While the beverage market is growing, the debate as to whether the products are becoming healthier rages on. Either way, the beverage industry is a sweet target for governments looking to impose new taxes during a recession.
“Fat taxes” are gaining popularity among some city and state officials looking for ways to fill government coffers and fight climbing obesity rates. Lawmakers claim the tax will help improve public health because price will force consumers to think twice before buying unhealthy foods and beverages.
About 35 states already charge additional taxes on a variety of foods considered sugary, or unhealthy. But some say it’s not enough to force people to change their eating habits.
“The taxes are a very good idea, but until recently, they have been too small to make a difference in consumption,” said Kelly Brownell, director of the Rudd Center for Food Policy and Obesity at Yale University. “In each case, the taxes have been put in place just to raise revenue and have been kept small so the industry wouldn’t fight them.”
Brownell said a meaningful increase that would impact consumer spending and health would be “a penny an ounce for any beverage with added sugar.”
The move to impose more tax on beverages comes at a time when the industry is experiencing exponential growth. Sales of energy drinks alone increased more than 240 percent from 2004 to 2009, and new product launches are up more than 110 percent, according to the Mintel Global New Products Database.
Garima Goel Lal, a Mintel senior analyst, says that while the beverage industry – especially energy drinks – has grown rapidly, it slowed down between 2007 and 2008 due to the recession, which shows that tax increases could stymie growth even more.
“Anytime there is a price increase, consumers, even with the teens and young adults, who make up the market growth in this category, tend to be price sensitive,” she said. “They also have little brand loyalty. Growth has already dropped some, and a price increase would contribute to better consumer nutrition.”
New York State tabled a tax this week on sugary drinks, but New York City is unveiling a campaign that shows fat oozing out of a soda bottle.
Yesterday, Illinois residents started paying higher taxes on sports and energy drinks, certain fruit drinks and some types of candy. Illinois ranks No. 10 in obese and overweight children, and some polls have suggested that the public supports greater taxes on fattening foods and beverages.
But Kevin Keane, senior vice president of the American Beverage Association, said he doubts additional taxes will slow obesity.
“We agree with the need to address obesity, but it’s counterproductive to single out one food product,” he said. “The additional tax is not going to work. It’s not going to make a dent. You need to balance all calories with the calories you burn, and the government should get people to understand that, instead of demonizing certain products.”
Keane said sales of regular soft drinks have declined since 2000, but, according to the Centers for Disease Control in Atlanta, obesity rates have continued to increase. He said the beverage industry is producing healthier products in smaller portions that have less sugar and fewer calories, which explains why the total beverage industry is growing as sales of high-sugar soft drinks have softened.
Last year, both Ocean Spray and Bazza High-Energy Tea introduced new, healthier non-carbonated products that the individual companies advertised as being “naturally energizing” and the “smarter high-energy alternative,” respectively.
Making energy drinks healthier may be the right move for manufacturers as more local governments consider imposing greater taxes on unhealthy foods.
“These new, natural energy-enhancing products could threaten to steal share from their less healthy counterparts,” Lynn Dornblaser, a Mintel global new products expert, said in a prepared statement. “Often, they are not sold in the energy drinks aisle, but in the juice or alternative beverage aisle, which may protect them from the unhealthy stigma.”