Widespread media coverage of the high, and growing, prevalence of overweight consumers globally has heightened awareness towards obesity. Sugar has suffered from being vilified in the press and social media and it is usually the first, and often only, candidate to be mentioned as a culprit for obesity. With predictions indicating that Great Britain will have 45% prevalence of obese population by 2030, the British government is now taking a proactive approach in order to tackle this health issue with the introduction of the Soft Drinks Industry Levy, which is set to begin in April 2017.

Beverage manufacturers will be taxed according to the volume of sugar-sweetened beverages they produce or import according to two bans: one for Soft drinks containing more than 5g of sugar and a higher one for drinks with more than 8g of sugar content. The Tax is likely to be passed on to consumers in the form of higher prices which are to discourage consumption of taxed categories and consequently to limit sugar intake. However, there is no clear evidence supporting sugar taxes as a mechanism to halt obesity, with consumer purchasing behaviour differing from country to country.

In Denmark for instance consumers reacted in surprising ways such as hoarding and cross-border shopping in anticipation of the introduction of the tax. In Germany and Hungary there have also been instances of negative effects on the industry and on lower-income households. In France, the tax adopted was at such a low rate that it went virtually unnoticed with soft drinks experiencing a slight decline of 0.1% in 2012. Volumes grew back in 2013 by 0.5% and continue to grow in 2014.

Upping taxes will change behaviour

According to Canadean’s Q4 consumer survey UK, 43% of British consumers say that a tax/price increase on unhealthy food/drinks would make them buy these products less, or stop buying these products altogether. Unsurprisingly this is highest at 59% and 61% for consumers within the age group of 18-24 and 25-34 respectively as these two age groups are the most price-sensitive. Assuming some consumers will switch to non-taxable categories, the consumption reduction of Soft Drinks in the UK is estimated to decrease by only 0.4%.

However consumer response to price hikes, perceived or not, has the potential to generate unexpected scenarios in which producers begin to be responsive and position themselves ahead of the curve in exploiting gaps in the market for lower sugar beverages.

The development of new pricing structures can be used as a competitive weapon to win against private-label products. 62% of consumers globally agree that private label products are good alternatives to famous name brands. The launches of Boisson Stevia Cola by Antartic Cola and Planet Cola by Auchan, both mimicking the design of Coca-Cola Life, are a clear example of the competition existing between private label brands and big players in the FMCG industry.

New product formulations and captivating packaging are also instrumental in capitalising on low sugar and free sugar categories. The soft drinks market has witnessed numerous launches addressing growing consumer concerns regarding excessive sugary drink consumption from energy drinks such as the Monster Energy Drink Ultra featuring “lighter taste” yet "filling you with the same energy like the other Monster Energy Drinks” to flavoured water containing “no aspartame” and “no sugar” such as the Orange Mango Sparkling Water recently launched by SodaStream in the UK market.

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Despite 64% of consumer consider sugar as having negative consequences on health, a 12% increase from 2015, consumption levels of this ingredient is still high and climbing.  Even if the tax is not the best policy to reduce sugar consumption, it would play a key role in promoting a healthy diet, bringing the high sugar content of soft drinks into the spotlight.