With the Chicago-area soda tax falling apart after only a few months, could the same soon happen to a similar sweetened beverage tax in Philadelphia? A new survey from the city’s Controller claims that the majority of retail businesses in the city have been harmed by the tax.

For those unfamiliar, the Philadelphia tax adds $.015 per ounce to just about all sweetened beverages sold in the city, regardless of whether the sweetener is sugar or a low/no-calorie option like aspartame. So that means a 20-oz. Diet Coke is now $.30 more expensive. The tax went into effect at the beginning of 2017.

What’s more, this tax is charged at the distributor level, so the additional markup by retailers may be even higher. For example, while the tax should be adding about $1 to the cost of a 2-liter of soda, shoppers in Philadelphia now frequently see this 2-liter bottles going for $4 or more, about double what they’d previously cost at convenience stores.

The survey [PDF] from Controller Alan Butkovitz, used responses from 741 different businesses affected by the tax — grocery stores, corner shops, restaurants, and various other retailers.

Nearly 9-in-10 of these businesses claimed that their sales revenue was down year-over-year, with nearly 6-in-10 saying that these declines were in excess of 10%. And the majority of owners (62%) say that most or all of the drop in sales is directly related to the soda tax.

Grocery stores say they’ve been hit the hardest, with more than 70% of respondents claiming double-digit revenue drops. Why grocery stores? Probably because those are the retailers where shoppers expect to see the best prices in the area, and where the most cost-conscious consumer is likely to shop. It’s also where people tend to buy a full week, or more, of food at a time.

In a city like Philadelphia, where many residents — particularly those in the areas abutting suburban counties — have cars and can drive an extra few minutes to buy their soda. And if customers are stocking up on Pepsi in Jenkintown or Bensalem, they might as well do the rest of their weekly shopping while they’re at it.

“We have found consumers leave the area to shop in local suburbs so they can avoid the sugar tax,” said one survey respondent who operates a grocery store in the city’s Northeast section, not far from the suburbs. “This has impacted sales of fresh meats, groceries, sandwiches and luncheon meats.”

About 59% of corner stores complained of double-digit declines. These sorts of stores have long had to charge higher prices anyway because of having less buying power than the bigger supermarkets and grocery stores. They’ve also generally been able to get away with charging that premium because many of them serve customers with fewer, if any, more affordable options. But there’s a limit to how much you can charge for convenience before customers stop shopping — or get angry.

“Customers are complaining and arguing with my employees which has cost me to call the police for assistance,” one store owner in the city’s Frankford section says.

While the report cautions that the survey only provides anecdotal evidence — the actual toll on area businesses won’t be tallied up until after the 2018 tax season — Butkovitz nevertheless concludes that “it is clear the tax is viewed
negatively by this constituency… many business owners seem apprehensive about the viability of their enterprises in the near and medium term.”

In a response to the Philadelphia Inquirer, a spokesman for Philadelphia Mayor James Kenney says that the “tax has had many positive economic impacts, which this survey doesn’t take into account,” and that those positives would be thrown away if the tax were repealed.

When proposed, the tax was positioned as a way for the cash-strapped city to fund early childhood education programs, while simultaneously curbing obesity by making soda less attractive to purchase. But some have questioned the logic of relying on “sin” taxes like this as a long-term revenue stream. After all, if one of your goals is to make these beverages so expensive that it drastically reduces the amount of soda people consume, then that would seem to undercut the viability of the tax as a durable solution.

In fact, a recent report claimed that the city was already about 15% behind its revenue target, perhaps indicating that more Philadelphians than expected had cut back on their soda purchases (or simply gone to the Costco in Warminster to get them).

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