Dive Brief:
- Tuesday, a U.S. district judge turned down an American Beverage Association (ABA) request for a preliminary injunction against an impending San Francisco ordinance requiring warning signs for sugary drinks.
- The law, which will go into effect July 25, will require warning signs on billboards and other public advertisements for soda and other sugary beverages. The warning signs are not mandatory on television or radio advertising, beverage packaging, or menus.
- The judge said "that plaintiffs are unlikely to succeed on the merits of their First Amendment claim or to suffer irreparable harm if the ordinance goes into effect," The Wall Street Journal reported. The ABA said in a statement that it is reviewing the court ruling but will continue to fight the ordinance in court.
Dive Insight:
It's unclear how this ordinance will impact soda and sugary beverage marketing, in part because the battle may not be over yet, according to the ABA. But comparisons are most often drawn to warning labels for tobacco products. Anti-smoking campaigns, including warning labels on cigarette packaging, have been associated with a decline in the U.S. adult smoking rate from 42.4% in 1965 to 16.8% in 2014, according to the CDC.
Manufacturers fear such a decline for soda and sugary beverages if these warning labels go into effect. A study published earlier this year in the journal Pediatrics could confirm those fears: 40% of participating parents said they would buy their child a sugary beverage that had a warning label, compared to 60% when the beverage did not have a warning label.
While the warning labels are expected to take up a significant amount of ad real estate (20%), that leaves 80% of ad space left to counteract that warning label. Marketers may include other product benefits, such as flavor, convenience, or price, or use language that explains the warning label in more detail or reframes it in a way that tones down negative consumer sentiment.
The judge shut down ABA's attempts at a First Amendment claim, but the organization has another argument to fall back on: Soda and sugary beverages are not the only products on the market that are high in sugar, and therefore should not be singled out as a cause for obesity and tooth decay.
The "war on sugar" could impact companies' bottom lines if manufacturers and the ABA don't act fast. Coca-Cola "has more grams of sugar per dollar of total earnings before tax and interest (EBIT) than any other beverage company," followed by Dr Pepper Snapple Group, Forbes reported.
That means any success in reducing sugar consumption could hit these companies' profitability even more significantly than other companies, such as Monster or even PepsiCo. PepsiCo in particular benefits by having a more diversified portfolio with other beverages (sports drinks, RTD tea, RTD coffee) that don't contain as much sugar as most Coca-Cola and DPS products.