Philadelphia: Soda Companies, Supermarkets Report 30-50 Percent Sales Drop From Soda Tax

RealClear Staff


     After only two months of the City of Brotherly Love being slapped with a syrupy-beverage tax, retail stores and distributors are sweating a 30-to-50 percent decline in soda sales—layoffs are on the rise.

[Photo: Anna Orso]

The sugar-water tax is even effecting those who deliver the drinks, as one of Philly’s biggest distributors will drop a good chunk of its staff as early as March. A ShopRite, store owner plans on cutting 300 employees by spring.

“People are seeing sales decline larger than anything they’ve seen up to this point in the city,” Pennsylvania Food Merchants Association VP of External Relations Alex Boga said.

However, the city itself was skeptical of the pre-mature figures and surmised they’d see a return of customers who went looking for better options outside Philadelphia.

“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,” City Spokesman Mike Dunn said.

At an evening meeting on February 21st, Mayor Jim Kenney spoke sourly of the forthcoming layoffs. “I didn’t think it was possible for the soda industry to be any greedier,” Kenney added 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.”

[Mayor Jim Kenney | Circa 2016 | Photo: CBS]

But this penny-and-a-half tax on soda is for funds going toward a 2017 effort to fill almost 2,000 pre-kindergarten seats and many, community schools. Philadelphia’s goal is to make $92 million annually for their education programs—some funding will go toward renovating parks and recreation centers.

In order for their annual, revenue expectations to happen, the city requires $7.6 million in monthly taxes. Their initial collection came in on February 21st, but the information won’t be available until March. However, the city’s quarterly manager’s report estimates a mere $2.3 million coming from the first round. According to Spokesman Dunn, they anticipate a rise, as Philadelphia’s confident in reaching this year’s fiscal goal.

And the city wasn’t exactly shocked by the drop in industry-wide sales—27 percent to be exact. More, beverage seller’s early returns availed greater losses, which ignited a resurfacing of the anti-soda tax coalition that was so vehemently opposed to the tax summer 2016.

Canada Dry Delaware Valley Chief Operation Officer Bob Brockway explained they distro 20 percent of Philly’s soda pop. He added sales being down 45 percent there. As a result, CDDV will cut 20 percent of its people in early March. Harold Honickman, owner of Honickman Affiliates (which own the above distributor), headed the anti-tax charge last summer.

[Honickman Affilliates leadership: Chairman Harold Honickman (L) & CEO Jeffrey Honickman (R) | Photo: Susan Farley]

Brockway said there were 35 jobs in limbo including managers, sales folks and drivers. While the suburbs have seen a 20-percent sales increase, CDDV has yet to break even. In total, companywide sale are down 30 percent. “We don’t anticipate people coming back,” Brockway added.

The June-implemented tax officially hit January 1st, 2017. It was initially imposed on distributors but passed onto retailers.

Brown’s Super Stores CEO Jeff Brown said between January 1st and February 1st, their six inner-city ShopRite stores lost 50 percent of sales when compared to the same timeframe in 2016. Their overall city-stores sales saw a 15-percent decrease. “People didn’t change what they drink,” Brown said. “They changed where they’re buying it.”

Brown himself decreased employee hours by 6,000 since January. He estimates a nearly-300-workers loss via resignations and layoffs in the near future—that’s one-fifth of his workforce’s entirety.

He hopes accruing more tea and lemonade powder will retain his customer base—fortunately, these products are tax-exempt. He’s also troubleshooting this tax by offering sweet beverages in smaller amounts—more likely to sell than two-liter bottles or 12-packs.

[Jeffrey Brown of Brown's Super Stores | Photo: Michael Pronzato]

Distributor Day’s Beverages has been hit hard by the soda tax—Philadelphia is 30 percent of their market—but they’ve also seen a 50-percent increase in other cities including Camden, Wilmington and Bensalem. Additionally, since the tax increase, their carry-out business has swelled. While their Philadelphia sales are suffering, their B2B and B2C sales aren’t getting taxed—buy direct...

“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,” owner David Day said. “We don’t police where it’s going.”

Teamster Union head Danny Grace represents a lot of drivers and disclosed that their members are seeing up-to-70-percent pay cuts due to little action on the delivery scene. “Many of them have quit as a result,” Grace said.

And anti-soda-tax flames are rising, as the tax’s looking at an April 3rd appeal—all the industry players have grown highly irritable. A pack of 50 sales people, drivers and soda lobbyists swarmed City Council chambers to convey their thoughts before the council’s weekly February 23rd meeting.

It won’t be stopping there, as the Pennsylvania Food Merchants Association plus movie theaters, restaurants, and supermarkets are gearing up for a full-scale “Ax the Bev Tax” campaign. All participants will don signs suggesting Philadelphians contact their elected representatives. Even Harrisburg legislators jumped in via an amicus brief opposing the tax.

[The soda-tax major players (clockwise from left): Mayor Jim Kenney, Council President Darrell Clarke, Councilwoman Maria Quiñones-Sánchez and Union Leader John Dougherty]

Inside City Hall, legislators are waiting it out. City Spokesman Dunn explained they’re predicting consumers to return—just as they did after initially opposing a past, cost increase entailing amusement and liquor by-the-drink tax. Dunn said it’s also possible distros might see positive sales, as a few retailers loaded their shelves with pre-taxed products.

“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 added.

Dr. Physick Soda-owner J. Del Conner is among the 210 city-registered distros. On a monthly basis during winter, he normally sells nearly 10 cases—he sent nothing back to the city this month. “So far, in January and February, we’ve had no sales,” he said. “Zero.”



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