Soda Tax Update: Study Finds Philly Sales Down by Half

Philadelphia’s controversial “soda tax” has hurt sales and driven consumers outside of city limits to purchase sugar-sweetened beverages, according to a new study released this week.

The study, published in the Journal of the American Medical Association (JAMA), analyzed data from 291 chain retail locations in Philadelphia, including 54 supermarkets, 20 mass merchandise stores, and 217 pharmacies. The results found that sales of sugary beverages dropped 51% in the first year after the city’s soda tax took effect in 2017. The tax also led to an increase in beverage prices and a sharp decline in volume sales, dropping from 2.475 billion ounces in 2016 to 1.214 billion ounces in 2017, according to the report.

“The mean supermarket experienced a decline in combined sales of food and household products, driven by grocery items; mass merchandise stores and pharmacies were unaffected,” the study stated. “Supermarkets bordering Philadelphia, however, had an increase of similar magnitude in combined sales, so chains with stores both inside Philadelphia and just across the border might not have experienced significant business losses.”

The study was funded by Bloomberg Philanthropies, an organization founded by former New York City mayor and soda tax proponent Michael Bloomberg. According to Philly.com, Bloomberg has contributed to the re-election campaign of Mayor Jim Kenney, whose office has been a strong advocate for the tax.

The tax has resulted in significant sales declines for some Philadelphia distributors;however, the drop has not been as steep as the 51% decline for chain retailers. Metro Beverage president Andy Cimochowski told BevNET his Philadelphia business has dropped by about 30% since the law took effect, prompting the Bensalem, Pa.-based distributor to focus more on communities outside of Philadelphia’s borders.

Cimochowski added that grocery buyers have turned to buying beverages in bulk from outside of the city, leading to a rise in sellers within border towns. The tax has also created a black market, he said, with unlicensed distributors running cash businesses within Philadelphia to get around the tax.

“You see these white trucks and vans parked all over these stores delivering all sorts of different beverages,” Cimochowski said. “I’ve had certain stores who won’t buy certain products from me because they can get it from somebody who won’t charge the tax.”

Ben Cicione, general manager of Philadelphia distributor Cision Beverage Co., told BevNET that, like Metro, his sales have also dropped by roughly a third since the tax went into effect.

Though the impact of the tax has hurt both businesses, Cimochowski and Cicione each said the declines have largely levelled off. According to Cicione, many distributors and retailers in Philadelphia have begun to embrace the taxes as a new normal.

“There’s nothing we can do, we can’t just move out of the city,” Cicione said. “So we’re focusing on the water [category], and our association, the American Beverages Association, keep fighting.”

As soda slumps, other categories have benefitted. According to Cicione, sales of flavored sparkling water have increased since the tax went into effect and the company has worked to increase sales of its sparkling water products, including Nestlé brands such as San Pellegrino and Poland Spring. Cimochowski, however, said he believes “there’s zero shift in what people are drinking” and that consumers are either paying the higher price or making trips outside of the city.

According to Philly.com, Mayor Jim Kenney’s office has said the tax is fulfilling its intended purpose of funding public programs. Mike Dunn, a spokesman for the mayor, told the website that the study proves that the tax is not always passed through to consumers and that retailers and distributors can choose to pay the tax themselves. He added that the mayor’s office believes “the beverage industry will spin this study to be more than it is.”

The Tuesday release of the JAMA study coincided with a report from KOMO News that Seattle anticipates it will raise just under $24 million from its soda tax in 2019, an increase from $22.2 million last year. However, city budget director Ben Noble said during a meeting of the Select Committee on Budgets of the Seattle City Council this week that the city does not have data to prove consumption of sugary beverages has declined.