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PepsiCo to discontinue sale of pkgs larger than 1.25l in Philadelphia
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Friday, 24 March, 2017, 08 : 00 AM [IST]
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Philadelphia
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Philadelphia’s levy of 1.5 cents per ounce has nearly doubled the price of larger containers, which traditionally let consumers save money by buying in bulk. In response, PepsiCo Inc said it will no longer sell single packages larger than 1.25 litres within the city limits. It also will not offer six- and 12-packs of bottles and cans.
It became the first major city in the United States to implement a soft drink tax in June. Similar measures have since been passed in the California cities of San Francisco and Oakland; Boulder, Colorado; and Cook County, Illinois, home of Chicago. While the Philadelphia tax is paid by producers, the increase has largely been passed on to consumers.
“This will give our retail and food service partners the best chance to succeed in this challenging environment and will minimise the chance of the product going out-of-date,” said PepsiCo spokeswoman Jennifer Ryan.
Coca-Cola Co, the world’s biggest US soft drink maker, had already begun pushing smaller bottles and cans to appeal to more health-conscious consumers. Now the effort is doing double duty in Philadelphia by also providing a more affordable option under the new tax.
Bigger packs are hit harder because the tax is levied per ounce. A 12-pack of cans (144 ounces) that sells for $2.99, for example, is subject to a $2.16 tax, while a $1.89 single-serve 20-ounce bottle is only 30 cents more expensive now.
Double benefit
Coca-Cola has been touting the importance of smaller packages for more than a year. The Atlanta-based company said sales of mini cans grew nine per cent in Philadelphia last year, while those of 1.25-litre bottles rose 9.5 per cent.
President James Quincey, who will assume the role of chief executive officer on May 1, 2017, has also pointed to the profit-margin benefits of selling the smaller containers, which come at a higher price per ounce.
“We’ve been offering smaller packages across the country, and here in Philadelphia, not because of cities passing beverage taxes, but because they’re what people want,” Fran McGorry, president and general manager, Tri-State Metro Operating Unit, Coca-Cola Refreshments, said in a post on the cola major’s website.
“But these steps are also helping our customers navigate the business challenges presented by this tax,” he added.
Sales declines
Beverage producers, distributors and retailers have been hit hard by the tax, which was enacted in January and applies to drinks with both added sugars and artificial sweeteners. Some reported sales drops of as much as 50 per cent in the first six weeks of the year.
PepsiCo also blamed the layoffs of 80 to 100 workers at three distribution plants on Philadelphia’s tax. Separately, Canada Dry Delaware Valley, a local distributor of Canada Dry Ginger Ale, Sunkist, A&W Root Beer, Arizona Iced Tea and Vita Coco, said it will have to fire 30 of 165 employees in the area this month.
If the push toward smaller cans continues to work at home in the United States, it could spread abroad, where countries such as Mexico and the United Kingdom have already implemented taxes of their own. Coca-Cola Co announced plans to take its smaller packages overseas in February 2018.
Source: Bloomberg
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