Get ready for the sugar tax

With the soft drinks industry levy just one month away, Joseph Lee finds out how to you can turn the tax into an opportunity.

How is the marketing changing?

Even before the soft drinks levy was put into action by the Government, reducing sugar was a major trend. According to Coca-Cola European Partners (CCEP), sugar in soft drinks has fallen by 20% since 2014. 

But introducing the legislation has placed sugar in soft drinks on the news agenda and added incentives to manufacturers to rework their ranges. 

“We expect that at least 60% of our volume and 95% of our brands will be exempt from the soft drinks tax when it comes into effect in April 2018,” says Amy Burgess, trade communications manager at CCEP.

Ed Jones, senior customer marketing manager at Vimto Soft Drinks, says: “Vimto has been reducing its sugar usage by 8% year on year, since 2012. And while we’ve taken sugar out of our drinks, sales have increased.”

There will be some changes you have to be aware of. Products that aren’t being reformulated to reduce sugar could come in smaller sizes to help retailers provide the same price, if they choose. 

The 1.75l bottle of Coca-Cola Classic will be replaced with a 1.5l version, for example. Other lines, like Irn-Bru and Lucozade have reformulated to bring the amount of sugar they contain under the tax threshold.

Aside from lower sugar, Rich Fisher, category development manager at Red Bull says the continuing growth of the soft drinks market is set to be driven by functional energy drinks, cola and water.

“Busier lifestyles and increasingly busy consumers mean that the market is looking for more all the time. Products that deliver added value for a range of occasions, such as multi-vitamins, protein or a functional energy boost, continue to be popular,” he explains.

Adrian Troy, marketing director at Barr Soft Drinks, says that while there is a growing trend of demand for low-sugar and healthy options, customers are not willing to compromise on taste. 

Give your shoppers a choice

You should regularly review the choices you offer based on sales performance and feedback to make sure that the best selection of drinks are offered, says Scott Meredith, sales director at Lucozade Ribena Suntory.

“Retailers need to re-set how they view soft drinks. The whole market has changed,” says James Logan, commercial director of Refresco. “Lower sugar is now becoming the norm.”

The growth of low-sugar drinks – Coke Zero is up 41%, Fanta Zero is up 51.5% and Lilt Zero is up 28.7% – shows shoppers are demanding choice, with low-sugar alternatives merchandised next to the original flavours.

“Don’t reduce space given to your current bestsellers as shoppers still want choice,” says CCEP’s Amy Burgess.

Choice is the main theme of the soft drinks market, with manufacturers widening their range of drinks, adding new flavours as well low- and zero-sugar versions.

CCEP is launching Diet Coke Exotic Mango, Diet Coke Feisty Cherry and Coca-Cola Zero Sugar Peach flavours.

At Red Bull, it’s a similar story. It is expanding its sugar-free line up with new 473ml cans, price-marked 355ml cans and zero-sugar versions of Red Bull Editions, Tropical and Orange varieties.

Boost founder Simon Gray says: “Adding new and flavours to our range continually creates excitement and brings new customers into the category.”

You should make sure you are paying close attention to the latest launches and promotions to make your range as appealing as possible.

Boost spend with premium soft drinks

The search for new flavours is giving a boost to the premium soft drinks market. Consumers that are giving up or drinking less alcohol are searching for drinks with an adult taste that come with a premium price.

Lucy Cottrell, brand manager at Halewood Wines & Spirits, says that taking advantage of seasonal flavours – such as raspberry in summer – can help to increase sales.

Although shoppers are generally drinking less alcohol, they are drinking more premium choices when they do. 

Premium soft drinks are getting a boost from the rising sales of craft spirits such as gin and rum, Cottrell says, so it’s important to give them enough space and pair complementary drinks and mixers.

“The ongoing desire for premium and spirits will create further growth opportunities for premium mixers this year,” she explains.

New brand Gunna – a low-sugar premium soft drink with flavours such as ginger, lime and bitters – has taken its look from the craft beer and spirits market.

“We looked to the craft drinks market for inspiration,” says founder Melvin Jay. “Younger consumers feel that soft drinks lack character both in terms of taste.”

Brands that can balance health benefits with great tastes will win over younger shoppers and drive sales.

Legislation: Five key questions

 When does the soft drinks levy come into force? 

6 April 2018.

What drinks are affected? 

Soft drinks that have less than 1.2% alcohol and have added sugar above a set threshold. The tax includes squashes and drinks that are mixed with crushed ice – like slush.

Drinks with between 5g and 8g of added sugar per 100ml will face an extra charge of 18p per litre. For those with more than 8g of added sugar, the levy is 24p per litre.

 What are the exemptions?

If a drink is 75% milk, or if it’s made from pure fruit juice – including carbonated fruit juice drinks like Appletiser – then the sugar content doesn’t matter. Alcohol-free beer and wine, as well as instant formula, follow-on formula, baby food and formulated food are also unaffected.

 Who is taxed?

The levy is paid by manufacturers but industry experts expect the costs to be passed on through retailers and onto the consumers. Retailers are not obliged to change their prices.

 What about small, local manufacturers?

If they have produced less than one million litres of liable drinks in the past year and will not produce more than one million litres in the next month, they will not be taxed.