Soda Tax: How should Beverage companies position their communications?

Since 2015, cities across the US have attempted to levy taxes on sugary drinks, with varying degrees of success. In this piece, we examine the history of so-called “soda taxes” in the US and the arguments in favour and against its imposition. We review how Corporate Affairs professionals have handled this industry wide issue and what they could potentially learn from their counterparts in the UK who have also been through this process. 

A brief history of the Soda Tax

As obesity rates across the globe soar – particularly amongst children – governments have taken proactive measures to improve people’s health. The so-called “war on sugar” has been spurred by increasing evidence linking excessive consumption to serious complications, including obesity and diabetes.

In April 2018, the UK government imposed the Soft Drinks Industry Levy, commonly known as the “sugar tax”, meaning that beverage manufacturers are now taxed based on the quantity of sugar in their drinks. In the US, in absence of a tax at federal level, several cities have introduced similar levies, which are commonly referred to under the umbrella term “soda tax”.

California’s Berkeley was the first to impost such as levy as far back as January 2015. Since then, seven other municipalities have imposed levies ranging from $0.01 to $0.02-per ounce on sugary drinks: San Francisco and Seattle are the two most recent additions as of January this year. Unsurprisingly, beverage manufactures have been critical of the tax, fighting against it both in the media and in the courtroom.

Opposition has primarily been voiced through the industry lobby group, the American Beverage Association, with varying degrees of success. In October last year, Cook County (and therefore Chicago) saw its soda tax successfully repealed in court thanks to a lawsuit by the Illinois Retail Merchants Association, while Michigan, West Virginia and Santa Fe, New Mexico have rejected such levies.

Pros and Cons of the “soda tax”

Supporters of the tax point to data showing decreases in the sales of sugary drinks and increases in the sales of healthier alternatives, such as bottled water. Money levied from the tax has also been put to good use in some cities, funding education, health and sports programmes aimed at improving the wellbeing of local communities.

However, opponents of the tax claim that it is being used as a means to plug “black holes” in local budgets. Some have opined that the reason Cook County’s sugar tax failed to garner strong public support was because the money wasn’t put towards one of the community focused initiatives previously mentioned.

Aside from the concerns about the motivations behind the tax, opponents also point to local supermarkets and manufacturers of sodas cutting jobs, and a notable increase in soda sales in the suburbs outside of city lines. Finally, as with the 2009 federal tobacco tax imposed by the Obama administration, critics point out that this will hurt low income families more than any other consumer group.

How are Corporate Affairs leaders expected to negotiate “soda tax” communications?

The above shows that the issue is finely poised and that there are compelling arguments to be made both for and against the tax. For Communications professionals working at the US’s largest beverage manufacturers, aligning communication with overall business strategy – in this case strongly opposing the tax – may pose a risk to corporate reputation: soda companies do not want to be perceived as part of the cause of American’s obesity crisis.

It is likely that, for this reason, much of the vocal opposition, lawsuits, and campaigning against the tax has been mainly conducted through the industry lobby group, the American Beverage Association.

Despite this tactic, the two largest soda companies, Coca-Cola and PepsiCo, have not found themselves out of the media spotlight. Unsurprisingly, these two companies have been mentioned most over the last 3 years in relation to a soda tax, though the data suggests that soda companies may be winning the argument. Indeed, recent polling showing Americans are not in favour of a soda tax and talk of state-wide legislation to ban taxes on groceries both bode well for the bottom lines of drinks companies, and may encourage companies to hold firm in their position.

Graph 1: Soda Tax volume by quarter 2016 – Q2 2018

For Corporate Affairs professionals at these companies, maintaining a handle on public opinion and the prevailing views of regulators at city, state and national level is vital in order to protect the brand from potential risk. As we highlighted in our analysis of plastic waste, the introduction of new legislation can provide companies with an opportunity to differentiate themselves from the rest of the sector. Whilst in the current political climate this looks unlikely in the US, some public health professionals argue that the introduction of a tax at the federal level is simply a matter of time.

Should this ultimately come to pass, Coca-Cola, PepsiCo and other big players in the US market would do well to learn from their UK counterparts how to effectively re-position communications to align with the new regulatory environment. Analysis conducted by alva in the wake of the introduction of the sugar tax in the UK showed that aside from increases in cost, consumers were concerned with a change in the taste of their favourite sodas. However, advocacy emerged across stakeholders for the government’s pledge to invest the money levied into health and sports programmes across the country. Assuaging consumer concerns around taste and highlighting the substantial contributions made towards sport through sponsorship deals may be effective messages to push out.

Finally, corporate affairs teams need to ensure that their policies and communications reflect the wider social contract of the business. If they are seen to be a public proponent of a healthy lifestyle, but privately fighting against measures to achieve this, it could lead to accusations of hypocrisy and a disconnect in stakeholder perceptions.

Conclusion

For now it seems that the strategy employed by US drinks manufacturers – to fight soda taxes locally through the American Beverage Association – is working, as the media loses interest in the story and consumers throw their weight behind legislation banning taxes on groceries. Yet as we’ve seen in the past, as public health crises cost more and more to resolve, media attention can pick up and public opinion can change.

Governments taking a more proactive role in changing consumer habits for the benefit of the nation’s health is something we are seeing more of, not less of. Given the complex nature of the debate and the differing opinions of stakeholders based on political persuasion and location, Corporate Affairs and Communications leaders should equip themselves with the necessary intelligence in order to plan and execute effective strategies.