Philadelphia Soda Tax Leads To 30-50% Plunge In Sales, Mass Layoffs

Tyler Durden's picture

When Philadelphia became the first US city to pass a soda tax last summer, city officials were eagerly looking forward to the surplus-tax funded windfall to plug gaping budget deficits (and, since this is Philadelphia, the occasional embezzlement scheme). Then, one month ago, after the tax went into effect on January 1st we showed the tax applied in practice: a receipt for a 10 pack of flavored water carried a 51% beverage tax. And since  PA has a sales tax of 6% and Philly already charges another 2%, the total sales tax was 8%. In other words, a purchase which until last year came to $6.47 had overnight become $9.75.

What happened next? Precisely what most expected would happen: full blown sticker shock, and a collapse in purchases.

According to Philly.com reports, two months into the city’s sweetened-beverage tax, supermarkets and distributors are reporting a 30% to 50% drop in beverage sales and - adding insult to injury - are now planning for layoffs.

One of the city's largest distributors told the Philadelphia website it would cut 20% of its workforce in March, and an owner of six ShopRite stores in Philadelphia says he expects to shed 300 workers this spring. “People are seeing sales decline larger than anything they’ve seen up to this point in the city,” said Alex Baloga, vice president of external relations at the Pennsylvania Food Merchants Association.

Since all of this is taking place as previewed in a recent post: "The 'Soda Police' Just Learned A Valuable Lesson About Taxes", we doubt it would come as a surprise to anyone, although we are confident that Philadelphia city workers will be amazed by these unexpected developments.

Sure enough, in response instead of admitting the tax was a bad decision, the city lashed out by launching the latest "fake news" campaign, when it questioned the legitimacy of the early figures and predicted that customers responding to the initial sticker shock by shopping outside the city would return. “We have no way of knowing if their sales figures and predicted job losses are anything more than fear-mongering to prevent this from happening in other cities,” said city spokesman Mike Dunn.

Mayor Kenney harshly rebuked reports of coming layoffs late Tuesday night.

"I didn't think it was possible for the soda industry to be any greedier," Kenney said in an emailed statement. “…They are so committed to stopping this tax from spreading to other cities, that they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women's jobs rather than marginally reduce their seven figure bonuses."

The 1.5-cent-per-ounce tax on sweetened and diet beverages is funding nearly 2,000 pre-K seats this year as well as several community schools, and the city hopes will bring in $92 million per year for the education programs and to in part fund renovated parks and recreation centers. To hit its annual target, the city needs to collect $7.6 million a month in tax revenue. The first collection was due Feb. 21 but collection information won’t be available until next month.  Early projections from the city's quarterly manager's report predict only $2.3 million will come through in the first collection. Dunn says that figure is expected to rise and the city still anticipates hitting its goal for the year.

The city predicted a 27% sales decline industry-wide as a result of the tax but early returns from some beverage sellers show far higher losses, fueling a resurgence of the anti-soda tax coalition that fought vigorously against the tax last summer.

Bob Brockway, chief operating officer of Canada Dry Delaware Valley, which distributes about 20 percent of the city’s soft drinks, said sales were down 45 percent in Philadelphia. The company will lay off 20 percent of its workforce the first week in March. The distributor is a subsidiary of Honickman Affiliates, owned by Harold Honickman, who helped lead the opposition to the tax last summer. The 35 jobs on the line include managers, sales people, and drivers, Brockway said. Sales are up about 20 percent in the suburbs, but that hasn’t helped the business break even, he said.

On the whole, the company’s sales are down about 30 percent, Brockway said: “We don’t anticipate people coming back.”

The situation is worse at other outlets.

Jeff Brown, CEO of Brown's Super Stores, which manages six ShopRite stores in the city, said beverage sales were down 50 percent from Jan. 1 to Feb. 17 compared with the same period in 2016.

Again, that was to be expected, but what was more troubling is a 15% dip in overall sales at city stores, meaning that instead of merely reallocating funds, the tax has resulted in a net loss of purchasing power. “People didn’t change what they drink," Brown said. "They changed where they’re buying it.” And the biggest loser: the city of Philadelphia.

