By Paul Ebeling: A recent series of measures to tax sugary drinks, in an effort to fight obesity and diabetes, are forcing soda companies such as Coke (NYSE:KO), and Pepsi (NYSE:PEP) to reinvent themselves and diversify not only their business model, but their public image
Voters and lawmakers in 5 municipalities such as San Francisco and the county that includes Chicago approved special taxes on sugary drinks last week, with advocates saying the victories point to a change in public attitudes and the beginnings of a movement.
The push against sugary drinks has been backed by Michael Bloomberg, who as mayor of New York lost a bruising fight to limit the size of sugary drinks.
If this national wave of anti-soda sentiment doesn’t immediately hurt the bottom lines in the earnings of such soda giants as Coke and Pepsi, it should be enough to shake C-suite officials.
Healthy eating activists say that the passage of the soda taxes could significantly improve Americans’ health. A recent study by Harvard’s TH Chan School of Public Health found that Bay Area taxes could result in a nearly 20% drop in soda consumption and decrease the incidence of diabetes by 4% in the area by Y 2018 when the taxes take full effect.
More than $40-M has been spent fighting the Bay Area soda taxes, $20-M of which came from the American Beverage Association, the soda industry’s trade organization.
“We respect the decision of voters in these cities,” the ABA said in a statement following the passage of the laws. “Our energy remains squarely focused on reducing the sugar consumed from beverages — engaging with prominent public health and community organizations to change behavior.”
Executives at Coca-Cola and PepsiCo are staunchly opposed to the soda taxes.
“Soda taxes are there to balance budgets,” PepsiCo CEO Indra Nooyi said. “They have nothing to do with public health.”
Sandy Douglas, the president of Coca-Cola North America said in a statement: “We believe there are better alternatives for encouraging moderation in sugar consumption than higher taxes.”
Even though soda taxes may decrease consumption on a local level, it’s unlikely they will have major impact on sales anytime soon. The bigger issue facing soda companies like Coca-Cola and Pepsi is public perception.
In the US there are 7 cities that now have special, per-ounce taxes on sugary drinks. All were approved in the past 2 years, and got backing from Bloomberg Philanthropies, as well as from Laura and John Arnold.
Others that passed last week were in Oakland and Albany, California, and Boulder, Colorado. They follow Berkeley, California, in Y 2014, and Philadelphia this summer. Bloomberg Philanthropies said it will help others that come forward.
Pepsi and Coke are moving to diversify their offerings and grow sales of drinks such as tea, coffee, and bottled water. Coke and Pepsi also are cutting sugar in existing beverages.
One way soda companies are combating the decline in consumption is by shrinking the size of cans and bottles. Smaller cans, for example, contain fewer total calories than large bottles, which may make them more appealing to the consumer. They also generally cost more per ounce.
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