Are sugar taxes really about your health?

Tax on sugary foods, drinks

Sugar taxes are gaining momentum worldwide. A study published in June by the Journal of the American Medical Association revealed the existence of 118 sugar taxes worldwide, including 105 national taxes and 13 subnational taxes, impacting 51 percent of the global population.

It’s worth noting this approach receives substantial support from the World Health Organization (WHO). Many people are already subject to this “sin tax,” primarily aimed at discouraging the consumption of sugar-rich food products. During the past few years, some Canadian provinces have decided to follow suit.

For instance, in April 2021, British Columbia imposed a 7% provincial sales tax on sugary beverages. The primary aim, according to the province, was to discourage consumers from buying high-sugar foods. Yet, even after two years, the B.C. government has provided little substantive evidence of tangible outcomes of the tax, or conducted comprehensive assessments on the tax’s effect on product consumption.

On Sept. 1, 2022, Newfoundland and Labrador also implemented a sugar tax on beverages. However, unlike British Columbia, Newfoundland opted for a more subtle approach by imposing the tax at the manufacturer level rather than at the retail level. But like in B.C., the tax has not yet undergone a thorough evaluation of its effectiveness. Data regarding consumption or sales simply remains unavailable. However, the province’s Department of Finance has announced the tax generated $11 million in revenue over the past year, 22% more than anticipated.

The province claims these funds will go towards supporting programs like a continuous glucose monitoring pilot project, a tax credit for physical activity and development of leisure, physical activity and sports. Although these goals are commendable, it’s unclear whether the funds will genuinely be directed towards achieving them.

Scientific studies indicate municipalities, particularly in the United States, that have imposed such taxes have shown greater success in meeting spending obligations linked to sugar taxes than other government levels. Oakland, Philadelphia and Berkeley serve as good examples. Nevertheless, some Canadian provinces or U.S. states may be swayed by conflicting political priorities, with the collected funds becoming entangled in the intricacies of public finances.

Ultimately, it appears the sugar tax in Newfoundland and Labrador has had little impact on consumer habits. According to a study from the University of California to be published in October, only a fraction of the sugar tax imposed on manufacturers is passed on to consumers. Retail prices barely change, with most of the tax being absorbed by the supply chain. Moreover, available scientific evidence does not consistently demonstrate that sugar-sweetened beverage taxes have either encouraged increased purchases of healthier beverages or led to an overall reduction in the consumption of sugary drinks.

In essence, the government of Newfoundland and Labrador seems to have introduced this tax for the sake of taxation itself – an ill-conceived notion. For agri-food businesses, dealing with a moralistic state represents a significant risk, as they may fear becoming the target of punitive policies in the future, discouraging private sector investments. Newfoundland and Labrador is in dire need of investment.

Taxing food products in grocery stores, regardless of the method chosen, is a complex endeavour. The most effective tools for reducing sugar consumption are education and labelling. Education, in fact, according to IBISWorld, has contributed to a decline in soft drink consumption in Canada since 1998, when per capita consumption was 117.4 litres. Consumption was already declining before sugar taxes came along. Today, consumption stands at 48.4 litres per person – a remarkable difference.

Furthermore, new rules for nutritional labelling, which will take effect in 2026, will compel manufacturers to affix a label to products high in sugar, fat or sodium. This will provide consumers with relevant information to make healthier choices.

Taxing for the sake of taxation can open the door to state abuses. It is important to seek balanced, evidence-based approaches to encourage healthier dietary choices.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Amazon’s Whole Foods has been a bust for Canadians

Grocery store competition

Many people in Canada agree that the grocery industry needs more competition, but finding the right player to shake things up is a tough challenge.

People have been considering potential contenders, like the German companies Aldi and Lidl, which are already operating in the United States. Another candidate is Alimentation Couche-Tard, which made a notable bid to buy the French company Carrefour last year.

And of course, there’s Amazon, which raised a lot of excitement when it bought Whole Foods for nearly US$14 billion in 2017. But now, that anticipation has given way to a more tempered assessment of Amazon’s performance in the grocery sector.

When Amazon acquired Whole Foods, many experts thought it would seamlessly combine its online success with physical grocery stores in the U.S. and Canada. The news of Amazon buying Whole Foods caused Canadian grocery stocks to drop significantly. Companies like Loblaw and Empire (Sobeys’ parent company) saw their stock prices fall by over 3.5 percent, while Metro’s stock dropped by almost three percent.

Canadian grocery stores quickly jumped into the growing online food market by offering “click and collect” services. But even with all these efforts, e-commerce makes up less than 4% of Canada’s total food retail market, even with the pandemic pushing more investments into this area.

However, since Amazon’s takeover, Whole Foods has failed to exhibit substantial growth. Last year, its net income barely increased, a far cry from the promising 8% growth in 2017.