But it gets even worse: since January, Brown said, he has had to cut 6,000 employee hours, he said. He said he suspects he will lose about 300 people, which amounts to one-fifth of his total workforce voluntarily and through layoffs in coming months. To keep customers, Brown has ordered more tea and lemonade powders, which are tax-exempt. He’s stocking shelves with lower-quantity sugary drinks, which are easier to sell than the two-liter bottles or 12-packs.

Day’s Beverages, an independent soft-drink distributor, has seen a steep decline in Philadelphia offset by a 50 percent boost in Camden, Wilmington, and Bensalem, owner David Day said. Day also distributes to 18 other states, but Philadelphia makes up 30 percent of his market. His carry-out business has ballooned since the tax, he said.

 

Day is a registered distributor with the city and required to remit a monthly payment on any taxed beverages that go on to be sold in Philadelphia. He sent payment in last week for deliveries he made throughout Philadelphia. But Day doesn’t tax people coming in to buy soda directly from his warehouse.

 

“We’re one block out of Philadelphia, in Delaware County, and you can’t imagine how many stores are coming to our warehouse and picking up our soda. I don’t care what they do -- they're coming here as a cash-and-carry. Our doors are open to everyone,” he said. “We don’t police where it’s going.”

Another loser: labor unions. Danny Grace, head of the Teamsters union, representing many of the drivers, said members have seen pay cut by as much as 70 percent because they’re moving fewer products. “Many of them have quit as a result,” Grace said. He did not provide specific figures.

Not surprisingly, legal challenges against the soda tax persist. The Pennsylvania Food Merchants Association, in conjunction with movie theaters, restaurants, and supermarkets, is mounting a new "Ax the Bev Tax” campaign this week. Participating businesses will hang up signs encouraging people to call their elected representatives. Some legislators in Harrisburg weighed in this month, with an amicus brief calling on the court to overturn the tax. Within City Hall, legislators are taking a wait-and-see approach. Some Council members have encouraged patience.

“Initially people are upset and drive over the city line, but then they do the math and realize the cost of gas or the pure inconvenience doesn’t make it worth it,” Dunn said.

J. Del Conner is one of the 210 distributors registered with the city. He owns Dr. Physick soda, a tiny beverage-maker that sells about 500 cases a year. The soda is named after Conner’s great-great-great-grandfather, a Philadelphia pharmacist who introduced carbonated water into fruit syrup as a way to help relieve gastric disorders.

Conner usually sells about 10 cases a month in winter but didn’t send any money to the city this month.

“So far in January and February we’ve had no sales,” he said. “Zero.”

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hedgeless_horseman's picture

 

They hate us for our orange drank.

hedgeless_horseman's picture

 

Dat Purple Drank be too damn high!

mtl4's picture

Wow, who would have thought that huge taxes on stuff causes people to change their buying behavior?!

 

Politicians just never get it.......

BuddyEffed's picture

How about we tax wealth inequality instead?

Since the gains in wealth have been focused on the top brackets, with the lower brackets seeing practically nothing, doesn't it make sense to tax those that accrued extraordinary wealth while others had their jobs shipped overseas and replaced by foreign workers?   It is the same rationale as the famous quote about why the robber chose banks to rob.  His response "Because that's where the money is".

There isn't much to get from the lower brackets anymore.  A tapping out of that income stream is occurring.

Don't forget to look to the offshored money they want to bring back in country while searching 4 adequate tax funds.

And maybe what's in Vault 7 can be taxed?

New_Meat's picture

Buddy, you have a great idea here, but as usual for those like you who come up with ideas of this nature, you don't go far enough.

Why not confiscate ALL of the wealth of the top 1%???  Wipe 'em out financially and totally.  Distribute that wealth as you say.

How 'bout that?  It works every time it is tried, right?

- Ned

{and that is my reddie}

Joe Davola's picture

If people are driving to get their big gulps outside Philly, then the only solution is to increase gas taxes!  It is PA, where gas tax increases are mandatory every week or so.

Thank you speedway for making your any-size sodas (h/t Philly) 69 cents in my nape of the neck.

froze25's picture

Yes, the Philly Gov't has people at least temporarily trapped within their boarders since it takes time to sell a home or get out of a lease. They can really tighten the screws on them. Gas Tax, soda tax, a Tax for just being alive (Carbon Tax), Then they can Tax the Tax (by their logic it should work well). Squeeze those tax cows till there isn't a drop left and all that remains of them is a dried up old husk of what used to be a person.

