If Mayor Jim Kenney’s proposed soda tax is enacted, don’t expect restaurants and bars to foot the bill.
Whether or not they’re officially opposed to the measure, many in the industry say they plan to pass along the entire cost of the 3-cents-per-ounce tariff on sugary drinks to the consumer. That’s in contrast to what happens in Berkely, Calif., the only other city in the U.S. to implement a soda tax. Studies have shown that there, only around 50 to 70 percent of the increase is passed along
“I would have to raise prices or this tax would have a huge effect on the bottom line,” says Marlo Dilks, co-owner of P’unk Burger on East Passyunk Ave. “I would increase them just enough to cover exactly the amount of the tax.”
The premium Maine Root organic sodas, Hank’s Gourmet Root Beer and Honest Tea drinks she sells already have a relatively low markup, Dilks says, so trying to absorb the cost “would be a huge loss.”
“I would think I would pass this on to my customers,” says Robin Barg, owner of Rittenhouse brunch specialist Day by Day, “even though I think this is the sort of tax that targets people who can’t afford it.”
P’unk Burger and Day by Day are BYOB, so sodas and other sugary drinks make up a large percentage of their overall beverage sales, but even places that serve drinks are planning to pass along an increase if it happens.
“We would most likely add a separate tax so customers would see we are not raising our prices; that this is not an increase for profit,” says Michele Recupido, general manager of Locust Rendezvous. At that Center City tavern, guest checks are already printed with the city’s 10 percent liquor-by-the-drink tax as a separate line item.
Switching to water comes with a cost
Like the liquor-by-the-drink tax, which was enacted in 1994 by then-Mayor Rendell to help fund the Philadelphia School District, Kenney’s proposed tax would fund education and community initiatives. Few in the hospitality industry are against the universal pre-K and upgrades to city recreation centers that the soda tax would make possible, but they do question the funding method.
“I listened to the Mayor’s budget address, I think he’s focused on so many of the right things,” says John Longstreet, president and CEO of the Pennsylvania Restaurant & Lodging Association, which represents hospitality businesses across the state. “But restaurants already operate on very slim margins — nationally, average net profit margins are in the 4 to 6 percent range.”
Even if people decide to order fewer sodas at restaurants because prices are higher, that still comes with a cost, he points out. “The alternative is often a glass of water, so there is now a glass that has to be washed and ice to be provided, even though water adds nothing to the guest check.”
The fact that the tariff would not apply to diet drinks also makes for extra work at the restaurant level, notes Locust Rendezvous’ Recupido. “What about our lunch special that includes soda, coffee or tea? If they choose a diet soda, we don’t add a tax, but if they choose regular soda, we do? And how about a rum and diet versus a rum and Coke?”
Longstreet says the PRLA is opposed to the tax the way it stands for three main reasons. One, because it will hurt the people it’s designed to help — and not just because people in lower income neighborhoods tend to drink more soda.
“The restaurant industry is where one out of three people in the U.S. find their first jobs — it’s entry level work,” he says. Second, he cites the fact that a tax on soda has historically not been popular: “Something like 30 out of 31 times something like this has been placed before voters, it’s been defeated. It’s clearly not the will of the people.”
Third is because the of the amount of the tax, which he refers to as “extortion.”
“It’s three times as high as the only other city in the U.S. that has it,” he notes. “Plus, Berkeley, Calif. is not exactly what I’d call ‘Anytown USA.’” (Berkeley’s soda tax is 1 percent per ounce.)
‘It won’t cripple our industry’
The proposed tax also grates on South Philadelphia Tap Room and American Sardine Bar owner John Longacre. He’s president of the Philly chapter of the Pennsylvania Licensed Beverage & Tavern Association, and while that statewide trade group is not officially opposed to the tax, many of its members aren’t happy, either.
“If there’s going to be a new tax, it might as well be on an industry that isn’t located here,” he says. “This is a consumer tax — it will be passed on to the consumer. Will it create a higher cost of doing business? Yes, but it’s not going to cripple our industry.”
However, while he is in favor of Kenney’s initiatives like universal pre-K, he’s not convinced this is the right way to go about funding them.
“Philadelphia is the highest-taxed municipality in America,” he says. “We have the wage tax, the gross receipts tax, the business privilege tax the liquor tax, and now we need a sugar tax?
“How ineffective are these legislators that we need all these taxes?” he continues. “Hopefully Mayor Kenney will fix it all — I know he just got started, and we couldn’t be behind him any more than we are. But more taxes will just decrease Philadelphia’s competitive advantage. I guarantee there are alternatives.”