he says colas that have not changed recipe have shot up in price and their sales have been affected.

He said: “Regular Coke in a 500ml bottle has gone up from £1.40 to £1.65 and Pepsi has gone up from £1.45 to £1.90. There have been significant price increases in the 2L bottles, too.”

He continued: “Judging from how often we are refilling the shelves, regular Pepsi sales have fallen away but people are simply picking up Pepsi Max instead.”

Scott explained that his meal deals already include healthy options with the chance to have a piece of fruit instead of crisps and he agreed that this shift in buying habits is meeting the Government’s positive health objective.

He concluded: “It is probably still too early to judge the  overall effect of the levy but with summer and, hopefully, good weather coming up when soft drinks can account for up to 15% of our sales we will have a clearer picture.”