Mexico's junk food taxes hit Pepsi, Coke
No wonder Coke and Pepsi are spending millions of dollars to fight proposed taxes on sugary drinks in California.
PepsiCo has reported a higher quarterly profit as global sales rise, but a weak spot is Mexico. The company says snacks sales volume have declined three per cent, hurt by a new tax on junk foods.
Recent declines suffered by Pepsi and Coke in Mexico underscore why the beverage industry is fighting tax proposals on sugary drinks in San Francisco and nearby Berkeley.
PepsiCo - which makes Frito-Lay chips, Gatorade and Tropicana - reported similar declines in its snacks business for the first half of 2014, starting when the tax went into effect.
Coca-Cola, which reports its third quarter results on October 21, has also reported beverage volume declines in Mexico for the first half of 2014, citing a similar tax on drinks. Mexico has the world's highest per capita consumption of Coca-Cola drinks.
Hugh Johnston, chief financial officer for PepsiCo, said in a phone interview that declines in Mexico were in line with what the company expected. To mitigate the impact of the tax, he said PepsiCo plans to target different package sizes for different outlets.
The taxes in Mexico add one peso, about US7 cents, to the cost of a litre of sugary drinks, and five per cent of the price to foods with 275 calories or more per 100 grams.
It's not yet clear whether the taxes' impact on consumption will last or how significant it will be over time. And while PepsiCo monitors such tax initiatives around the world, Johnston said he doesn't expect them to become more common.
Back in the US, San Francisco and Berkeley are seeking to become the first cities to pass per-ounce taxes on sugary drinks in the upcoming November election. The measures are being closely watched because many say defeats in the Bay Area, which is known for its liberal politics, would be a major blow to advocates of such taxes as a way to improve nutrition. Similar measures in other US cities have failed.
Health advocates have pushed taxes as a tool to cut consumption of calorie-laden junk food, similar to tactics that have successfully been used against cigarettes. Makers of such products say they are being unfairly singled out.
During a conference call with analysts and investors, PepsiCo chief executive Indra Nooyi said she believed such "discriminatory taxes" were "wrong".
"We will make our case and hope the voters are sensible enough to look at the right answer," Nooyi said.
Since the start of 2014, the American Beverage Association contributed $US7.7 million ($A8.33 million) to defeat the proposal in San Francisco alone, according to a recent filing.
That's far more than the $US391,000 in contributions reported by supporters of the tax over the same time.
Meanwhile, the beverage industry has touted its commitment to reducing the calories people consume from drinks by more aggressively marketing drinks with less sugar. The industry has also stressed the need to raise awareness about balancing the calories people consume with how much physical activity they get.
