The War on the Soda Industry Begins, Taxes on Sugary Beverages Get Passed in Five Cities

By Kerri Adams, Editor-at-Large

Legislation passed last Tuesday will forever impact the restaurant and beverage industry. 

The beverage sector, specifically will be taking a hit as soda tax legislation passed in five cities. 

With the healthy food movement sweeping the nation, consumers are more educated about nutrition. With that in mind, many former beloved sodas now have a negative connotation. Many of these beverages contain ingredients that healthy consumers try to steer clear of. 

California is again paving the way with this legislation. The cities of Albany, San Francisco, and Oakland have voted in favor of a penny-per-ounce tax on sugary sodas. These measures passed in both Oakland and San Francisco with 62% support and Albany saw a whopping 71% vote “yes” in favor of the tax. 

The city of Boulder, California passed a similar tax. There will be a 2-cent-per-ounce excise tax on these beverages. 55% of voters were in support of the Boulder measure. 

Chicago’s Cook Country will be the largest local government to adopt the soda tax measure with a 1-cent-per-ounce tax on regular soda and soda filled with zero-calorie sweeteners.  

So why the tax?

Those in favor of these tax measures argue that these beverages contribute to the obesity and diabetes epidemic and that the funds collected will be directed to help fund health programs. These measures are expected to raise millions to help combat these health issues.

“We applaud Bay Area residents for voting to put the health of children and families first,” said Kathy Rogers, executive vice president of American Heart Association and American Stroke Association Western States Affiliate. “Sugary drinks are the primary source of added sugars in the American diet. We fully support policies that mitigate the harmful effect of sugary drinks, especially on children, while directing funds to support health-promoting programs in the community.” 

However, consumers may or may not be dishing out more money for a soda pop. The tax will be paid by the distributors of the beverages in Albany, Oakland, San Francisco and Boulder. This type of tax differs from the “sin taxes” on tobacco and alcohol because instead of the consumer paying the tax, the distributor can choose to eat the extra costs or pass it along to the consumer.

Chicago's County Cook, on the other hand, will be taxing the consumer directly. 

Medical beverages, meal supplements, baby formulas, milk products, alcohol and juices without added sweeteners are exempt from the tax.

So what else does this mean for the beverage industry?

The soda industry has already seen a slump in sales, but that is also because there are so many more healthier options out there. Many of which are being sold by major soda companies. 

"Companies are offering more options than ever before, including more low and no-calorie options as well," said Lauren Kane, senior director of communications at the American Beverage Association. "Nearly half of the beverages they sell do not contain calories. They are innovating and offering more choices so people can make the best choice for them that fits their lifestyle. Our industry is built on innovation, so companies are always reformulating and innovating to meet the changing taste of consumers."

Even though these soda tax measures passed in the four cities and a county, similar measures have failed to be passed in other areas nation-wide. 

"It's important to point out that there have been 43 sections in the country where these beverage tax measures have failed. So, that kinda putting it in big picture and context. The majority of the public is opposed to these taxes and they remain unpopular," said Kane. "We, the beverage industry, want a healthier and stronger America. We just don't agree that discriminatory taxes is a way to achieve that goal. We are rolling up our sleeves and doing the hard work of helping people change behaviors and reduce the calories and sugar they get from beverages. And we are focusing on some of the areas of the country with higher rates of obesity, like the Mississippi delta, rural Alabama, east LA, Brooklyn/Bronx, and Little Rock. We have an initiative called the Balance Calories initiative and it's a focused effort to reduce the calories and sugars people get from beverages in the United States. We are partnering with some of the most prominent public health groups to do that and we think that is the more effective way to change behavior." 

Parties in support or in opposition of the beverage taxes have invested quite a bit of money lobbying for their stance.

Some of the biggest lobbyists against the soda tax include the American Beverage Association, Pepsi, and Coco-Cola. The AMA spent $30.8 million this year, versus the $1.2 million spent in 2014 in efforts to stop these tax ballot measures. Interestingly enough, Pepsi and Coca-Cola actually decreased there spending by millions this year from 2014.

