By Dan Finke
In the 2016 UK Budget, the Soft Drinks Industry Levy (SDIL) was announced, soon to be nicknamed the “sugar tax”. The levy directly targets the producers and importers of sugary soft drinks to encourage them to remove added sugar, promote diet drinks, and reduce portion sizes for high sugar drinks.
The levy will make soft drinks companies pay a charge for drinks with added sugar, and total sugar content of five grams or more per 100 millilitres. With a higher charge for the drinks that contain eight grams or more per 100 millilitres. Pure fruit juices won’t be taxed, because they don’t contain added sugar. Neither will drinks that have a high milk content, because they contain calcium and other nutrients that are vital for a healthy diet.
The SDIL will not be implemented until about April 2018 so producers have time to take action on reformulating their products before the tax begins. (Source: https://www.gov.uk/government/news/soft-drinks-industry-levy-12-things-you-should-know)
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We’ve known that the Public Health England’s sugar reduction programme has been coming for a while. Eventually all sectors of the food and drinks industry will be challenged to reduce overall sugar across a range of products that contribute to children’s sugar intakes by at least 20% by 2020.
While Public Health England has made it clear that lowering sugar levels, reducing product size or pushing healthier products are three key options for manufacturers, it is clear to us that there’s fourth spoke in the wheel: pricing. Promotions in the UK currently account for 40% of all expenditure on food and drink. Even though government stopped short of legislating against the use of promotions, it is clear that use of promotions will need to reduce as they increase the amount of food and drink people buy by around one-fifth. Food and drink suppliers need to behave responsibly, which likely means a change in the pricing and promotional regime.
Many suppliers have already been cutting the depth of promotions on offer to shoppers to help offset rising cost pressures. However, basic product pricing (on average across all supermarkets) has not risen in three years. As #Marmitegate highlighted, manufacturers can recommend pricing for their products to retailers but can’t control how much the retailers sell for. Retailers need to play their part too.
Innovation is also important. IRI analysis shows that, in the UK, high sugar products are still a major contributor to new product development despite an increase in demand from shoppers for healthier food alternatives such as gluten free, non-dairy milk, juices and fortified waters. Suppliers need to work harder to respond to changing consumer trends.
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Dan Finke
Managing Director UK, IRI
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