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The Impact of Sugar Tax on the Consumer Sector

Date: 17 January 2019

The introduction of the Sugar Tax is affecting the way the food and beverage and related industries operate in many ways. From marketing to sourcing, companies are taking new approaches to cut costs and stay competitive.

The Impact of Sugar Tax on the Consumer Sector

Significantly, the new tax has caused the industry to reexamine the amount of sugar they include in every serving. Because many decided to embrace the change and reduce, expected revenue for the first year has already dropped from £520m to £240m 

Additionally, consumers are turning away from syrupy sodas. An Oxford study predicted the volume of soft drinks sold will be reduced by 1.6% and contributions to the GDP could be cut by £132 million.

R&D Working with Procurement

Nestlé, inspired by the legislation, developed a “candy floss” that uses 30% less sugar and claim to have already removed 60 billion calories in the 2-year runup to the levy. This reduction has also helped them project a healthier image to consumers. 

Daniel O’Neill, head of FMCG Procurement & Supply Chain Recruitment at DSJ Global thinks other companies in the sector are developing similar alternatives and procurement is a big part of the strategy. 

“They need sourcing and procurement talent that can bring value by partnering with R&D to marry creative ideas with sourcing strategies. A big part of Nestle’s project must have been led by procurement specialists to ensure they are working with the right suppliers bringing in the right ingredients at the right price. This epitomises one of many ways that procurement can have a positive effect on a company’s future performance.” he said. 

New Talent from Other Industries

O’Neill also sees food and beverage companies seeking procurement talent outside the sector in order to better compete in the pricing of raw materials. 

“One of our leading food manufacturing clients has specifically asked for candidates with a background in automotive. The automotive sector is renowned for its mature supply chain function which has been under a number of continuous improvement processes over the years. The margins that the procurement professionals are negotiating is extremely tight-knit and the purchasing process is incredibly streamlined”.

Higher Costs for Hospitality

Even though the tax is only officially imposed on the manufacturers, there are ripple effects in the related food service and hospitality sector. Pub/hotel titan JD Wetherspoon says the new tax will cost them an additional £3m per year. Jamie Oliver, who was a strong supporter of the levy, had to close several of his restaurants in February 2018 due to financial strain. 

“Now that the tax is in full effect, it could create an even greater urgency for him to control costs,” O’Neill commented.

The Sugar Tax has profoundly changed the way sodas and other sugary foods are made, packaged, distributed, marketed, and sold. “Procurement is now at the heart of it. Those that adapt will survive,” he added.

What do you think? Has your company been impacted by the Sugar Tax and are you navigating the change through procurement? Let us know your opinion below.

Sources:

https://www.gov.uk/government/news/soft-drinks-industry-levy-comes-into-effect

https://www.cips.org/en/supply-management/news/2018/march/nestle-uses-candy-floss-technology-to-cut-sugar/

https://www.cips.org/en/supply-management/news/2018/march/jamie-olivers-sugar-tax-set-to-cost-wetherspoons-3m/

https://businessadvice.co.uk/tax-and-admin/efficiency/sugar-tax-arrival-makes-drinks-brands-think/

https://www.statista.com/topics/3134/sugar-tax-and-soft-drinks-in-the-united-kingdom-uk/

http://www.britishsoftdrinks.com/write/MediaUploads/Publications/The_Economic_Impact_of_the_Soft_Drinks_Levy.pdf