On Jan. 1, the city of Philadelphia instituted a new tax on sweetened beverages. Any drink containing a sugar-based sweetener or artificial sweetener is now subject to a 1.5 cent-per-ounce sugar tax.
Catalina studied 109 million transactions inside and outside city limits to determine what impact the tax has had on retailers and certain beverage categories. The company’s research focused on four areas: Philly Core, Just Inside the border, Just Outside the Border, and further away from the city’s boundaries.
The study looked at beverage purchases in the first five months of 2017, compared with purchases during the same period a year earlier. It looked at 121 stores within city limits, 66 stores just outside the city, and hundreds farther outside of the city.
Across a variety of sweetened beverage categories, the Philadelphia sugar tax has dramatically cut sales within Philadelphia’s city limits; however, it has also substantially increased sales at stores just outside city limits, the study concluded. Many shoppers are now traveling outside the city to buy their sweetened beverages.
To detail these findings, Catalina developed an infographic, which can be viewed here.
Sales volume for carbonated soft drinks is significantly down in Philadelphia. In the five months since the levy, soft drink sales volume is down 55 percent in both the Philly Core and Just Inside the Border areas. Shoppers are traveling Just Outside the Border to purchase carbonated soft drinks, resulting in a 38 percent increase in sales volume.
A decrease in volume per trip in energy drinks is the main driver for the decline in sales volume within Philadelphia. For shoppers in the Philly Core, volume per trip has decreased by 9 percent and is down by 11 percent in Just Inside the border. Inside city limits, this category is showing significant declines, driven by a decrease in the number of sport drink shoppers and declines in both volume per trip and trips per shopper. The store dollar volume is down over 44 percent inside the Philly Core and down 45 percent Just Inside the Border.
Sweetened RTD Coffees and Teas are down by 37 percent in store sales volume in Philly Core and 33 percent Just Inside the Border. The area Just Outside the Border is reaping the benefits of shoppers’ willingness to travel for their favorite beverages, with store sales volume increasing by 24 percent.
Refrigerated Juices that contain less than 50 percent real juice are also subject to the new tax. There have been significant declines in this category, but sales of nontaxed Refrigerated Juices are also down somewhat, perhaps because shoppers incorrectly believe these juices are also taxed. In the Philly Core, the sales volume of taxed Refrigerated Juice Drinks is down a whopping 47 percent; Just Inside the Border experienced declines of 36 percent.
In addition to the finding related to carbonated soft drinks, sweetened coffee and tea, sports drinks, energy drinks, and sweetened juices, the study found changes within the purchase of bottled water.
In the six weeks following the tax, bottled water sales within the Philly Core grew by 13 percent, driven by the increase in value water. For shoppers Just Inside the Border, premium water brands grew nearly 9 percent, representing the total bottled water growth.
For the retailers in this analysis, there have been other changes in shopping behavior, including number of trips and average basket size, since the beverage tax was implemented. While total shopping trips in the Philly Core remained relatively flat in the first three months after the tax, the average basket size decreased by 5 percent, possibly due to the decline in sweetened beverages in the shopping cart.
For the period ending May 31, both trips and basket size are flat. Just Inside the Border, total basket size was down 2.1 percent as of May 31. The stores Just Outside the Border area recouped a majority of lost sales from the categories affected by the tax. These stores also saw a 2.3 percent increase in shopping trips in the after-tax period. The increased trips may have only been fill-in for the taxed categories since the overall average basket size declined slightly by 2 percent. In the 5-month post-tax period, the area Just Outside the Border had the largest increase in shopping trips, up 3.3 percent, compared with an increase for all areas combined of +2 percent.