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The Sugar Tax is Here – Embrace the Change

“It’s not the strongest that survive – It’s those most adaptable to CHANGE”!

This month (April 6) sees the introduction of a new levy applying to drinks that contain added sugar and have a total sugar content of above 5 g per 100 ml as consumed. A higher levy will also be applied to drinks that contain added sugar and have a total sugar content above 8 g per 100 ml. Excluded from the levy is pure fruit juices milk-based drinks that have a milk content of at least 75%. The introduction will see manufacturers having to pay a sugar tax on their products, and pub and restaurant customers paying more for the drinks if the costs are passed on. That is the bad news, however the good news is that few products are above the threshold where the levy kicks in, as manufacturers have invested considerably and worked hard to comply with the threshold, reformulating recipes to avoid having to raise prices.

One of the soft drinks industry’s main objections has been that the rate of Britain’s sugar intake has been falling in any case and this is partly attributed to the fact that the soft drinks industry had taken the initiative and been reducing sugar in the drinks for quite some time. Furthermore, the British Soft Drinks Association (BSDA) are quite emphatic that there is no evidence reintroducing a levy will reduce obesity, in a statement they say : “Whilst we recognise health issues associated with obesity are a serious matter, it’s important to note that obesity is a complex issue with a number of factors and there is no evidence to suggest a tax will reduce obesity. As an industry we recognise we have a role to play in tackling obesity. Soft drink companies have been engaged in a range of calorie reduction initiatives for many years – resulting in a 19% reduction in sugar intake (from soft drinks) since 2013. [Kantar]

Current data illustrates that a tax of this sort on a single category will not have a meaningful impact on obesity levels.

Bitter pill?

When the levy was first mooted in 2016 predictions were that whilst raising unanticipated £504 million in revenue for schools it would however come via an extra cost slapped on 2.8 billion litres of soft drinks, resulting in £132m in lost sales and the loss of 4,000 jobs, warned Oxford Economics in a sombre impact assessment in August 2016. ALMR CEO Kate Nicholls made it clear in article earlier this year: “The sugar tax will affect almost all of our members,” she warned. “Collectively, we estimate 4,000 jobs will be at risk across the sector as a result.”

Brigid Simmonds, chief executive of the BBPA said last summer : “The new Levy will increase the burden of taxation on pubs – and put up prices of soft drinks for pub goers,” she stated. “As well as penalising soft drinks customers, we certainly don’t want the Levy to create a new incentive to steer customers towards stronger drinks, or penalise drinks that contain considerably less sugar than the drinks that are its real target.

“The government has already recognised this, and indicated that cans and bottles of shandy or spirit-mixed drinks will be exempt. However, a lot of pub and bar drinks are ‘post-mixed’ in front of the customer and, as currently planned, these won’t enjoy relief from the Levy. That is why we have already held discussions with Treasury officials on the Levy and strongly pressed for pubs to be able to claim relief for ‘post-mix’, so drinks that form part of an alcoholic drink. We don’t want to see this new tax morph into a ‘shandy tax’.”

Now that the tax is here and the muddy waters are clearer the fact is that soft drinks manufacturers have been “well ahead of the game” investment, preparation and equally important marketing. And what was first considered to be a threat is now an opportunity.

Taste – the ultimate benchmark!

After years of marketing soft drink brands with the slogans “great tasting” first thoughts would be that it would be impossible to reformulate without compromising taste. It would be fair to say that in some cases reducing or cutting out sugar will affect flavour, particularly on the old favourites, and manufacturers will be faced with the dilemma, reformulate and risk consumer repercussion, or keep recipes the same and pass on the costs. Rob Harris director at Coca-Cola European Partners (CCEP) said: “we have continued to focus on the work we began long before the soft drinks tax was announced to help people reduce sugar intake”, however CCEP said that it had no plans to change the recipe of Coca-Cola classic which “reflect the fact that there are some products that won’t stand reformulation and will therefore have to command a higher price”.

Steve Pérez chairman of drinks company global brands also made the point that some drinks cannot be successfully reformulated and said “we realised we can’t take sugar out of our ginger beer and keep it natural because it it affects the taste. We’ve done tests with artificial sweetener and you lose the mouth feel-and we don’t really know what long-term impact on health the sweetness have. In any case for us, if it’s not natural it’s not premium”, Pérez said global brands has reformulated 70% of its brands, with some products according to tasting panel tasting better with reduced sugar!

Is there a silver lining?

Can innovative soft drinks manufacturers discover opportunities and find a way to keep their bestselling brands popular with different recipes? “One hundred per cent,” says Stephen Oldfield, agrifood leader at PwC. “There is an opportunity here to grab the growth of the health and wellness category, and an opportunity for healthy, nutritious food and drink.”

The trend for health and well-being in the soft drinks sector has been huge for many years, John Campbell, commercial operations director at Britvic, said: “The consumer landscape and the way people live their lives is fundamentally changing and now is the time for the category to evolve. Soft drinks must adapt in order to maintain, but also grow their relevancy amongst consumers. At Britvic, we want to share our insights with customers and work together to identify new opportunities to grow the category, all by getting the nation to Drink Differently.”

2017 £7 billion (6.9 billion) and with a growing demand for not only a healthier drink but also a demand for more premium products in all drinks categories mixers were a star performer growing alongside spirits particularly and food led pubs, wine bars and restaurants with a focus given to delivering higher quality, more exploratory soft drink offers and a noticeable increase in availability.

So how can you capitalise on the silver lining?

The out-of-home market is both buoyant and growing, a report this month from Barclaycard revealed that restaurants and pubs yet again continued to outperform other sectors in March as year-on-year sales grew 7.2% and 7.7% respectively.

Embrace the Change

•Motivate your clientele to choose soft drinks on more occasions-as adults increasingly look for more sophisticated soft drinks make sure you are catering for this growing trend by stocking a selection of adult soft drinks. Give your soft drinks menu the same consideration you give your alcohol and food menus

•Think about your branding when choosing a soft drinks brand-brands have an instant impact on how a person feels. Therefore, hotels restaurants and bars should be conscientious about their own brand positioning and offer water and other soft drink brands which best represent their offer

•Cater for the health-conscious- when dining out 94% of guests will treat themselves, however 74% still search for healthy options. Many customers simply need help your lifestyles, and they know that drinks are one way to add unnecessary calories to a meal. So help them out by offering low-calorie drinks, and drinks which comply and are under the sugar Levy threshold.

•Cover off different demographics-make sure all demographics are met within your soft drinks range, from core carbonated soft drinks kids through drinks right through to adult premium brands. It is important to differentiate adult soft drinks from children’s, adults have different taste pallets and want to drink with a more grown-up feel and look.

•Maximise trends to deliver sophisticated drinks-premium soft drinks are in 28% of value growth so maximise the mixed drink revolution by offering fantastic mixed drinks and sensational serves to upgrade customers to premium drinks creating memorable experiences

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