The Sugar Tax: What It Means For Wellness Startups

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As the soft drinks industry in the UK braces itself for the introduction of a new sugar tax, the big players like Coca-Cola and PepsiCo are sizing up their options.

But while industry leaders bemoan the Government’s controversial plans, for innovative brands and start-ups, the imposed sugar tax presents a wealth of opportunity.

With two years until the two-tiered tax system is put into place, a slew of new low-sugar and natural soft drink brands are entering the space, while longstanding drinks companies and supermarkets accelerate their efforts in reducing the sugar content found in their drinks.

It’s an exciting time for the category, as brands big and small attempt to grab their share of the market. But what do the businesses, influencers and experts involved in the industry think about the tax and its potential to shape the future of the sector?

Set to be hit hardest by the sugar levy, 62.7 per cent of Waitrose’ own-label drinks are currently subject to the proposed tax, with almost half making it into the higher 24p-per-litre band, however the supermarket chain has revealed it is committed to reducing sugar in its drinks.

“In view of last month’s announcement of the introduction of the sugar tax in two years’ time, we are currently working on a course of action,” a spokesperson told Welltodo.

Eager to appear unfazed, the business revealed it has been working hard to remove seven tonnes of sugar from its own-label chilled drinks, as well as reducing the sugar content of undiluted juices, cordials and squash by between 5 and 15 per cent without the use of sweeteners and by between 10 and 30 per cent for fizzy drinks.

“Over the next year we will continue our programme of work to reduce sugar in our own-label drinks and provide information to our customers to help them make healthier choices,” the source added.

By embracing the sugar tax and positioning itself in support of healthy food choices, Waitrose is unlikely to suffer a significant sales hit, especially if it works towards adjusting its products. But for brands who have built their portfolios around sugary substances, the outlook isn’t quite so rosy.

“All brands, big and small, will have to reformulate their recipes which will involve increased spend and R&D,” says Nutritional Therapist Ian Marber.  “The consumer’s palate may not take to the reduced sugar foods for a while and so I suspect that there may be a slowdown in sales until we as a nation get used to the new versions of familiar foods that are less sweet,” he added.

Grounded drinks

Image: Grounded

For brands like PepsiCo, whose drinks contain 11g of sugar per 100ml, reformulating their products to take them into the lower band of the tax, while still appealing to consumers may take some doing. A problem which caused the group’s shares to plummet soon after the sugar tax was announced in March.

Coca-Cola, which is facing a similar dilemma has been vocal in its criticism of the tax, its Vice President Leendert Den Hollander telling Retail Week: “We just believe there’s no proof or evidence that sugar tax works. There’s no evidence that calories significantly reduce after sugar tax.”

But unlike the heavyweights, new entrants into the soft drink market are using the tax to their advantage and creating new sugar-free or low-sugar products.

Tenzing, a 100% natural energy drink which launched six months ago can already be found in over 200 locations across London, including Planet Organic and Pod, outselling Red Bull in some of its locations.

Founder Huib van Bockel, believes that the sugar tax has created two huge benefits for TENZING and all other low-sugar drinks. Firstly by boosting the attention and awareness of sugar levels in all drinks among consumers, and secondly that they will not be hurt by the forthcoming tax.

“This is particularly great because it takes away part of the cost advantages the big guys have through their scale, efficiencies and better margins with wholesalers, he told Welltodo.

“Because we source all of our ingredients from nature, and we have high quality ingredients like Himalayan Rock Salt, we will always be more expensive, but the tax allows us to compete in a more fair way,” he added.

NIX&KIX, a brand of soft drinks using cayenne chilli, echo van Bockel’s views, the brand’s co-founders Kerstin Robinson and Julia Kessler add that the sugar tax is forcing drinks companies and startups like theirs to become more innovative, not only with sugar alternatives but also in exploring other ways to make drinks more interesting and exciting, which is boosting the industry.

Nix and Kix

Image: Nix and Kix

“Adding sugar has often been the easiest and cheapest way to add taste to a drink, but there are countless alternative natural options, with adding spices being just one of them,” they explained.

“And with today’s consumers being spoiled for exciting, yet healthy food choices – they should and will expect a similar level of sophistication and innovation from soft drinks,” they added.

After all, there’s a fine line between ‘low-in-sugar’ and beverages that don’t taste of anything, admits Gabriel Bean, founder of Grounded, another new entrant to the cold pressed category.

Made from pressed fruits & roots, water & a drop of acacia honey, Grounded drinks use acacia honey to provide a subtle, natural sweetness, without the overwhelming sugar content – a recipe created by Bean to provide consumers with what he describes as the ‘ultimate low sugar guilt-free’ refreshment’.

Unsurprisingly Bean is also in full support of the sugar tax, however he is confident that even without the new levy, demand for Grounded would continue to increase due to a new demographic of health conscious consumers.

“As consumers we’re learning so much more about the food and drink we’re consuming, so our demands for healthier food/drink products and transparency in what we’re consuming is much higher,” he explains.

This is putting added pressure on soft drink brands with or without a sugar tax.

In fact, fizzy drink sales have been declining steadily in recent years as more consumers move towards healthier options, a trend which the the sugar tax will no doubt propel even further.

It’s such a significant move for the industry, explained Australian author and founder of the I Quit Sugar program, Sarah Wilson.

“Yes the tax will educate everybody about the health problems associated with sugar, but I’d prefer the tax to cover all aspects of the substance. After all, it’s not the sugary drinks that are the problem, it’s the sugar and there’s as much sugar in some breakfast cereals and many other cooking products.”

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According to Wilson, there’s no guarantee consumers won’t shift their sugar addiction onto other products, but as the soft drinks category and its consumers adapt, vertical markets will be taking note.

“We definitely think things are starting to move in the right direction,” Hugh Thomas, co-founder of natural, sugar-free sparkling water brand, Ugly, told Welltodo.

“We see consumers actively searching for beverages that are natural, great-tasting and refreshing but without the sugars and sweeteners traditionally found in many drinks, and see these demands increasing,” he adds. “Unsweetened beverages like Ugly’s infused sparkling waters, unsweetened ice teas and cold-brew coffee provide great tasting drinks without the sugar or sweeteners and we’re excited about where things are heading.”

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