Over the last several months we have been sharing details with you regarding the so-called Philadelphia “soda tax” with a special focus on the negative impact of the tax on soft drink beverage sales at local grocery chains.

You might remember that Philadelphia Mayor James Kenney and the City Council promoted the soda tax as a way to generate revenue to finance a universal pre-kindergarten educational program. However, the Tax Foundation has been tracking the progress of this promise and they now report that only 49% of the revenue is really being invested in the pre-K program - with the remainder redirected to fund government workers’ benefits and other city programs. Worse yet, in the first six months the tax actually collected was $7 million less than the anticipated $46.2 million expected.   This shortfall is due to the fact that soft drink sales in the city are estimated to be down by about 45%, according to Teamsters Local 830.  Drivers who are paid by how many cases of soda they deliver are finding their income cut in half since the soda tax went into effect. Bodegas, supermarkets, and gas stations are likewise struggling to make up the lost sales, resulting in the need to lay-off some of the teamster members.

ShopRite and other retailers warned early on that they would most likely have to slash employee hours if sales dropped as a result of implementing the soda tax and now that forecast seems to be turning into reality.

This challenge comes at a time when regional grocery stores were already feeling the pinch in overall revenues resulting from increased customer spending at discount grocers, club chains, and e-commerce sites. The potential demise facing local food retailers is creating new opportunities for the bigger grocery chains as acquisition opportunities continue to fuel consolidation in the industry.  

   

Articles researched for information and cited for this Retail Corner include:

“Regional Grocery Stores Feel Squeeze Amid Upheaval.” By Heather Haddon and Lillian Rizzo. Wall Street Journal. April 2017.

 

“Philadelphia’s Soda Tax Bust.”  By The Editorial Board. Wall Street Journal. August 13, 2017.