Philadelphia's soda tax increases sales outside the city limits, study finds
- In the months after the city's sugary beverage tax went into effect, sales of sodas, sports drinks and RTD coffee have plummeted in Philadelphia — but skyrocketed just outside city lines — according to a new study from Catalina. Soda purchases are down 55% in the city limits, but are up 38% just outside the city's border. Similarly, sales of sports drinks in the city are down 44%, but have increased 25% outside. And RTD coffee and tea sales have dropped 37% in the city, but increased 24% elsewhere.
- While basket sizes at grocery stores initially decreased after the tax was implemented, the losses have remained fairly stagnant or decreased in the months since. Basket size throughout the city was down 5% in March. By May, sales in the city's core stayed flat, but those just inside the border improved by nearly 3%. Just outside Philadelphia's borders, basket sizes were down about 2%, but by May, basket sizes had improved by more than 1%.
- To get to these results, Catalina — a targeted marketing and promotions company — studied 109 million purchases in the Philadelphia area. A total of 121 stores in the Philadelphia city limits were examined, as well as 66 just outside the city and hundreds more further away.
Philadelphia's 1.5-cent-per-ounce tax on sugary beverages has been controversial since its inception. Since the tax started being collected at the beginning of the year, city retailers complained about smaller basket sizes and soda companies lamented sharp decreases in business. Both effects are evident from this study, though proof that the tax was hitting stores and businesses hard wasn't really needed. The tax has helped bring about job cuts and closures at local businesses and layoffs at soda distributors that serve the Philadelphia area.
What these results do show rather clearly is that the tax hasn't stopped many consumers from buying soda and other sugary beverages — it's just changed the places where they make their purchases. Catalina's study also investigated the volume of soft drink purchases per shopping trip, which has increased 17% outside the city limits, and the penetration of soft drink purchases among all shoppers, up 12% outside the city limits.
The study's results continue the debate over soda taxes. Are they achieving their stated goal? And what is that goal? If that goal is a reduction in consumption of soda and other sugary beverages for health reasons, which has been advocated by the World Health Organization and other consumer groups, these results show it might not be succeeding.
If the goal is raising revenues for cities and their programs, such as Philadelphia's tax, which is considered a new source of funds for education, that objective might not be met either. In its first six months of being collected, Philadelphia's tax brought in $39.3 million — a far cry from the projected $46.2 million the city initially projected. And the tax in Philadelphia had the likely unintended consequence of being higher than rates on beer, giving the alcoholic beverage a market advantage.
With the concept of soda taxes growing in popularity nationwide, the study brings to light the potential real effects. These are lessons that Cook County, Illinois, which includes Chicago, should take to heart as its new tax rolls out. Consumers have found the penny-per-ounce tax confusing. The county's planned use of the tax as an alternative to raising other taxes on residents also has already hurt operations, with 300 layoff notices sent to county employees after a court case delayed implementation. Illinois state lawmakers are already drafting legislation to use their authority to get rid of the tax.
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