Soft drink prices up 33% on sugar tax

The Federal Government’s newly introduced excise duty of N10 per liter on all non-alcoholic, carbonated and sweetened beverages, often called sugar tax, has driven up the retail price of soft drinks by 33.3 percent, from N150 to N200 per 50cl bottle, BusinessDay enquiries show.

The new increase, which took effect last week, now makes it the third over the past year, raising the cost for popular brands such as Coca-Cola and its variants, and Pepsi and its variants, among others.

Chika Kalu, a soft drink retailer in Apapa, Lagos, expresses frustration over the third increase within a year, unlike in the past when the manufacturers had raised the price once in five years.

“Two weeks ago, the manufacturers sent us a message that they have increased prices at their end due to the new excise duty placed on them,” he says.

Another retailer, Mama Kemi, in Ikeja, Lagos, notes that when she adds the cost of transporting the drinks from the warehouse and chilling, she has no choice but to increase the price. “Those that hawk on the streets still sell at N150 because they don’t have shops or pay rent,” she states.

Over the past five years, soft drink makers have been competing for sales by increasing the quantity of products without increasing their prices due to consumers’ weak purchasing power.

Between 2014 and 2015, Rite Food’s Bigi Cola garnered increased patronage by introducing a bigger (60cl) bottle that cost N100. This raised competition in the market, as big brands like Coke and Pepsi stepped up the fight for market share.

Coca-Cola and Pepsi introduced their own 60cl plastic bottles and kept the price at N150 between 2016 and 2017.

With time, sustaining the volume at the same price became challenging. In September 2019, Coca-Cola reduced the volume of its 60cl pet drink, which was sold for N150 to 50cl for N100 and it also increased its 35cl pet drink to 50cl for the same price of N100. Then, earlier in 2020, Pepsi responded by reducing its 60cl drink, which was sold for N100 to 50cl, still at the same price.

In 2021, the price increased to N120 and N150 due to the surge in international sugar prices and high inflationary pressures.

On the purpose of introducing the excise duty of N10 per litre on all non-alcoholic, carbonated, and sweetened beverages, the government said it would help discourage excessive consumption of sugar in beverages, which contributes to a number of health conditions including diabetes and obesity.

Read also: New sugar tax: A wrong step in the right direction

It will also raise excise duties and revenues for health-related and other critical expenditure, the government said.

But experts say the tax will have negative effects on the industry, such as a dip in sales and volumes.

“Consumption of soft drinks will reduce, making consumers opt for cheaper alternatives. So, the producers are losing in two ways, the volumes and the extra price that they are charging,” Ayorinde Akinloye, a consumer analyst at United Capital plc, says.

A staff of Coca-Cola Nigeria, who spoke with BusinessDay in confidence, said lower sales would make the soft drink makers less profitable and the net effect was cost-cutting measures, including laying off workers.

Nigeria’s fast-growing population brings with it a continuing demand for soft drinks, especially as the climate is quite hot.

According to Euromonitor International, a London-based market research company, off-trade sales for carbonated drinks rose by 96 percent to $1.4 billion in 2021 from $713.6 million in 2016.

Similarly, Nigerian households spend more on non-alcoholic drinks than alcoholic ones. Data from the National Bureau of Statistics show that in 2019, they spent N551.2 billion on non-alcoholic drinks, N205.5 billion on sugar, sweets, and confectionery, and N150.3 billion on alcoholic drinks.