The sugar tax provides an opportunity for soft drinks manufacturers to capitalise on consumer trends and expectations, says David Gilroy

The chancellor has dropped his sugar tax bombshell. The trade is assessing the implications and there’s a lot of talk about bringing influence to bear during the consultation.

Concerns about the technicalities, mechanics and inconsistencies of the tax are all highly valid, and will be argued about over the next two years.

But isn’t there a much bigger play going on here? The move to reduce obesity and encourage healthy eating is becoming firmly established. This is likely to be embraced by consumers, who will drive the market.

In Philadelphia in the US, where a decision was taken not to apply a sugar tax, consumption of sugary drinks is falling faster than in the country overall. Demand-side measures taken by the authorities – no sugary drinks in schools or vending machines, a sustained education programme, strict menu labelling laws and incentives for stores to highlight healthy foods – are taking effect.

Take a look around any small independent store. Look at the goods stocked and the space allocated. The ranges driving our industry are primarily in ‘unhealthy’ places: tobacco, alcohol, confectionery, soft drinks, and crisps and snacks. This is a threat.

sugary drinksThe challenge ahead for everyone is to adjust the mix of sales and product formulations to satisfy demand.

Results show that purchases of regular soft drinks in the UK have fallen by 32% from 2010 to 2014. So why hit the only category that has consistently reduced the sugar content of its products? There are many other sectors that have a case to answer on refined sugar.

Yet, in a strange way, this could work in favour of the soft drinks manufacturers, aligning them with anticipated consumer expectations and moving them ahead of the curve.

There’s considerable positivity in the sugar drinks category about the direction of the industry and the opportunities on offer.

Current and planned actions include:

  •  Reformulation of existing products.
  • Creation of new products with less than 5g of sugar per 100ml.
  • Rebalancing of product portfolios towards lower-sugar items.
  • Effective labelling to enable consumers to make informed choices.
  • Communication plans to help with this.
  • Working more closely with education and health enterprises to promote healthier lifestyles.

Many are trying to forecast the winners and losers here. There’s no doubt that the ratio of sales will change and that allocation of shelf space will have to be adjusted.

The losers are likely to be the low-cost, high-sugar 2l and 3l bottled carbonates. Some, with 15g of sugar per 100ml or higher, will have tough decisions to make because of the effect on taste of reducing sugar.

The winners are likely to be:

  • Pure fruit juice products, as they contain more naturally occurring and less refined sugars.
  • Soft drinks with less than 5g of sugar per 100ml, as they will have a price advantage.
  • Milk-based drinks, which are exempt from the tax.
  • Bottled water.
  • Low sugar energy drinks, which target young adults.

Everyone is confident that while there will be profound changes in the composition of sales, volumes will hold up well. That’s good. Our industry needs this important sector to be successful.

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David Gilroy
David Gilroy is the founder and managing director of Store Excel. He was previously the convenience retail lead at W2 Commercial and held operations director roles at Bestway Wholesale and Nurdin & Peacock.

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