StackShinyStuff's picture

This is complete and utter FULL RETARD.  The bar has been set.  

Beam Me Up Scotty's picture

Just throw it on the pile.  When you add up all of your taxes and fees paid---income(federal, state and local), propertay taxes, sales taxes, gas taxes, liquor taxes, taxes on your electric bill, your phone bill, your cable bill, your internet bill etc etc etc etc, everyone who works is paying AT LEAST 50% of their income to .gov!!  If you are in the higher tax brackets probably 60-70%.  That means for every 10 days you work, 6 or 7 of those days are for GOVERNMENT!!  ITS SLAVERY!!!!!  Pure and simple!

And to top it all off, you are paying other peoples taxes too!!  Prices of every product, EVERY SINGLE PRODUCT YOU BUY, has someone elses taxes built into the price of that product!!  Its INSANE!!

Joe Davola's picture

Yeah, but some of those are just fees, not taxes - like the alternate energy awareness fees in my electric bill, I'm all about raising awareness!

And that fee for my state mandated smart meter, sure can I have 2 meters?  That charge for the mandated utility program to reduce my peak energy usage - bring it on!  Oh, you're going to use that smart meter to turn off my electric during peak hours so I can do my part, the missus won't complain a bit about how hot the abode is on those steamy August afternoons.

That's what fucking kills me about the worms who call themselves our elected representatives, they "won't raise taxes" but they sure as hell will mandate a bunch of shit that takes money out of your pocket.

Joe Trader's picture

A lot of you would quit whining if you actually read about eating proper organic foods, and how eating unhealthy foods like highly sugary drinks - has a massive detrimental effect on intelligence, and behaviour.

80-90% of Americans don't consume enough/any Omega-3 essential fats, which can partially mitigate some of the negative effects of sugar - however I'm willing to bet you'd see decreased crime if only people avoided sugar, processed foods, deep fried foods, fast foods, etc - and consumed all the appropriate vitamins & minerals that their bodies, and brains - so desperately need.

Doing all these things has actually reversed/decreased things like autism and A.D.D. in many patients - and Trump even mentioned the high rates of autism and ADD - it's not a stretch to say that the poor Ameican diets are heavily factoring into these rates.

If you want to read about it, one of the issues is brain inflammation - which can make people aggressive and very moody - you really can't understand people until you know the effects of diet on peoples' behaviour. So screw your "rights" to drink whatever, I highly support this tax, it's basic common sense to me.

The Merovingian's picture

Hey Joe, is your wife hot? B/c if so I believe that she could use a real dicking instead of that feather dusting you've been giving her.

Now, I know what you're thinking 'Hey, what fucking right does that guy have to fuck my wife?' Well, using your logic I have EVERY right to do so, and twice on Tuesdays I might add!

So, dress her up nice and get her out on the front porch. I'll swing by on my way home to give her the business she so sorely deserves.

Idiot.

Shocker's picture

Dumb decisions, now the workers have to pay the price.

Layoff List: http://www.dailyjobcuts.com

-

pods's picture

The most dangerous people are those who try to legislate what's best for you. 

You sir have poisoned all the correct information that you wrote. 

You are just another statist. 

pods

Joe Trader's picture

Gee thanks for the personal insult!! There's that saying "pick your battles wisely"....it's a good tax, there are more and more public health issues which can be related to high-sugar diets. You have elevated rates of diabetes, autism, a.d.d., obesity, hormonal imbalances, & let's call it 'educational issues' in the school system. Should nothing be done about this? Is it good to have such a population? Some people don't have the time nor education, to learn about the negative effects of high-sugar diets and processed foods + etc........some people have no clue about issues like brain inflammation even existing, as I did myself, several years ago

This is leading medicine ---- treating food as medicine. If you want to keep your brains in top shape...there's a diet for that.

and I'll tell you what cause this site loves Russia so much, you guys are fighting for inferior intelligence because in Russia, Eastern Europe - I know they for sure have organice foods and are pretty big on it. It's a huge dis-advantage to feed your brains with that crap.

