Operators to New York: Don't Burst our Bubble

Yes, the recession has brought most of the U.S. economy to its knees. But the pricing bubble for soft drinks at the restaurant level lives on, helping many operators keep afloat. Paradoxically, even though value-seeking customers aggressively demand bargains when they make their food choices, they remain willing to bear whatever price a restaurant charges for soft drinks. That’s why, percentage-wise, soft drinks are the highest-margin items on most foodservice menus today. But beware: New York officials are about to show the rest of the country how to get a big share of restaurant beverage dollars out of the hands of operators and into the government’s treasury.

The first salvo in this battle came last December, when New York Gov. David Paterson floated the idea of an “obesity tax” as a way to raise more revenue for his state.

This wasn’t a tax to be paid by people who were already obese. The presumption was that all people would become obese unless they consumed fewer sugar-laden drinks. So in the name of preserving public health, Paterson’s idea was to place a 15 percent tax on soft drinks, with the revenue going into the state’s general fund. Diet soft drinks, milk, juice and bottled water would be exempt.

Despite strong lobbying by public health advocates (“Raising the price of this liquid candy will put children and teens on a path to a healthier diet,” said Elie Ward of the American Academy of Pediatrics) the measure was not adopted. Many New Yorkers thought it was a crazy idea.

One New Yorker who didn’t think it was so crazy was Dr. Thomas Frieden, New York City’s health commissioner. He’s suggesting something similar in an article he wrote for the current New England Journal of Medicine. His plan calls for a penny-per-ounce tax on soft drinks, sports drinks and sugar-sweetened fruit juice and ice tea. The rationale: this would be a way to fight obesity while raising what Frieden claims would be billions of dollars nationally, $1.2 billion of it for New York State, alone.

This matters because Frieden has already demonstrated that he knows how to quickly move a public health issue from the talk-about-it stage to full implementation at the street level. He’s done it twice in New York City already (banning trans fats from restaurant kitchens; mandating nutritional information on chain restaurant menus) and wound up setting the national agenda on these topics as part of the process. Next on his hit list: sugary drinks.

Frieden succeeded on his first two issues by marshalling the forces that thought his food-related proposals made for good public health policy. That consensus is already in place for the soft drink tax, and its members will be joined by officials at all levels of government who are eager to find new sources of revenue for their city, county or state.

The big key here is the newfound strategy of linking food-related public health issues with revenue creation for governments. It worked as advertised for the anti-tobacco forces, to the point where several layers of government that have come to rely on an ever-rising taxes on cigarettes to fund many projects.

We don’t know how long it will take for this soft drink tax issue to gather steam nationwide. Just be aware that it’s going to have a big constituency when it does. We hope restaurant operators can find something else with soft-drink-like margins to sell by then.