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By: Florence Schmit

    Our analyst, Florence Schmit, comments on the Sugar tax in the UK.

    The sugar tax has prompted manufacturers to reformulate their products in advance of the levy in April, by reformulating those brands that belong to the main sugar category ‘culprits’ such as carbonates and juice drinks to reduce their sugar levels below the tax-applicable threshold of five grams per 100 millilitre. Leading Soft Drinks players in the UK such as Coca-Cola Enterprises and Lucozade Ribena Suntory have reformulated old, and introduced new brands to fall below the sugar levy, such as Coca-Cola’s Monster Hydro energy drink and Suntory’s Lucozade portfolio which has been completely reformulated to avoid paying the higher price.

    Notably, Coca-Cola, leading player in UK Carbonates with over 40% volume market share of on- and off-trade sales, has stopped short of reducing sugar levels in its Coca-Cola Classic brand, which accounts for 14% of total carbonates volumes, according to Euromonitor International. It is planning to reduce pack sizes and increase unit prices through off-trade of this brand instead, which will itself propel unit prices overall owing to carbonates’ dominance in the UK Soft Drinks market – accounting for around 45% of total volume sales in 2017.

    sugar tax
    Source: Euromonitor International 

    That said, sales of Coca-Cola Classic in the UK have been declining by double digits over the last five years, suffering from a general trend in the industry towards lower sugar variants in carbonates and Soft Drinks overall. The sugar tax is thus piggybacking on pre-existing trends, though it will help propel them along: those consumers who were already reducing their sugar content will have more brands to choose from, and those who weren’t will be nudged towards them either by reduced pack sizes or increased unit prices. And it’s not just Soft Drinks that will be impacted – Foods retailers such as Tesco have been nudged by the sugar tax on Soft Drinks into reformulating own label foods products.

    The health and wellness trend in UK Soft Drinks has been particularly pronounced in zooming bottled water sales, with myriad functional water launches, which are set to grow by a whopping 50% over the next five years in volume terms, and propelling the overall Soft Drinks market by 12% in the same period. It is this burgeoning health and wellness consumer trend which will also help negate any fallout from Brexit – the message is: health and wellness trumps unit price increases. Consumers are willing to pay more for bottles that promise benefit.

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