No wonder Coke and Pepsi are spending millions of dollars to fight proposed taxes on sugary drinks in California.
PepsiCo reported a higher quarterly profit Thursday as global sales rose, but one weak spot was Mexico. The company said a new tax on junk food and sugary drinks hurt its snacks sales volume by 3 percent.
The declines suffered by Pepsi and Coke in Mexico underscore why the beverage industry is fighting tax proposals on sugary drinks in in San Francisco and nearby Berkeley.
PepsiCo — which makes Frito-Lay chips, Gatorade and Tropicana — reported similar declines for the first half of the year, starting when the tax went into effect.
Coca-Cola, which reports its third quarter results Oct. 21, has also reported volume declines in Mexico for the first half of the year, citing the tax. Mexico has the world's highest per capita consumption of Coca-Cola drinks.
Hugh Johnston, chief financial officer for PepsiCo, said in a phone interview that declines in Mexico in the latest quarter were in line with what the company expected. To mitigate the impact of the tax, he said PepsiCo plans to target different package sizes for different outlets.
The taxes in Mexico add one peso, about 7 cents, to the cost of a liter of sugary drinks, and 5 percent of the price to foods with 275 calories or more per 100 grams.
While PepsiCo monitors such tax initiatives around the world, Johnston said he doesn't expect them to become more common.
Since the start of this year, the American Beverage Association contributed $7.7 million to defeat the proposal in San Francisco alone, according to a filing made this week.
That's far more than the $391,000 in contributions reported by supporters of the tax over the same time.
Voters will decide whether to enact the taxes Nov. 4. The measures are being closely watched because they could be the first such tax on sugary drinks in the U.S.
Health advocates have pushed such taxes as a tool to cut consumption of calorie-laden junk food, similar to tactics that have successfully been used against cigarettes. Makers of such products say they are being unfairly singled out.
Similar measures in other cities have failed, and many say defeats in San Francisco and Berkeley, which are known for their liberal politics, would be a major blow to advocates of taxes as a way to improve nutrition.
During a conference call with analysts and investors, PepsiCo CEO Indra Nooyi addressed the measures in California and said she believed such "discriminatory taxes" are "wrong."
"We will make our case and hope the voters are sensible enough to look at the right answer," Nooyi said.
In the meantime, the beverage industry has touted its commitment to reducing the calories people consume from drinks by more aggressively marketing drinks with less sugar. The industry has also stressed the need to raise awareness about balancing the calories people consume with how much physical activity they get.
