In 2016, when Philadelphia enacted the tax on sweetened beverages, Mayor Jim Kenney issued a news release claiming that it “will improve the education, health, and prosperity of children and families all across our city for years to come.” Kenney’s reference to improving health alluded to the theory that, by raising the cost of soft drinks, the tax would decrease their purchase and consumption. To that end, although the 1.5-cent-per-ounce tax was imposed on the beverage distributors, it has resulted in increased prices charged to consumers.
In September 2018, the National Bureau of Economic Research issued a report on the impact of the beverage tax. Among other conclusions, it found that, while purchases of taxed beverages fell in Philadelphia, city residents had increased their purchases of soft drinks outside of the city.
But the story doesn’t end there. According to Philadelphia’s supermarket proprietors, city residents are not limiting their suburban shopping to soft drinks. Instead, many who travel to the suburbs to purchase sweetened beverages are also buying all of their groceries outside the city. The Philadelphia supermarket operators report that this entirely predictable consumer behavior has caused them substantial financial loss.
Among those is Jeff Brown, president and CEO of Brown’s Superstores, Inc., which owns seven ShopRite and Fresh Grocer stores in Philadelphia. On Jan. 2, Brown’s Superstores, Inc. announced that it will close the ShopRite located near the city limits on Haverford Avenue. It blames the beverage tax for causing overall sales to drop 23 percent and yearly losses of about $1 million. It also reports that, due to the tax, sales at its other Philadelphia stores are down 15 percent.
The 111 employees at the Haverford Avenue store have been offered employment at another of the Brown’s stores in the region. While Brown’s has not laid off employees since the tax took effect, it has reduced its workforce by 200 by not filling those jobs when employees left. Even though employees at the closing ShopRite can keep their jobs, once they leave employment, their positions will be eliminated.
In addition, Brown’s employs more than 600 workers with criminal records that effectively make them unemployable elsewhere. How many of those employees will be affected by the closure is not presently known.
The announcement of the store closing elicited multiple reactions by Kenney’s office that range from incoherence to sheer arrogance.
First, Kenney spokesperson Mike Dunn pointed out that the tax is levied on beverage distributors who have the option to absorb the cost. "The soda companies, the bottlers, and the beverage industry at-large are multibillion-dollar companies, "Dunn said. “They don’t have a need to pass this tax on. They can pass on a portion of it, or they can cover the cost themselves.”
But wait. When the tax was passed, didn’t Kenney announce that it would improve the health of Philadelphians? And isn’t that goal to be achieved by raising the price of sweetened beverages to discourage their purchase and consumption?
If so, instead of blaming the beverage distributors for passing on the cost of the tax to consumers, why isn’t the Kenney administration thanking them for helping improve public health?
And then we have Mayor Kenney lashing out on KYW Newsradio 1060. “Jeff Brown is a cry baby, basically,” the mayor said. He added that “if you can’t run a supermarket without soda sales, then something is wrong with your business practices.”
Put aside the question about what Kenney knows about running a supermarket. Instead, ask why he thinks it is a good idea to demean a man who has invested the time, effort, and financial resources to operate seven tax-revenue-generating and job-providing stores in the city?
Has the mayor considered the effect that his public verbal abuse of Brown will have on others who may be thinking of locating their businesses in Philadelphia? Has it occurred to him that his behavior may well induce entrepreneurs to steer clear of the city?
If negative sales trends continue, Philadelphia-area residents should expect more grocery store closures. And no amount of blame-shifting by the mayor will stop it.