PHILADELPHIA – Philadelphia’s beverage tax is costing supermarkets $300,000 a month in lost sales as consumers head to retail locations outside of the city where the tax does not apply, reports the Philly Tribune.
Enacted on January 1, 2017, Philadelphia Mayor Jim Kenney proposed the beverage tax as a revenue-raising measure for pre-Kindergarten education. Initially, Kenney sought a 3-cents-per-ounce tax but ultimately the final tax levies a 1.5-cents-per-ounce beverage tax, which by some estimates, impacts about 4,000 beverage products—not just soda.
A new study by John L. Stanton, an expert in food marketing at the Department of Food Marketing of the Saint Joseph’s University Haub School of Business, found that total beverage sales in five Philadelphia supermarkets dropped by more than $80,000 each month, writes the news source. However, the loss in sales is not limited to beverages.
“The average monthly loss in sales per Philadelphia store of $304,433 will lead to some reduction in labor force,” Stanton wrote in the study, adding:
“There is almost no scenario that would lead one to believe that the Philadelphia Beverage Tax will permit taxed supermarkets to maintain existing labor forces. Furthermore, the decline in supermarket sales will negatively impact distributors and other channels of distribution companies serving those supermarkets. While the reduction in force may take a few months to reach an equilibrium level, a labor reduction seems inevitable.”
Grocers like Jeffery Brown, president of Brown’s Super Stores, which operates 13 ShopRite stores in Philadelphia, told the Pennsylvania Senate Local Government Committee in written testimony that the thousands of products impacted by the beverage tax include sports drinks, flavored waters and nutrient enhanced drinks.
“The beverage tax has cut beverage sales by half at our 13 ShopRite stores in the city and created storewide sales drops that vary from 10% to a whopping 25%,” Brown said, adding that in six of his 13 stores, overall sales were down an average of 15%, and beverage sales were down nearly 60% since the tax took effect in January.
“We know that shoppers are going outside the city to buy their beverages and they are taking all their grocery dollars with them,” Brown said.
The loss of sales in Brown’s ShopRite stores has also been met with a decrease in labor. “We are cutting back hundreds of work hours and not filling open positions,” Brown wrote. “I have 210 fewer associate positions in my stores this year as a direct result of the beverage tax. And I’m not alone. This trend is happening at stores around the city.”
The news source writes that in his study, Stanton compared sales receipts of five Philadelphia supermarkets with four suburban supermarkets, and he compared sales in each store after the tax was imposed with trends before the tax was imposed. He found that the beverage tax came during an already challenging time for Pennsylvania’s supermarket industry, which had been facing sales declines due to changing consumer patterns. Therefore, the beverage tax doubled sales losses in Philadelphia stores.
“This study confirms our worst fears and highlights the struggles supermarkets across the city have been facing every day this unfair tax has been imposed on them,” Dave McCorkle, president emeritus of the Pennsylvania Food Merchants Association, said in a news release.
“At a time when food retailers were already confronting headwinds from online shopping and other changes in consumer behavior, this tax is dealing a death blow to an industry that provides access to groceries for families in low-income neighborhoods,” McCorkle added. “Our elected officials need to recognize the existential threat this tax poses for an industry that employs thousands of Philadelphians in family-sustaining jobs.”
Be on the lookout for the October NACS Magazine cover story, “A Costly Pour,” on the economic impact and consequences beverage taxes are having on retailers and consumers.