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To Sin or Not to Sin: Can a “Sin Tax” Benefit Consumers?

Donna SuttonDonna Sutton

Posted on Tuesday, July 24th, 2012

A recent revelation that sugar heavily contributes to the United States’ overall decline in health through an increase in diabetes, obesity, heart disease and cancer, has prompted policy makers to suggest government imposed “sin taxes” on sugary foods to help deter Americans from consuming such large quantities of sugar.  The initial proposal to impose a sin tax on sugar has generated buzz among CPG marketers, manufacturers and retailers regarding opportunities to capitalize on the shift to healthier living, and the current consumer wants and needs associated with that change.

The question still remains, however: Will a sin tax really deter consumers from purchasing sugary foods, or do other factors more effectively impact behavioral change?  Proponents of the sin tax submit that if it costs more to purchase sugary products, the demand for those products will decrease. Such taxes are currently in place for the sale of tobacco products and alcohol. On the other hand, Denmark provides us with an example of how ineffective sin taxes can be, as the government is considering reversing a current “fat tax” because citizens have been crossing the Danish border to purchase fattier items in neighboring countries. The behavior of the people of Denmark supports the argument that taxing sugary products is not quite the same thing as taxing the behavior of consuming sugar—the desire to consume sugar may remain regardless of price.

In light of this debate, CPG marketers and retailers have the opportunity to act proactively, navigate through this social change and emerge with increased profits and sales despite the implementation of a sin tax.  Some alternative solutions will not only help shoppers make healthier decisions, but also allow retailers and marketers to maintain control within their industry, such as price incentives, brand extensions and easy to interpret labels. The following illustrates some examples of how this could be executed:

Pricing: While imposing a tax ultimately increases the price of sugary foods, CPG insiders can more effectively manipulate pricing to change purchasing behaviors. Foods that tend to be healthier, organic or non-processed are not always affordable. By lowering the prices on natural foods like produce, meat and poultry, consumers might be more likely to purchase those items over the processed products stocked on store shelves.

More Healthy Options: As I mentioned in my prior post, “How Bittersweet It Is,” retailers can provide their own solutions to the sin tax dilemma by offering more options to health-conscious consumers. In addition to remaining in control of the product and pricing strategies for their stores, by carrying a greater array of products, retailers will also help support current trends and lifestyle changes. CPG brands can also benefit from the demand for alternative products, because if they haven’t already done so, they have the opportunity to extend their product lines by providing reduced sugar and sugar free variations of popular products.

Effective, Easy-to-Read Labels:  Another reason shoppers buy products with high sugar content is simply because they aren’t aware those products contain as much sugar as they do. Current labels are hard to read, and the details regarding ingredients are printed on the back of product packages in small fonts. By introducing straightforward, front of package labels that are easier to read, it ultimately becomes the consumer’s decision to purchase something that contains 22 grams of sugar per serving. Perhaps if shoppers immediately see that a product contains 22 grams of sugar per serving, they will seek alternatives.

Since the concern about how much sugar we consume is still a fairly new development in the CPG industry, it’s the responsibility of marketers, retailers and manufacturers to take control of the situation and provide viable and easy to execute solutions. Doing so will not only benefit the CPG industry, but it will have a lasting impact on shoppers.

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