Coca-Cola wary of Q2 disruption for classic Coke as UK sugar tax bites

25-Apr-2018 - Last updated on 25-Apr-2018 at 09:31 GMT

At 10.6g sugar per 100ml, Coca-Cola Classic is subject to the higher rate in the UK sugar tax. Pic:Getty/fotoatalie

Coca-Cola CEO James Quincey acknowledges the UK sugar tax is likely to have ‘some impact’ on the company in the UK – particularly for classic Coca-Cola – but is optimistic that the industry is well prepared to minimize the impact of the levy.

The UK introduced its Soft Drinks Industry Levy on April 6, and Quincey says Coca-Cola is working to adapt to both this tax and a new sugar tax in South Africa.

The UK sugar tax is a two-tier levy: with a lower rate for added sugar drinks with a total sugar content of 5g sugar per 100ml or more; and a higher rate for those with 8g / 100ml or more. Beverages under the 5g threshold do not pay the levy.

Sugar tax strategies: smaller packs and reformulation

Coca-Cola Classic, with 10.6g sugar per 100ml in the UK, falls into the upper band. Coca-Cola has been clear it will not change the recipe of Coca-Cola Classic: however, it has reduced pack sizes to compensate for the increase in price.

Meanwhile, sugar-free Diet Coke and Coca-Cola Zero Sugar will escape the levy.

Coca-Cola has also been reformulating some of its beverages in the UK to reduce exposure to the tax: such as with Capri-Sun and Sprite (which both now avoid the levy).

As a result, Coca-Cola estimates that around 60% of its portfolio will fall below the threshold for the levy.

Quincey says it’s too early to determine the effect of the tax in the UK. He does, however, point to the work Coca-Cola – and the wider industry – has done to prepare for the tax.

“I honestly think it's too early [to tell], but let me tell you what we've been doing and what's been happening,” he said to analysts during the company’s Q1 2018 earnings call yesterday.

“We have really pushed hard on the One Brand strategy for Coca-Cola. So we still have Coke original there, but we put really hard on Coke Zero and really hard on the invigorating Diet Coke: such that about two thirds of that total portfolio will not pay the sugar tax because of the way we’ve adapted the reformulations for the GB marketplace.

“On top of that, we've put a lot of emphasis on smaller packaging in the GB marketplace and changes in packaging sizes to try and accommodate this in the way that shoppers actually go for the occasions and the rituals that they are part of in the UK.

“So we've been building towards this. This is obviously something that’s been in the works for a long time, it was a well signposted tax, we’ve adapted.”

Good preparation

The Soft Drinks Industry Levy was announced in 2016, giving manufacturers two years to adjust. Quincey says that Coca-Cola – and the wider industry – has prepared well for the introduction of the tax.

“So I don't think it's going to be as disruptive for the marketplace as perhaps some of the other ones. Yet, it is also going to reduce calories effectively.

“But it's way too early to call. I think the GB team has done a great job with Coca-Cola European partners in preparing for this. I'm sure it will have some disruption on Coke original in Q2. The rest of the portfolio is set up to continue with the pricing strategy we had before.

“So I don't think it is going to be too disruptive, but I think there will be some impact.”