Critics of the tax argue that the tax doesn’t actually deter consumers from buying these beverages and instead, result in fewer jobs and higher costs. In the areas with these tax measures, the soda business will be making much less profits in an already difficult industry.

The millions in funding in support of these soda taxes increased significantly in the year, as well. Philanthropists like Michael Bloomberg (who alone contributed $9.1 million) and the American Heart Association invested over $10 million in support of the tax measures. This is 17 times more than what was invested in 2014. 

The cities of Albany, San Francisco, Oakland, Boulder and Cook Country (Chicago) are not the only areas with these type of taxes. Berkley, California was the first to pass a soda tax measure in 2014 and the UK, Denmark, and Mexico already have taxation legislation like this in place. 

We decided to take a closer look at social data for two of the cities passing this new soda tax measure and here is what we found:

The top demographics supporting the new soda tax in San Francisco:

  • Millennial - 61.2%
  • Gen X - 32.4%
  • Baby Boomer - 12.8%

Sentiment score: 88.4, with 100 being the highest score. 19,309 total social discussion occurred in SF in the past 30 days.

What Millennials in SF were drinking in the last 12 months:

  • 7.4% Major Soda Brands
  • 11.9% Craft Soda
  • 48.2% Craft Beer
  • 51.8% Wine
  • 34.7% Spirits
  • 41.3% Tea

*an average of 32.7 occasions each.

The top demographics supporting the new soda tax in Boulder:

  • Millennial - 77.3%
  • Gen X - 12.9%
  • Baby Boomer - 18.4% 

Sentiment score: 82.7, with 100 being the highest score. 24,218 total social discussion occurred in Boulder in the past 30 days.

What Millennials in Boulder were drinking in the last 12 months:

  • 3.4% Major Soda Brands
  • 13.5% Craft Soda
  • 52.8% Craft Beer
  • 55.7% Wine
  • 29.4% Spirits
  • 38.2% Tea

*an average of 32.7 occasions each.

Evidently, the populations in these specific cities were not discussing the consumption of sugary beverages. Does this mean consumers are no longer enamored with sugary beverages?

How do these areas compare to the rest of the country? Well, these areas already are consuming less soda and sharing on less social in relation to the rest of the country. 

What Millennials nationally were drinking in the last 6 months:

  • 11.8% Major Soda Brands
  • 9.2% Craft Soda
  • 46.9% Craft Beer
  • 53.7% Wine
  • 38.6% Spirits
  • 38.5% Tea

*6.3M social conversations over six months on 498 beverage brands.

As you can see Millennials are consuming less soda from major brands in Boulder with 3.4% and SF with 7.4%- versus the 11.8% of Millennials in the rest of the country.

This numbers show that the majority of these groups in SF and Boulder are avoiding sugary sodas and support regulating the soda industry.

But, do these tax measures really help to decrease obesity and diabetes rates?

Considering there isn’t a ton of areas with these tax measures in place yet, it may be too soon to tell.

“Preliminary data from Mexico and Berkeley — where taxes have been implemented in the past two years — have shown declines in sales of sugary drinks. In Mexico, in particular, the reduction was greatest among low-income households, which also happen to be the groups most affected by obesity, according to a study published in BMJ in January,” writes Vox. “But some researchers believe the taxes have real limitations in fixing a problem as complex as obesity.”

"It will be a while before we expect to see health effects — like weight change, metabolic changes — as these changes require persistent changes over time to occur,” said Shu Wen Ng in the BMJ paper.

Nonetheless, consumers have made it clear in these areas of the country that the government needs to start regulating the soda industry.

This looks like it is just the beginning of the fight against soda. Will this encourage soda companies to start investing in healthier beverages? Or will consumers always crave a bubbly, sugary soda, so it will always have a place in the market?

Tweet us @foodable and let us know your thoughts.