Amazon tried to enhance the Whole Foods shopping experience with high-tech features like self-checkout lanes using biometric payments, but these efforts didn’t impress customers. Also, the number of Whole Foods stores has stayed the same since the acquisition, with about 500 in the U.S. and just 14 in Canada.

The average grocery bill at Whole Foods is also much higher than at other stores, a disconcerting observation in an era marked by skyrocketing food prices.

Amazon’s push into cashier-less grocery shopping with Amazon Fresh has faced its own problems. This concept, perceived as a technological revolution in food retailing, eliminates the need for cashiers and staff by relying on sensors and smartphones. Amazon Fresh currently runs 38 stores, but none are in Canada, and the company recently paused expansion for a re-evaluation.

In practice, these stores have often offered lower-quality products at higher prices, resulting in a disappointing shopping experience. Amazon is still figuring out its place in the grocery industry, and Amazon Fresh is a work in progress at best.

For those Canadians yearning for increased competition, the onus for improvement falls upon Amazon. Unfortunately, Amazon won’t be Canada’s budget-friendly grocery saviour anytime soon.

It’s worth considering, however, whether the Canadian market presents unique challenges compared to the U.S. Ironically, the small grocery chain T&T, owned by Loblaw, is planning to enter the American market next year, starting in the greater Seattle area. This is in stark contrast to Target’s attempt to break into the Canadian market in 2014, which faced well-documented difficulties.

In summary, there’s no doubt Canada’s grocery sector needs more competition. Finding the right player to reshape the industry is still a complex task. While Amazon’s entry into the grocery business was initially exciting, its performance so far has left much to be desired.

Canadians are still waiting for a strong contender to come in and transform the grocery industry as the quest for more competition continues.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

$9 billion bet by company taking over Subway turning heads

Subway acquisition

Roark Capital, a private equity firm that boasts a portfolio encompassing Arby’s, Baskin-Robbins, Buffalo Wild Wings and Dunkin’ Donuts, has made headlines with its recent announcement to acquire Subway, the world’s second-largest restaurant chain by outlet count, boasting more than 37,000 locations globally.

Notably, Canada alone houses over 2,900 Subway restaurants, with the province of Saskatchewan featuring an astonishing ratio of one Subway restaurant for every 9,800 residents.

This monumental deal, valued at a potential $9.55 billion, including debt and contingent on achieving specified financial benchmarks, marks a historic moment in the food industry. This agreement represents the culmination of an extended and competitive auction process that commenced in February of this year, garnering significant attention from various private equity firms.

Nevertheless, the substantial investment of more than $9 billion in a restaurant chain facing challenges raises eyebrows, particularly considering Subway’s global sales peaked at $18 billion in 2012 and have encountered hurdles ever since.

Over the past decade, Subway has grappled with formidable competition in the sandwich industry. Initiating store closures in 2016, the chain continued this trend between 2018 and 2019, closing more than 2,000 outlets across the United States and Canada. Moreover, Subway’s foray into the breakfast market aimed at diversifying meal offerings beyond lunch, dinner, and snacks, but the outcomes proved, at best, mixed.

Subway’s recent history has also been marred by public relations challenges, commencing with concerns regarding ingredient authenticity and supply chain issues. In 2017, a CBC Marketplace investigation cast doubt on the authenticity of certain Subway ingredients, culminating in a lingering defamation lawsuit that is yet to be resolved – a detrimental development for any restaurant business. Another lawsuit, alleging the absence of tuna in Subway’s products, was recently dismissed, but not before causing substantial damage to the brand’s reputation.

The chain also faced criticism regarding serving sizes and the accuracy of its “foot-long” sandwiches, with consumers taking to social media platforms to express their concerns.

The Jared Fogle scandal further compounded Subway’s woes. Formerly celebrated as a spokesperson who famously shed 245 pounds by consuming Subway sandwiches, Fogle’s image took a severe hit in 2015 when he was arrested.

Pleading guilty to charges involving child pornography and illicit activities with a minor across state lines, he is currently serving a 15-year prison sentence in Colorado. Earlier this year, a documentary titled Jared from Subway: Catching a Monster provided an in-depth look at his life and the legal proceedings surrounding his case.

Subway’s frailty is underscored by its sales per store, which significantly lags behind industry leaders. While Chick-fil-A, for instance, reports sales exceeding $5 million per individual store, Subway does not even feature among the top 30. Subway has often been regarded as an accessible entrepreneurial opportunity, but its aggressive expansion approach led to an oversight of market analysis, as outlets were established in areas with uncertain chances of success.

Most Subway outlets operate as franchisee-owned businesses. The 2021 New York Post report alleging financial exploitation of immigrant franchisees has further exacerbated the chain’s troubles.

