Impact of the Beverage Tax on Philadelphia’s Grocery Stores

Why is the Controller looking into the impact of the Beverage Tax on Philadelphia’s grocery stores?

As Philadelphia’s fiscal watchdog, Controller Alan L. Butkovitz has made the impact of tax policy on the economic and fiscal health of the City a hallmark of his tenure in the office. In the interest of assessing the actual impact of the Philadelphia Beverage Tax on the grocery industry in its early stages, the Controller’s office performed this analysis.   

Data and Methodology

The Controller requested and received Q1 and Q2 sales data from both Brown’s Superstores and Fresh Grocer for 2016 and 2017.  Together, Brown’s Superstores and Fresh Grocer represent approximately one-third of supermarket sales in Philadelphia.
The Controller’s Office used this data to perform a difference in differences (DID) analysis which is a statistical technique used in econometrics and quantitative research in the social sciences.  The study analyzed the differential effect of the beverage tax on a treatment group (Stores located inside Philadelphia City) versus a control group (suburban stores).

Findings

  • In the first six months of 2017, total Philadelphia supermarket sales at ShopRite and Fresh Grocer fell 13%. 
  • On a per-store basis, the average sales for the period decreased from $21.1M to $18.3M in Philadelphia stores, an average decrease of $2.75M. 
  • In contrast, during the same period, sales for suburban stores increased 2%. On a per store basis, that translates to a $364K increase.
  • Prior to the tax, an average Philadelphia grocery store earned $330K more revenue each month, than an average suburban store.  After the tax, an average Philadelphia store earned $191K less than its suburban peers.
  • In the first six months of 2017, total Philadelphia sweetened beverage sales in ShopRite and Fresh Grocer fell 57%. On a per-store basis, the average sales for the period decreased from $1.2M to $0.5M, an average decrease of $0.6M. 
  • In suburban stores, sweetened beverage sales grew by 14% ($0.13M), from an average of $0.99M per store to $1.13M per store.
  • In sum, based on the available data, the Controller finds that the Philadelphia Beverage Tax caused the City’s average grocery sales - which historically exceeded average sales in suburban stores - to fall behind.
  • The tax also caused the customer count in City stores to fall behind suburban ones by 10,275 per store per month.
  • Beyond that, the beverage tax caused SNAP sales in city stores to drop back by $171,766 - on average per store on a monthly basis.

Recommendations

To ensure adequate oversight of the impact of the Philadelphia Beverage Tax on the vitally important grocery industry, the Controller recommends the following:

  • Quarterly sampling of sales data from major supermarkets
  • Annual analysis of Wage Tax and BIRT data for the grocery industry by the Controller’s Office
  • Frequent vital engaging community focus groups, lead by community leaders and nonprofit organizations in coordination with the controller’s office, to ensure the public’s voice pertaining the tax impact is heard.
  • Because improving the lives of  impoverished citizens is crucial for a healthy growing society, a detailed study to illustrate the impact of the tax on SNAP sales, would be very useful. This study can account for the change in SNAP eligibility criteria along with other factors suspected to impact SNAP sales.


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