Could soda tax make your grocery bill rise?
Retailers promise it won't happen, but some experts who study the matter say that whether you drink sweetened beverages or not, you could end up paying the beverage tax.
Retailers promise it won't happen, but some experts who study the matter say that whether you drink sweetened beverages or not, you could end up paying the beverage tax.
To shoulder the burden of increased prices, stores may mark up more essential grocery items, say three professors of economics who are following the Philadelphia levy.
"The fact of the matter is, businesses are going to spread the cost around among the least price-sensitive products - toilet paper, milk, a range of products," said Robert Inman, a professor of finance and economics at the University of Pennsylvania's Wharton School. "They'll still raise the price of soda, but it might not be penny for penny."
That argument was central to the argument made by opponents of the tax last summer when they called the levy a "grocery tax" instead of a beverage tax.
City spokeswoman Lauren Hitt said the categorization remains incorrect. Predictions that other grocery items will rise in price don't match what has happened in the only other city that has implemented a soda tax, Berkeley, Calif.
"There is absolutely no evidence to suggest the tax will be systemically passed on to other items," Hitt said.
Several studies there showed no increase in grocery bills after the tax passed.
Five days into the implementation of the 1.5-cent-per-ounce tax on sweetened beverages, which was levied on distributors, there have been only anecdotal complaints of products other than beverages increasing in price.
But Inman, who has written in support of the tax, said his prediction comes down to "pure Economics 101."
"The price increase on soda is fairly significant, so you can lower that price increase a bit and then hide it in 40 other little tiny price increases and no one will ever notice," he said.
Consumers are certainly noticing right now, though.
The major distributors, such as Coca-Cola, Pepsi, and Canada Dry, have all passed the cost on. And in the first week of the tax, merchants have increased beverage prices accordingly, down to the cent.
The tax applies to thousands of products. It covers all sweetened beverages including diet beverages, teas, juices, and almond milk.
To soften the impact on the beverage aisle, stores big and small are likely to boost prices in other aisles, said David Fiorenza, an urban economics professor at Villanova University.
"To be able to see their sales continue, they're going to have to find some equilibrium by spreading their tax costs," Fiorenza said. "Maybe something at Wawa, such as a Shortie hoagie going up by 10 cents or 20 cents, which can absorb it a little more than a two-liter bottle of soda."
Steve Balsam, an expert in accounting and taxes at Temple University's Fox School of Business, predicted that at first, stores will try to pass along the tax fully on beverages and see how consumers react.
"It's too early to speculate, but I think eventually everybody will bear part of the cost," Balsam said. "I think the consumer will pay a slightly higher price, the retailer will absorb some of the tax, and it is very possible that they will increase the price of something else."
Jeff Brown, who owns 12 ShopRite stores, six in Philadelphia, says untaxed product prices will not rise at his stores and he thinks it's an unlikely outcome industrywide.
Expensive sweetened beverages, though, are here to stay.
"Right now I'm not seeing what the economists are seeing as a likely outcome, because I just don't think this business works like that," Brown said. He said increases in other prices would result in all of those products being priced uncompetitively - rather than just beverages - and have a wider impact on his business.
"You can't disguise it; the numbers are just too big," he said.
Brown said that in anticipation of the tax's going into effect, his company had to read the labels on thousands of items and evaluate which had to be taxed.
About 4,000 products, he said, were impacted, and the full tax is being passed on for all of them.
The process led to a few mistakes, such as an eight-cent tax being added onto a bottle of green pepper hot sauce. Brown said he found a few other products that were wrongly taxed, or that should have been taxed and weren't, and sent a list to the corporate office to be corrected.
"You've got to imagine, what we've been asked to do has never been done before," he said. "There's not a database. There's no company to go to. We had to manually read every item."
ShopRite is one of several stores itemizing the tax on the sticker price so customers know why the final cost of a product has gone up.
David McCorkle, president of the Food Merchants Association, says it's more transparent for retailers to be up front about where a consumer's money is going than to quietly tax other items.
"In the retail world, there's no way to absorb or move around a number of this magnitude and that would be horribly unfair to consumers who want to know what kind of value they're getting for the dollar they're spending," McCorkle said. "To maintain the integrity of the business, clear transparency has to be maintained, and I think that's what retailers are trying to do."
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