THAT hissing noise is the sound of the British pop industry being shaken up. On April 6th a new tax on sugary soft drinks comes into effect. It is meant to curb obesity, which costs the health service an estimated £6.1bn ($8.6bn) each year. Under the new law, drinks with over 5 grams of sugar per 100ml will be taxed 18p per litre and those with more than 8 grams 24p per litre. Drinks-makers have two choices: reduce sugar levels and avoid the tax; or keep faith with the recipe and risk sales going flat.
Most have opted to change ingredients, usually by replacing sugar with an artificial sweetener. AG Barr, maker of Irn-Bru, an electric-orange concoction favoured by Scots, has brought almost all its drinks below the sugar threshold. In fact, so many firms have done so that the government has revised down its forecasts of the revenue the new tax will bring in each year, from £520m when the plans were announced in 2016, to £240m today. The policy’s advocates would claim this as a success.
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Changing recipes can have other advantages too, says Laurence Whyatt of Société Générale, a bank. Notably, sugar costs five times as much as some sweeteners, so switching brings big savings. But tampering with the formulas risks enraging loyal customers. Since January 52,000 people have signed a petition to keep Irn-Bru the same. Some have stockpiled high-sugar versions of the drink.
So, fearing a backlash, big drinks-makers will not tinker with flagship brands, such as classic Pepsi and Coca-Cola. The same goes for energy drinks like Red Bull, partly because sweeteners do not give a sugar-style boost.
Where the new tax is passed on to consumers, the price rise is likely to hit sales—especially in shops, where soft drinks are cheaper than in bars and the extra cost is more noticeable. A two-litre bottle of full-sugar cola could be 48p (or about 30%) dearer than a diet one. Other countries with similar taxes have seen sales of pricier pop fall.
What will consumers choose instead? Most likely the cheaper, low-sugar alternatives. Those who switch away from full-sugar cola because of the tax show themselves price-sensitive, rather than brand loyalists, argues Komal Dhillon of JPMorgan, a bank. Pepsi Max, a no-sugar offering, is already cheaper than Diet Coke and well placed to snap up such consumers. For Britvic, Pepsi’s British bottler, that will be sweet news indeed.