Plus - if you were trying to stay well informed - as I'm sure many on ZH do ---- wouldn't you want to do everything to maximize your brain's health?...this is a fantastic tax and it's more about changing behaviours than it is about generating tax revenue, you have to be the most one dimensional person to think this is about tax revenue. Hopefully Chicago implements this tax as well!

pods's picture

I said you tainted your information with your desire to have it forced upon everyone by the government.

You are a statist. If telling the truth insults you, well, welcome to the real world.

And your elitism is appalling as well. People are not smart enough to find information themselves?  So you will do their thinking for them and use the heavy hand of government to enforce what is good for us.

I have, over the years here, linked to information here for anyone to read about proper nutrition. I will again.

https://www.drfuhrman.com/

There is enough information there to save anyone's life there.  But life should be about choices. That is what freedom is.
You do not seem to get that.  You would rather help people through the power of the government.  An insanely scary proposition for those who value freedom.

So you are an enemy to freedom, plain and simple.

If you find that personally insulting, that is on you.

And if this were to really be about helping people, it would have to be a tax on ALL simple carbohydrates, not merely sugar water.  Your body does not differentiate between a soda, slice of bread, pasta, or fruit juice.  All of them will put you on a path to type II diabetes.  So yes, this IS about a tax, under the guise of nutritional help. Typical sneaky government divide and conquer technique.

pods 

Joe Trader's picture

You're unable to conduct a normal conversation without labeling me with insults. You don't know me, so keep your primitive insults to yourself.

pods's picture

You want to give the government the power to determine the very food we can eat yet you cry about civility?

That's precious. 

pods

Joe Trader's picture

keep crying!!! awe let it all out!!!

Bobrsta's picture

If you read the article, the net result of the tax was not to reduce sugary drink consumption but to force the sales of them to outside of Philly city limits. So much for your great idea that the taxes do anything constructive

Joe Trader's picture

the article is highly slanted and doesn't even focus on the goal of this tax, it doesn't even talk about the health issues whatsoever - it's like what cnbc said the other day, the goal of the news is to control what you think, very poor reporting by ZH on this story. Buying sodas outside of Philly is a consequence, not a goal - even if you buy outside of Philly, the fuel and driving time itself is a tax

Joe Davola's picture

Thanks, now we don't have to feel so bad for giving our son autism with the vaccinations

Joe Trader's picture

Sorry if that's true, I have no expertise on medicine induced autism - however there are many medical cases where kids who were consuming a cocktail of things like loads of sugar, processed foods, dairy - and once they began eating organic, took their vitamins, minerals, and essential Omega-3 fats - their autistic symptoms were largely eleviated and those kids were able to live their lives in peace.

PrintemDano's picture

You say "It's basic common sense to me"?  Apparently you lack common sense, look at the RESULTS of this tax.  People losing jobs, government losing their cut, take, revenue, whatever you choose to call the money the government steals from us serfs at the point of a gun.

Joe Trader's picture

On the contrary, other results include healthier citizens, lower healthcare costs or issues, lower crime (brain inflammation induced by sugar DOES cause aggressiveness/moodiness in highly messed up diets), kids' grades may improve. Not to mention the real issue at hand here, which is a diabetic rate that's getting out of control

Economically, if people don't buy sodas, they'll buy other beverages...so I think you have a moot point

Blankenstein's picture

Studies show that sitting on your ass all day is worse than smoking.  Maybe we should install cameras in everyone's home so we can monitor who does what so we can tax appropriately.  Better yet everyone can wear a monitor so that ALL of your daily activities can be recorded.  It's only fair since smokers are so heavily taxed.

Curiously_Crazy's picture

I agree with you.

They already tax the fuck out of cigarettes and alcohol on the grounds of health, but did you know that cardiovascular disease due to obesity has recently passed smoking as the number 1 killer and strain on the health system? That's without all the associated issues like joint problems and type 2 diabetes.

It's crazy that I'm frowned apon as a smoker whilst all these lard arse ham galaxies are rolling around (or often driving around on there fucken scooters coz the fat fucks can't walk more than 10 paces without getting puffed out) and no-one says anything.

 

Joe Trader's picture

That's the point that these cry-babies are missing - the major health problems being caused by these unhealthy foods. It's easy to insult, but none of them offer any alternative solutions, they don't even seem to even know basic stats on those sicknesses. The cigarette comparison is perfect, because this is about rising health problems - and there's much better things to tax if this was about tax revenues.

