Philadelphia’s new beverage tax is costing supermarkets $300,000 a month in lost sales as shoppers head to the suburbs, a new study conducted by a Saint Joseph’s University professor shows.
The study by John L. Stanton, an expert in food marketing at the Department of Food Marketing of the Saint Joseph’s University Haub School of Business, found that total beverage sales in five Philadelphia supermarkets dropped by more than $80,000 each month, but the damage to Philadelphia supermarkets wasn’t limited to impacting beverage sales.
The American Beverage Association funded study indicates that Philadelphia families were fleeing city supermarkets subjected to the 1.5 cents per ounce tax, causing local supermarkets to lose entire shopping trips to the suburbs.
These steep losses, Stanton found, will almost certainly lead to continuing job losses in neighborhoods throughout the city as the supermarket industry is forced to endure cuts.
“The average monthly loss in sales per Philadelphia store of $304,433 will lead to some reduction in labor force,” Stanton wrote in the study.
“There is almost no scenario that would lead one to believe that the Philadelphia Beverage Tax will permit taxed supermarkets to maintain existing labor forces. Furthermore, the drop in supermarket sales will negatively impact distributors and other channels of distribution companies serving those supermarkets. While the reduction in force may take a few months to reach an equilibrium level, a labor reduction seems inevitable.”
According to the study, Jeff Brown, who owns ShopRites and Fresh Grocers in food deserts across Philadelphia, has had to reduce hours of his unionized workforce equivalent to more than 200 full-time employees because of a steep drop-off in sales caused by the tax, which is applied to more than 3,000 beverages, including teas, sports drinks and diet and low-calorie options.
Stanton compared sales receipts of five Philadelphia supermarkets with four suburban supermarkets. He also compared sales in each store after the tax was imposed with trends before the tax was imposed.
Stanton found that the beverage tax came amid an already challenging time for the supermarket industry, which had been facing sales declines because of changing consumer patterns. The beverage tax doubled these losses in Philadelphia stores.
In response, the Philadelphia Department of Revenue conducted a formal review of Stanton’s study.
“Since this analysis has been performed on one chain only, it is unknown whether all grocery stores are experiencing the same sales declines,” the review said.
“As such, the author’s argument that the Philadelphia Beverage Tax is adversely affecting grocery store sales is based off a flawed methodological approach with limited data. The use of one grocery chain with limited data produces favorable results for funder’s position; but cannot be deemed as representative for the economy-wide impact of the tax. Given that the city is only nine months into the tax, it is too premature to reach for broad conclusions on the impact of the grocery store industry and overall Philadelphia economy.”
Stanton’s report corroborates a study released last month by the market research firm Catalina, which found that sales of beverages inside Philadelphia have plummeted since the tax was imposed in January.
“This study confirms our worst fears and highlights the struggles supermarkets across the city have been facing every day this unfair tax has been imposed on them,” Dave McCorkle, president emeritus of the Pennsylvania Food Merchants Association said in a news release.
“At a time when food retailers were already confronting headwinds from online shopping and other changes in consumer behavior, this tax is dealing a death blow to an industry that provides access to groceries for families in low-income neighborhoods. Our elected officials need to recognize the existential threat this tax poses for an industry that employs thousands of Philadelphians in family-sustaining jobs.”