A new study should have Coke and Pepsi terrified

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Soda Tax Rally

People in Berkeley, California significantly cut back on soda after the city introduced a tax on sugary beverages.

That's according to a study of two low-income neighborhoods that was published in the American Journal of Public Health on Tuesday. The study found that soda consumption dropped an impressive 22% after Berkeley imposed a penny-per-ounce tax on sugar-sweetened beverages.

The city's tax passed in 2014 and went into effect in May 2015. The new tax made a 20-ounce bottle of Coke 20 cents more expensive for distributors, or stores. This extra cost is passed on to consumers.

Researchers tracked changes in soda consumption after the tax went into effect, comparing surveys of Berkeley residents' reported beverage consumption from April to July of 2014 against survey results from April to August of 2015.

Researchers also compared soda consumption in low-income Berkeley neighborhoods against neighborhoods with similar demographics in nearby Oakland and San Francisco. In cities where no tax had been implemented, soda consumption actually increased by 4% in the same period.

While higher costs associated with the tax likely played a role in deterring shoppers, there may have been other factors at play as well.

"The greater-than-predicted reduction in consumption in Berkeley could also reflect effects of the campaign surrounding the tax, which may have shifted social norms," the report reads.

Berkeley is one of the few cities in the US to successfully pass a soda tax, though similar laws have been proposed around the country and world. In July, Philadelphia passed a tax increase of 1.5 cents per ounce of sugar-added and artificially sweetened soft drinks — a tax expected to raise approximately $91 million over the next year.

Philadelphia is still the only major US city to pass such a tax. However, internationally, efforts have had more success. Soda taxes have already been passed in countries including France, Hungary, and Mexico.

A 10% tax on sugar-sweetened beverages in Mexico in January 2014, which made soda more expensive for consumers, was associated with a 12% reduction in sales of taxed drinks. While critics have said that the reduction isn't enough to significantly impact consumers' health, it was enough to cause concern for soda giants attempting to grow their sales in the country.

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Big soda's reaction

Unsurprisingly, the soda industry isn't pleased with efforts to turn customers away from sugary beverages. The American Beverage Association, the industry's main lobby group, has already invested millions of dollars to fight laws to tax and label sugary beverages.

Per capita soda sales have dropped 25% since 1998, but the number of bottles and cans purchased is still rising. As consumers have become more nutritionally-savvy, many have cut soda consumption without government intervention. Adding soda taxes are simply another step in the battle between the soda business and nutrition advocates.

So far, soda giants are trying to recoup lost sales in two ways: convincing consumers that sweet sodas are OK to drink, as well as investing outside of traditional sugary drinks.

If soda companies want to convince people to continue to drink soda, they need to cut down on sugar and calories. To start, the American Beverage Association has promised to cut calories by 20% by 2015.

One way to do that is by making serving sizes smaller, essentially making more money by selling less soda — and reducing the impact of taxes in areas taxing sugary drinks by the ounce.

"In markets like North America, we are moving towards selling smaller packages instead of bigger packages," Coca-Cola COO James Quincey said in a Q&A released by the company in July.

Convincing people to buy soda in smaller cans — essentially, paying more for less soda — isn't enough though. Increasingly, soda giants are diversifying and investing in healthier options that won't be affected by sugar taxes.

PepsiCo CEO Indra Nooyi said in April that less than 25% of the company's global sales are from soda. Rather, the company is focusing on healthy snacks and non-carbonated beverages — a process the company calls "future-proofing."

Coke announced in July that sales of sparkling beverage sales by volume decreased 1% in the second quarter.

With more governments considering soda taxes on the city, state, and national levels, Coke and Pepsi have reason to believe that soda consumption will continue to fall. However, they may be able to find salvation in less sugary beverages.

The Berkeley soda study found that, when people decreased their soda consumption, they replaced it with healthier choices.

Water consumption (bottled or tap) increased 63% in Berkeley after the soda tax went into effect. As consumers continue to cut soda out of their diets and governments around the world push to cut sugar even more, expect much of that growth to be in bottled water, sports drinks, and juice — not the sodas that made Coke and Pepsi famous.

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