“Soda tax” stakes escalate in pivotal Philadelphia fight

PHILADELPHIA – Less than three months into Philadelphia’s new tax on sweetened drinks, the stakes have escalated: Beverage makers say the measure is hurting sales so much they need to cut jobs, while city officials say the moves are a ploy to get the tax struck down.

Some supermarkets opposed to the tax are making a statement by printing out the added cost on receipts and store shelves. The tax began Jan. 1 and is levied on transactions between drink distributors and retailers, but many grocers are passing it on to drinks amid an “Ax the Bev Tax” campaign to kill the measure in court or through repeal. One widely shared photo on social media shows a receipt for a 12-pack of 16.9-ounce bottles of Propel Water, which is artificially sweetened. The receipt says the drinks cost $5.99, and the tax adds $3.04.

IGA supermarket has hung signs near affected drinks that say “Philadelphia Sugar Tax Item,” with the price of a 2-liter bottle of Coke going from $1.99 to $3.

“I just can’t afford it,” said Margaret Atkinson, who was shopping at the supermarket this week. Atkinson said she has switched to generic brands and is asking a nephew in the suburbs to pick up soda for her. She’s also drinking more homemade iced tea and bottled water with flavor packets.

Fran Flanagan, also shopping at IGA, said he planned to buy more of his drinks outside the city on weekends, and noted the tax has changed his drinking habits.

“Mostly I’m drinking spigot water, and not because it’s healthier,” said Flanagan, who opposes the beverage tax.

Philadelphia is among the first U.S. cities to implement such a special per-ounce tax. While officials touted it as a way to raise money for pre-K education – not as a health measure as in other cities – some advocates also hail it as a way to fight sugary drink consumption and obesity. For the beverage industry, which has already seen soda consumption decline for several years, overturning the tax in Philadelphia could be critical in sending a message to other cities and stopping the measures from gaining momentum.

Soda makers have previously opposed such taxes by warning supermarkets could pass the cost on to other groceries, not just drinks. They also say there’s no evidence the taxes work in changing behavior or reducing obesity, since people can still fill up on other calories.

In Philadelphia, PepsiCo says sales are down 40 percent compared to a year ago since the 1.5-cent-per-ounce tax took effect, and it will need to cut 80 to 100 workers. A Canada Dry bottler says sales are down 45 percent and it had to lay off about 30 employees. ShopRite owner Wakefern also says overall sales at Philadelphia stores are down as much as 25 percent as people go outside the city to get groceries, and that it had to cut hours for workers.

Mayor Jim Kenney’s office notes that the law does not require distributors and retailers to pass on the cost of the tax, and says people should be skeptical about the need for layoffs since the business coalition is trying to overturn the tax.

“They are literally holding hostage the jobs of hardworking people in their battle to overturn the tax,” spokeswoman Lauren Hitt said. The city also said the pre-K program the tax supports has created about 250 jobs.

Temple University got caught in the fray this week when it said it was raising its meal plan fee largely because of the beverage tax, then backtracked after being accused by the mayor’s office of using the tax as a scapegoat for higher fees. The school said it would check its numbers and ask its vendor to lower any extra charges.

In Berkeley, California, which implemented a 1-cent-per-ounce tax on sugary drinks last year, soda companies haven’t announced layoffs. Businesses note the tax is higher in Philadelphia and applies to artificially sweetened drinks as well.

“You’re kind of in a no-win situation unless you want to buy bottled water,” said Anthony Campisi, a representative for the business coalition that wants to overturn the tax.

Not all Philadelphia stores appear to be passing on the entire tax to shoppers. At discount supermarket Aldi, a customer service representative said a 2-liter bottle of Coke in the city was priced at $1.58 total. At ShopRite it was $2.67 – $1.66 for the drink and $1.01 for the tax.

It’s hard to independently gauge consumption changes in the Philadelphia area; sales trackers Euromonitor, IRI and Nielsen say they only have or disclose national sales data. PepsiCo and the Canada Dry bottler say some people are traveling to the suburbs to buy untaxed drinks, but that the increases there aren’t offsetting declines in the city.

So what are people drinking instead? Bob Brockway, who heads the local Canada Dry bottler, said he thinks bottled waters are benefiting to a degree. Sales of bottled water had already been growing nationally as soda consumption has declined, but Brockway said the growth of his relatively small bottled water business has accelerated.

Nestle, the biggest bottled water player, says it sees no evidence of a sales spike in the region. Coca-Cola is part of the coalition opposing the tax, but hasn’t disclosed sales figures or announced layoffs.

Meanwhile, five municipalities including San Francisco and the county that includes Chicago are preparing to implement their own beverage taxes, while voters in Santa Fe, New Mexico, will decide on a measure in May.

Bloomberg Philanthropies, which supports taxing sugary drinks to reduce consumption, thinks a couple months into Philadelphia’s tax is too early to draw conclusions. Howard Wolfson, a Bloomberg adviser, questioned PepsiCo’s decision to lay off workers.

“Either there are pre-existing problems with the business model, or jobs are being sacrificed to make a political point,” Wolfson said.