How the sugar tax is changing behaviour

All age groups in the UK consume too much sugar* and on average, we’re consuming more than twice the government recommendation2.

In 2014, National Diet and Nutrition Survey Data highlighted soft drinks as the main contributor of added sugar for young people, with boys aged 11-18 getting 42% of their intake this way3. As sugar can contribute to excess calorie consumption, this was becoming a major public health concern.

As part of the Childhood Obesity Strategy, Public Health England and the Treasury announced a Soft Drinks Industry Levy (SDIL) in 20164 more commonly referred to as the sugar tax. Consumer interest into the effects of sugar had been increasing for around a decade, with manufacturers responding to concerns and consumers shifting away from regular soft drinks to diet versions and water5.

In the five years prior to the levy’s introduction, average sugar content of soft drinks decreased by 23%6. Between the announcement of the levy in 2016 and its implementation in 2018, over 50% of drinks manufacturers managed to reduce their sugar content further5.

Fast forward to 2019, and the SDIL is already making its mark. Manufacturers have not only lowered the sugar content of many well-known brands, but price and advertising discrepancy promotes low and no sugar drinks. Possibly as a result, 18% of shoppers claim to have swapped to no or low sugar drinks and 4% have cut out soft drinks entirely1. So can beverage companies promote health, meet consumer demand and remain profitable?

March 2016 - Treasury announces Soft Drinks Industry Levy (Sugar tax)

**What is the Soft Drinks Industry Levy?**4

The Soft Drinks Industry Levy, commonly referred to as the ‘Sugar Tax’ is a tax for manufacturers based on the sugar content of their drinks. Drinks containing up to 4.9g of sugar per 100ml are excluded from the levy, rising to 24p per litre on drinks containing more than 8g per 100ml.

The money raised supports childhood health through physical activity funding and healthy school breakfast clubs.

Three ways businesses are helping shoppers reduce their sugar intake from drinks

1. Reformulation – making it easy for consumers

78% of shoppers are open to the reformulation of products provided they’re still as tasty1.  The SDIL persuaded many manufacturers to reformulate their drinks and lower the sugar content, for several reasons:

1. Fiscal - As manufacturers were at risk of paying a tax, investing the capital expenditure required for reformulation made business sense

2. Category movement – As the entire soft drinks category was included in the levy, manufacturers could reformulate knowing they were unlikely to be alone. There was also a clear target to work towards of >5g/ 100ml

3. Sweeteners – Public Health England encouraged the use of sweeteners, which are safe and can be relatively easily used to replace the sugar in drinks as they don’t have the same technical functions as in food

4. Reduced sugar claim – 87% of shoppers look out for nutrition claims on pack1. By reducing sugar by 30% or more manufacturers were able to make a claim on pack. Many brands successfully did this, including Volvic, Ribena and Irn Bru.

The category-wide reformulation has been so successful that the expected revenue from the tax halved even before its introduction and the sugar content of soft drinks continues to fall6.

1. Pricing and portion – making it cheaper for consumers

Some prominent brands have prioritised offering consumers with a wider choice – namely Coca-Cola and Pepsi. Both brands have prioritised innovation of sugar-free varieties but maintained the recipie of their original ‘hero’ products (red Coke and blue Pepsi).

These ‘hero’ products are eligible for the higher rate tax of 8p per litre which has been passed on to consumers, creating a price discrepancy which is particularly noticeable in cans and single serve bottles.

In multi-serve bottles, a portion size change is more noticeable. For example, where red coke is available in a 1l bottle, diet coke is 1.25l. This allows the price per bottle to appear the same to consumers, but the drinks are noticeably different prices in pence per ml.

1. Promotion – making it front of mind

Promotion of sugar-free beverages has now become the norm and is nudging people towards healthier options. For example, McDonald’s interactive ordering screens display water and diet soft drinks before their full sugar variants, which has led to a large proportion of consumers switching. In fact, 75% of sales in the cola market are now diet6. This may be a result of brands like Pepsi, Coca cola and Danone only advertising their sugar-free versions individually in the media or showing the entire product range.

Finally, retailers are adding to nudge behaviour in their ranging by changing the way shoppers access soft drinks. This includes placing diet drinks at eye level and giving a larger shelf space to sugar-free drinks. Examples like Tesco’s healthy swaps initiative have also increased the price differential on reformulated and healthy products, making these items cheaper.

Final thoughts

Since the introduction of the sugar tax, 45,000 tonnes of sugar have been removed from the shelves7, and some positive behaviour change has been seen2. However, the independent 2014 McKinsey Global Institute report8 suggested reformulation would be eight times more effective on reducing obesity than a 10% tax on high sugar and high fat products in the UK; similarly reducing portion size would be ten times more effective than a tax. So, although taxation may have helped to create a positive shift in the soft drinks category, is it the best driver of change for other categories?

To learn more about reducing the sugar content of your products visit igd.com/sugar for free reformulation resources and case studies.

* Free sugars – Free sugar is any sugar added to a food or drink, or the sugar that is already in honey, syrup and fruit juice.

References

1. Shopper Vista, 2019. Sugar: What do shoppers think? Base: 1,019 British shoppers, April 2019.

2. National Diet and Nutrition Survey, 2018. Results from years 7 and 8 (combined).

3. National Diet and Nutrition Survey, 2019. Years 1-9 of the rolling programme.

4. HM Revenue & Customs, 2016. Soft Drinks Industry Levy : Policy paper.

5. FDF, 2019. Soft Drinks Industry Levy: Industry progress.

6. Kantar, 2019. Health and Nutrition: Consumer Attitude and Behaviour.

7. Department of Health, 2019. Advancing our health: prevention in the 2020s

8. McKinsey Global Institute, 2014. Discussion paper. Overcoming obesity: An initial economic analysis.