Giant Meteor's picture

Good point. And as a pack a day man myself (good days), I appreciate this new development a great deal.

SittlerKeon's picture

Why a tax? Why not ban them entirely comrade?

zhandax's picture

Cause Joe is a statist. He cares less about healthy behavior than the state having yet another tool to rob you for behavior it's petty-assed bureaucrats disagree with.

gruden's picture

I agreed with everything you posted up until the last sentence.

Look you can't legislate personal behavior. This is socialist thinking that we need to protect people from themselves.

As far as taxing sugar drinks, there's a much larger issue involved. One is the fact that crap crops like wheat, corn and sugar are heavily subsidized by the gov't making them cheap (before taxes anyway). This makes it more affordable to poor people. Add in that there are few grocery stores selling good food in many urban neighborhoods and you get what we have.

If you want to encourage people to eat/drink better, take away the stick and add the carrot, so to speak. Stop subsidizing crap crops and subsidize fruits and vegetables (if anything). Make it easier for the poor to afford eating well and chances are they will do better at least.

Joe Trader's picture

errrrrr try again! a subsidy is still "government interference"

Hal n back's picture

Chicago was talking about taxing suburban residents income tax for income earned in the city. Next they wanted to impose a property tax on suburban residents becausd  there is a benefit living near Chicago.

I just think it is approprate for Chicago  to tax anybody who buys a Cubs ticket 25% of Chicago fees if their income is above 45,000 a year. The Cook County can add another 10% tax.

 

I am just waitign for when taxes start approacing 100% of earnigns. Remember in 1969 there was no illinois income tax and sales tax max was 4%.

My hous ein Cook County had tax of 1800 in 1977, I sold it 15 yrars ago but the property tax is nearly 20k now.

Govt has an insatiable thirst for money. More money. Spendng is out of control.

 

Joe Davola's picture

Call it the "trickle down jock tax".

dogbreath's picture

In a recent survey from the Canadian Taxpayers Federation I told them that the tax on sweetened soft drinks should be the same as for beer.   In europe the price for a bottle of beer is about the same as for a bottle of Cola.

 

Domestic beer is fucking 30$ a 12pak  FFS

 

5$ for a 12 of soda  2l jug a buck

 

fucken fat fucks and we have free health care

SittlerKeon's picture

Fuck Europe. The tax on beer should be reduced to match the tax on soda.

PTR's picture

Illinois- the state where they've had a 2.25% tax on food and grocery- you know, things you need to survive- for over 30 years.

How's that for extortion?

techpriest's picture

The irony is, IIRC medieval serfs were paying 25% to the lords, and chattel slaves had a 10% profit margin, meaning that they "kept" 90% of what they produced.

I would like to be taxed as much as a serf, thanks.

(Well, far less or not at all, but serf-level taxes would be a step in the right direction)

Jack Napier's picture

This is why I can't help but trade government currency for precious metals. You can't tax the barter system. Get out while you still can.

pods's picture

Only an official from the government would think that a company actually pays the tax. 
What a fucking fruitcake. He should be slapped upside the fucking head.

Why would a company pay this tax?  It is a TAX based on the sale. Just another SALES TAX.
Are the soda manufacturers supposed to drop their prices by the tax amount to make up for this?  Then the taxes would be lower and the shitty would find another reason to demonize them.

Fuck Philly. Burn.

pods 

kralizec's picture

All those people of color, all those teaming masses yearning to earn a minimum wage...all those wymenz...out on their asses...

Cue worlds smallest violin!

Giant Meteor's picture

The sugary drink trade in Philly has gone full Weimar ..

edit; Wanted trailer load of Beef Jerkey , have surgary drank to trade.

Will acccept Sim Jims or popcorn, in any quantity ..

Uncertain T's picture

Exactly pods... this is the quote that made me choke on my bottled water .... " they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women's jobs" ... 

So, it's the soda distributors that are charging the tax to justify dropping employees.  Now I get it.

BeansMcGreens's picture

A lot of people do not realize that it is also the responsiblilty of the business to become the tax collector, and recieve not even a thank-you from the government.

All of which also cost the businesses, under penalty of jail/heavy fines.