While sales of sugar-sweetened beverages have been weakening in the past years, the accelerated rate of decline in sales in February or a month after the implementation of excise taxes reflects consumers’ typical reaction after a price increase, according to performance management company, Nielsen.
Nielsen Retail Index data shows more pronounced sales declines in sari-sari stores, with all five sugar-taxed beverage categories showing faster sales decline of an average of 8.7% in February 2018 vs 4.4% in February 2017. Powdered juice and powdered tea are showing double digit declines at 15.4% (vs. 1.7% in February 2017) and 18.1% (vs. 3.4% same period last year), respectively. Carbonated soft drinks sales decline also accelerated from 4.1% last year to 7.0 % in February 2018. See chart 1.
Nielsen Retail Index provides continuous tracking of product sales in defined retail outlets and is the industry currency in measuring a brand’s market share.
“While healthier and more convenient options contributed to the slowdown of sugar-sweetened beverage over the past year, we can attribute the faster rate of decline to how consumers have changed their consumption and shopping habits amid the first wave of price increases,” says John Patrick Cua, managing director of Nielsen in the Philippines. “This reaction from consumers is a normal and expected behavior immediately following a price increase. Over time, some consumers may go back to old buying habits while some will adopt their new buying patterns.”
Results of a Nielsen syndicated qualitative study, Kamusta si Juan at Aling Nena, give context to how consumers react to price hikes brought about by excise taxes.
Focused group discussions (FGDs) conducted among shoppers found that while they claim continuous purchase of these taxed drinks, they will adjust their purchase and consumption habits ranging from lessening the frequency of consumption, extending the use of products, and even taking items off their grocery baskets.
“Consumers will not totally give up these sugary drinks because these are simple joys that they provide to their kids and themselves. For instance, some say RTD Juice cannot be compromised as it is their child’s baon. Some drinks serve functional needs like boosting energy and other products are seen as a reward or personal treat,” he explains. “To ensure that their products and brands will be in the hearts and minds of consumers, manufacturers and retailers should emphasize the emotional connection and the unique functional benefits of these beverages in their consumers’ lives.”
In contrast, decline in sales in supermarkets are less substantial, slowing down by 9.4% in February versus 14.7% in February 2017. In examining the seven categories, energy drinks and RTD juice show significant declines with 10.7% (vs. 3% in Feb 2017) and 8.8% (vs. 4.7% in Feb 2017). See chart 2.
“Impact is lesser and not as immediate in supermarkets because shopping trips and baskets are typically planned. In our FGDs, mid and upper class shoppers claimed that their shopping behaviors will not change as much, despite the higher prices. In comparison, declines in sales in sari-sari stores are more apparent since most impulse purchases happen in these neighborhood stores that also mostly cater to the low income segment,” explains Cua.
As of February this year, prices across five categories carried by sari-sari stores increased by 20.6% compared to a year ago. Carbonated soft drinks and energy drinks had the biggest price jumps among sari-sari stores at 21% and 18% respectively (See chart 3). Other sugar-sweetened beverages such as RTD juice, powdered juice and powdered tea have not yet fully passed on the tax to consumers as prices have increased less than 10%.
In supermarkets, prices across the seven sugar-taxed categories increased by 16.6% in average. Prices of RTD Tea and carbonated soft drinks indicated the highest price hike in supermarkets, with increases of 24% and 21.6% compared to year ago prices.
According to shoppers, the adjustments that they will make in their purchases will be made across their whole grocery basket, not just for beverages. “Since prices have increased for beverages and the purchase power remains the same for most of the mass consumers, people will find creative ways to stretch their budget. Among these saving techniques include extending the usage of a product, reducing the consumption occasions of other products or even discontinuing the purchase of some personal items to make ends meet,” shares Cua. “Manufacturers and retailers can stay relevant in these challenging times by listening to what shoppers need and anticipating how they will change their behavior.”