Retailers are being urged to take a long hard look at their soft drinks aisle as the Soft Drinks Industry Levy comes into force. C-Store examines the impact it has already had on the big brands and its likely impact on your sales
Soft drinks giants have been haemorrhaging the white stuff in advance of the Soft Drinks Levy, which comes into force on April 6. In fact, sugar from the soft drinks category has declined by more than 20% since 2014 (Kantar World Panel 52 w/e 31 December 2017 vs 5 Jan 2014).
But with Lucozade losing share in energy drinks after bringing the sugar content down (Nielsen), and Irn-Bru facing a major consumer backlash after cutting its sugar content by 50%, it’s clear that avoiding the levy is only half the battle for suppliers.
On the other hand, sticking to their original recipes could prove equally damaging for soft drinks, as Mintel data shows 40% of consumers say they would cut back when the levy is added to the price and 16% said they would stop purchasing altogether.
So which path have the key players chosen, and how will this affect you?
What happens to meal deal prices?
“Britvic and Coca-Cola gave me leaflets with advice on new products and changes to prices and packaging sizes, a few weeks before the introduction of the levy.
“I started stocking some new products that fall below the threshold before the levy came into place, so I felt reasonably prepared.
“My main issue is having to take the hit with margins on meal deals that include a full-sugar drink. I don’t want to increase the cost of my meal deal and I don’t want to have to introduce different prices for diet and non-diet drinks. It’s just getting really complicated, so I’ll have to take the hit myself.”
Scott Graham, McLeish Inverurie, Aberdeen
A number of SKUs have chosen to stick to their original recipes and face the levy, including Classic Coca-Cola. However, Coca-Cola European Partners (CCEP) has put into place a number of pricing and packaging alterations. The firm has reduced the size of take-home packs and multipacks so that the prices of full-sugar and sugar-free variants remain closely aligned. For Classic Coca-Cola, the 1.75ltr and 1.25ltr sizes will be discontinued, and replaced with 1.5ltr and 1ltr pack formats at a similar price point. The 10-can multipacks will become eight-packs, while 15-packs will go down to 12.
Classic Coke in 1.5ltr bottles will be pricemarked at £1.99, or two for £3.30, which compares with £1.85, or two for £2.85, for 1.75ltr of the lighter varieties. A 500ml PET will be pricemarked at £1.25 for regular Coke and £1.09 for the two sugar-free styles. Cans will be 79p for regular, 69p for Diet, and 55p for Zero.
The sugar content of the original Red Bull and Pepsi SKUs also remain unchanged, meaning that they too will be affected by the levy. Neither company provided Convenience Store with information as to how this might affect pricing, but they are unlikely to remain at the same price point as their low- and no-sugar counterparts.
“There is no legal requirement to pass the soft drinks tax onto shoppers,” says CCEP trade communications manager Amy Burgess. “However, the government and policymakers have made it clear that they expect to see a price difference between products that contain sugar and those that have a low- or zero-sugar content. Ultimately, all pricing is at the discretion of you, the retailer.”
CCEP has adjusted the price of Original Monster energy drink in order to account for the levy. Cans now carry a pricemark of £1.35, compared with £1.19 for sugar-free variants. Unmarked stock will continue to be available for all products.
Unlike CCEP, Britvic and Red Bull which have opted to keep some of their classic recipes, many companies have reformulated their flagship lines and therefore avoid the levy. Boost has reformulated all of its energy drinks so they are exempt from the tax and remain the same price and size. Founder and managing director Simon Gray adds that all new products the company produces will be either low sugar or sugar free.
Nichols has ensured all Vimto products are exempt from the tax. Emma Hunt, head of marketing, says: “Our sugar levy-ready products have actually been on the market for a long time so they have been consumer tested and we know people love them. We’ve gradually reduced the sugar and taste buds have gradually changed over time.”
But while some brands have successfully reformulated without upsetting the status quo, others have faced the wrath of disgruntled consumers mourning the loss of sugar and angry at the addition of sweeteners.
Lucozade Ribena Suntory (LRS) has reformulated all of its core drinks to fall under the levy threshold. Lucozade Energy orange reformulated last year and now contains 65% less sugar and sweeteners aspartame and acesulfame-K.
Time will tell how shoppers react
“If the consumer is willing to pay the extra for the full-sugar drinks then we will continue to sell them. If they look at the price and start moving away from those drinks then we will change our range accordingly.