In early 2022, Subway Canada introduced its “Eat Fresh Refresh” campaign, enlisting new brand ambassadors, primarily athletes, and revitalizing menu items, such as rice bowls and enhancing ingredients with Canadian cheddar cheese and smashed avocado. While these changes were noticeable, Subway faces a considerable rehabilitation journey ahead.

Roark Capital’s acquisition of Subway presents a unique opportunity for revitalization, focusing on enhancing revenue per outlet by reducing the number of restaurants, optimizing supply chain operations, and refining the branding strategy. However, franchise owners may find themselves on edge amid the uncertainty of what lies ahead.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Alcohol sales are dropping in Canada, while cannabis sales surge

Is Canada sobering up?

Canada appears to be undergoing a noteworthy transformation in its relationship with alcohol.

According to Statistics Canada, Canadians are purchasing less alcohol than they did the previous year, and a myriad of factors are at play. From shifts in weather patterns to the allure of non-alcoholic alternatives and concerns raised by the World Health Organization regarding the link between alcohol and cancer, it’s clear that the landscape of Canadian drinking habits is evolving. But is Canada truly sobering up?

According to the latest Retail Sales Update from Ottawa, Canada’s liquor and beer sales continue to show a slowdown, down 0.9% from May to June 2023. Sales are also down 2.8% from last year, a notable drop, while cannabis sales surged by 3.3%. Other sources may point to different numbers, but it appears as though Canadians are generally buying less booze now. These statistics raise intriguing questions about the factors influencing Canadian drinking habits.

One potential factor contributing to the decline in alcohol sales is the weather. The last several months have brought about erratic weather patterns, leading to unpredictable winters and a dampened summer in many parts of the country. Weather uncertainty can affect consumer behavior. For instance, warm weather often leads to increased alcohol consumption, with Canadians flocking to patios and barbecues. When the sun doesn’t shine as consistently, it’s possible that people are less inclined to indulge in alcoholic beverages, contributing to the decline in sales, as indicated by the recent Retail Sales Update.

The World Health Organization’s concerns about the link between alcohol and cancer cannot be ignored. Canada’s new Guidance on Alcohol and Health, which encourages Canadians to drink less and the suggestion that perhaps containers of alcoholic products should be labeled in the future, likely gave pause to some Canadians. Public health messages and research findings connecting alcohol consumption to various health issues, including cancer, have been gaining traction. Canadians may be reevaluating their drinking habits considering these warnings, leading to a decrease in alcohol consumption.

Non-alcoholic alternatives have also been on the rise. The beverage industry has responded to changing consumer preferences by offering an array of enticing non-alcoholic options. These include craft non-alcoholic beers, alcohol-free spirits, and mocktails that provide the same sensory experience as traditional alcoholic beverages without the intoxicating effects. With the stigma of not drinking diminishing, more Canadians are choosing these non-alcoholic options, contributing to the decline in alcohol sales.

Furthermore, there seems to be a shifting social dynamic regarding alcohol consumption. In the past, abstaining from alcohol might have been met with raised eyebrows, but today, it’s becoming increasingly socially acceptable not to drink. Millennials and Generation Z are leading this change, with many embracing a “mindful drinking” approach and choosing not to consume alcohol as part of a broader wellness trend.

Cannabis, on the other hand, continues its ascent in popularity. The recent surge in cannabis sales, as revealed by the Retail Sales Update, raises questions about whether Canadians are substituting alcohol with cannabis. With the legalization and normalization of cannabis use, it’s plausible that some individuals are opting for this alternative to relax and unwind.

The decline in alcohol sales, even during the early summer when Canadians typically enjoy outdoor activities, suggests that these trends are more than just a fleeting phenomenon. Canada appears to be on a trajectory towards a more moderate drinking culture, driven by a combination of factors.

With all of this mentioned, it’s important to approach this issue with nuance. While alcohol sales are down, it’s not an indication that Canadians are universally abstaining. Instead, they are making more conscious choices about when and how much they drink.

This shift is not only a reflection of changing attitudes towards alcohol but also a response to a rapidly evolving economic landscape. Inflation plays a huge part. What needs to be underscored are rising retail prices for all food products, including liquor and beer.

The April 1 federal escalator tax, coupled with other provincial taxes, have made these products more financially prohibitive. With higher food prices, priorities shift. While we all need to eat, drinking alcoholic beverages is far from being a necessity. Sales will likely bounce back eventually when the cost of living is not much of a top-of-mind issue for consumers.

Numbers may suggest that Canada is sobering up, but it’s doing so with a newfound sense of consciousness and choice. Alcohol remains very much a part of our culture, traditions, and ways we celebrate and live key moments of our lives together.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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