So the big question is this: is the newly levied soda tax good for the residents of Philadelphia? The answer, plain and simple, is 'that depends!'

When Philadelphia recently passed a 1.5 cent per ounce beverage tax (aptly called "the soda tax") on soda and other sweetened drinks and diet beverages, government leaders fully anticipated there would be some "consequences," that is, some push back, from beverage distributors and retailers whose trade would be likely to be impacted. While the challenges and benefits of the tax are currently specific to the city of Philadelphia, they could foreshadow similar taxes in other cities, making this a situation to watch carefully as retailers and distributors prepare to measure the real impact. Mike Dunn, a spokesperson for Mayor Jim Kenney of Philadelphia, has said that they expected the challenges that are taking place and, in fact, had projected a 27% consumption decline as a result of the tax. But major opponents of the tax – including the American Beverage Association – are claiming a much more drastic scenario than the one originally projected. For example, distributors like Canada Dry – which planned on a 20% layoff of its work force - are blaming the soda tax directly for the major drop in their business, which is resulting in implementing significant cost cutting measures.

Along with beverage distributors, retailers also say they are reeling from the impact of the tax. When consumers leave the area to avoid paying the tax, local shop keepers feel the pinch immediately. Jeff Brown, owner of Brown's Super Stores, said that since January he has had to cut 6,000 employee hours across his six ShopRite locations in Philadelphia as a direct result of 50% drop in beverage sales and a 15% drop in overall sales at city stores. Conversely, sales up are up about 20% in the suburbs. Likewise, Ken Klein, of Klein's Supermarket, points out that his volume is down across the board, including at his 3,500 square foot Fairmont area operation as his loyal customers are fleeing to alternative stores where the tax is not applicable. Despite these dire predictions from soda industry leaders, Lauren Hitt, another spokesperson for Mayor Kenney said via email, "We feel that Philadelphians should be skeptical of any unverifiable numbers that Brown or any other members of the soda industry put out."

But whether or not the statistics regarding dropping sales and subsequent job cuts bear out over time, there is a silver lining in this controversial cloud. One of the key objectives of the tax was to generate revenue to fund expanded pre-kindergarten programming and support renovating parks and recreation centers. Few would disagree with the importance of funding pre-K programs, community schools and parks, and most would also applaud the creation of about 250 new jobs for teachers and support staff to manage the expanded programs. The city leaders take an optimistic attitude, expecting most of the consumers will become accustomed to the tax and will return to the convenience of shopping at their local city retailers. The numbers seem to support the optimism, as the city collected $5.9 million for January, $6.2million for February, and $7 million in March, although still below the projection of 7.7million per month until June. The Department of Revenue says it’s confident that it will reach its goal of $46 million over the first six months and should hit about $91million by the end of the first full year. In addition, they continue to highlight the benefits in job creation and extended educational programs that will evolve from the additional tax revenue.

But the Philadelphia beverage distributors and the retailers are not letting up. Their opposition voices, which are joined by owners and operators of movie theaters and restaurants, have mounted a vigorous campaign called "Ax the Bev Tax" as they loudly express their deep concerns over the upheaval in their industries. Unless the trend reverses itself, there will be continued frustration in Philadelphia, as the the soda tax case continues to be appealed by the American Beverage Association, local residents, and business owners.

So, is the soda tax a good idea?

That depends on whether you represent the city leaders who believe the initial tumult caused by revolting consumers will eventually settle back into normal patterns and that the extraordinary benefits to the school system are well worth the challenges or if you are on the opposite side of the ring, representing distributors and even drivers who face pay cuts and possible layoffs - as well as representing store owners, who are experiencing a steady decline in shops as consumers deal with sticker shock. Depending on where you fall in the spectrum, you may or may not believe the soda tax is the optimal solution for the evolution of the Philadelphia early childhood educational system.

As store owner Ken Klein commented, "I think that the concept of funding pre-K is a good idea, but the method of doing it is a bad idea."

For now, the retailers and beverage distributors inside and outside of the Philadelphia city limits, as well as others across the country, can only watch and wait for further legislative decisions.

Citations:

"Philly's Soda Tax is Crushing the City's Beverage Business" by Ed Zwirn, March 5, 2017. New York Post

"Soda Companies, Supermarkets Report 30-50%Sales drop from Soda Tax," by Julia Terruso, February 21, 2017. www.Philly.com/news.

"Philly Soda Tax Brings in Highest Collection Yet in March", by Fabiola Cineas – April 25, 2017

 

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