“I don’t personally see how we, as retailers, can choose a new range without first seeing what the consumer wants to buy. I don’t see how a manufacturer can come in and tell me the best new range without first seeing how the levy influences buying habits.
“I’m sure that over the course of the next few months we will start to see a change in the way people buy soft drinks, but I will wait and see.”
Dean Holborn, Holborn’s, Nutfield and Redhill, Surrey
Ribena blackcurrant squash and Ready To Drink have recently had their sugar content reduced by 55% and now rely on acesulfame K, sucralose and sugars naturally occurring from the juice to add sweetness. UK sales director Scott Meredith says: “Our core portfolio is sugar tax-free, so it’s absolutely business as usual for our retail partners.”
However, some consumers are unhappy with the new recipes. Lucozade lost sales of more than £25m in 2017 following the reformulation. And a quick glance at both Lucozade and Ribena’s Facebook pages shows that a number of fans are angry about the changes, with many criticising the use of sweeteners and claiming that the drinks simply don’t taste as good.
Irn-Bru has also witnessed a consumer backlash following a major recipe overhaul of its original variant, which now comprises 50% less sugar and the addition of sweeteners aspartame and acesulfame-K.
Adrian Troy, marketing director at Barr Soft Drinks, says: “We have taken our time to get this right and invested heavily in both sweetness and flavour technologies, as well as multiple rounds of consumer research, to ensure that we have delivered a very good product match. So we are confident that we continue to offer consumers what they are looking for and ensuring that retailers can continue to drive sales on one of their most important brands.”
It’s too early to say whether the reformulation has affected sales, but consumers certainly haven’t been backwards in coming forwards when it comes to airing their frustrations about the reformulation on social media, describing it as “rank” and “garbage” and referring to the sweetener aspartame as “poison”.
Steven Barton, chief executive officer of C7 Brands, which makes the sparkling coconut water drink Coco Fuzion 100, warns retailers that consumers are becoming more savvy when it comes to ingredients. “The more educated the consumer becomes - and they will continue to become more educated - the more likely they will be to challenge the [soft drinks] industry on what they are replacing sugar with. I think that’s what retailers need to be ready for. It’s for that reason that I believe there is a huge opportunity for natural drinks such as coconut water.”
Nevertheless, despite some consumers’ initial reluctance to accept reformulations, suppliers are confident that a reduction in sugar in soft drinks will actually boost sales for convenience retailers in the long run.
Gary Black, sales director for wholesale and convenience for CCEP, says the levy could be a huge opportunity for c-store retailers in particular, as he says they are missing the massive opportunity of the demand for no- and low-sugar SKUs.
Knowing what to stock will get harder
“Coca-Cola European Partners has told me that I should increase the amount of low- and no-sugar drinks I sell, but also said I don’t have to reduce the facings of the best sellers.
“That kind of implies that I should keep, say, six facings of Coca-Cola Classic, but also add in the extra Diet SKU, which will get hard to do if every supplier says the same thing!
“I do plan to add in more SKUs that fall below the levy threshold, but I wish suppliers hadn’t waited until so late in the day to bring out their new products and give out their advice. Us retailers need more time to plan what we want to stock and how to merchandise it.”
Harry Goraya, Rosherville PO, Gravesend, Kent
According to CCEP’s forecasts, by the end of 2018, Great Britain will be the first country in the world where more than 50% of the Coca-Cola sold will be no- and low-sugar. What’s more, Coca-Cola Zero Sugar has become the fastest growing cola brand in Great Britain, up 41% (Nielsen 52 w/e 9 September 2017). The brand has discovered that, in the grocery channel, 54% of Coca-Cola sales are from diet or zero-sugar SKUs. with just 46% from Classic. In the convenience channel only 38% of sales are from the light variants, and 63% are from Classic.
Black says this is due to a lack of availability as 94% of grocery stores carry a zero- sugar 500ml bottle and 91% stock a 330ml can, compared with just 56% and 36% in convenience stores. He advises: “Wherever you see Coca-Cola Classic, it should always have its two friends either side because then you are offering the full range of products to cater to your shoppers’ needs.”
Some £25m will be invested in the company’s two sugar-free colas during the year, including a rebrand of Diet Coke, and there has been new flavours in both Diet Coke and Zero to encourage new consumers to try the brands. Diet Coke exotic mango and feisty cherry are being supported by a £10m campaign featuring brand ambassador Holly Willoughby, while Coca-Cola Zero Sugar welcomes peach to the fold.
Britivc Soft Drinks also sees potential from no added sugar, with some 94% of its portfolio coming in under the levy threshold. It reports that sugar-free soft drinks are worth more than full sugar drinks, at £993m vs £859m, and sugar-free drinks shoppers visit grocery stores more often than full sugar drinks shoppers, and buy nearly double the amount of the sugar buyer per year (Kantar Worldpanel take home purchases, 52 w/e 28 January total carbonates).
Britvic commercial director for convenience and impulse Trystan Farnworth says: “Those shoppers who buy low and no-sugar soft drinks buy more than those who buy classic recipes because they are more permissible.”
Red Bull expanded its sugar-free range in March when it unveiled its first Red Bull Sugar-free 473ml can and a Red Bull Sugar-free 355ml pricemarked pack. Red Bull Editions - tropical and orange - are now available as a 250ml can sugar-free option.
Shoppers are buying 44% more low-calorie functional energy big cans than last year, Red Bull reports, and 28% more low-calorie functional energy flavours (IRI Total GB Coverage YTD Data to w/e 21 October 2017).
Barr Soft Drinks’ healthier Irn-Bru variants include Irn-Bru Sugar Free and the lower calorie Irn-Bru Extra. Says marketing director Adrian Troy: “In our low-calorie range, Irn-Bru Sugar Free continues to perform well and, in addition, the recently-introduced Irn-Bru Xtra provides the full-on flavour and taste for which Irn-Bru is renowned, but with zero sugar.”
Given the number of new products, reformulations and pack size changes, it’s clear that retailers will have to adapt their soft drinks merchandising. Britvic is currently on the road educating retailers on how best to respond to the changes the levy has brought. Says Farnworth: “In the independents we have had a large full-time sales force calling nationwide with flyers, leaflets, POS kits, counter-top displays, all promoting the no- and low-sugar soft drinks options. We have also worked with the symbol groups to review planograms and increase the space allocated to the no- and low-sugar drinks.”
LRS is also on a mission to support retailers through the changes. It says its sales force is fully trained on the legislation and therefore able to answer questions from retailers, while the company is sharing key information on the levy along with category advice through leaflets.
Whether or not price differentiations between high- and low-sugar drinks will have any impact on sales remains to be seen. And, of course, it is up to you whether you choose to pass any price increases on to your customers in the first place. But price points aside, it is clear there is a growing demand for low- and no-sugar drinks - though not necessarily at the cost of their high sugar counterparts - so perhaps making room for more such lines is a wise strategy regardless. With each shopper spending up to £232 (HIM CTP 2017, IRI Data Symbols & Indies 52 wks to 20 October 2017) a year on soft drinks, every person who walks through the door is a long-term profit opportunity.
How the sugar tax works
• Drinks containing more than 8g of added sugar per 100ml will be taxed at 24p per litre. When VAT is added, this equates to about 10p per 330ml can
• Those with 5-8g of sugar per 100ml will be taxed at 18p per litre
• Products with less than 5g of added sugar are exempt, along with fruit juices, products without added sugar, and dairy-based drinks
• The tax is levied on the manufacturer, or first receiver of goods for imported lines
• Money raised through the levy will go towards school sport, the government says.
The lowdown on the key players
Coca-Cola 500ml PET
A 500ml PET has an rrp of £1.25 and contains 53g sugar. A 330ml can has an rrp of 79p and contains 35g sugar
A 330ml can contains 36g sugar
A 250ml can contains 27.5g sugar
A 500ml can comes in a £1.35 PMP and contains 55g sugar. It is sweetened with sucrose, glucose syrup and sweetener sucralose
A 380ml bottle contains 17.1g sugar. The brand has lost sales of more than £25m since reformulation. Contains glucose syrup and aspartame and acesulfame-K
Sugar content reduced by 55% in the latest reformulation, which uses sweeteners acesulfame K and sucralose
Reformulation carried out gradually. Now contains 4.7g of sugar per 100ml. Contains sweeteners acesulfame K and sucralose
Sugar content reduced by 50% in latest reformulation. Contains sweeteners aspartame and acesulfame K