As part of a general overhaul of UK taxes last year, the government sought to address taxing irregularities which meant some drinks were standard rated at 20% VAT and others like whey protein were not.
These changes meant all standard whey, creatine and amino acids were moved to a 20% tax bracket– up from the 0% this category previously faced.
The industry says that overall category growth has declined significantly, while an analyst said it is the consumer who has largely absorbed the costs.
A research analyst at Euromonitor International spoke to NutraIngredients about the differences to the UK sports nutrition industry before and after the higher tax was enforced.
“According to the trade contacts I interrogated during for the latest edition of the project, the industry was affected during the first three months (end of 2012 and January 2013) by the introduction of the 20% VAT rate as consumers started to stock up sports nutrition products to beat the increase, a factor that led to a decline in sales during the last two months of 2012,” he told NutraIngredients.
The analyst explained that sales bounced back after this initial period as the kind of consumers who stocked up before the increase tended to be “serious gym goers” who take these products on a daily basis.
After which the industry started to react in two key ways, he said. “[F]irst, by focussing on the launch of new single serve products including RTD (ready to drink) and bars which have lower unit prices compared to standard protein powder tubs and as such are perceived as less expensive by occasional consumers, and second by increasing the promotional activities, consisting in more multi-buying deals and discounts.”
“Therefore, the industry passed the VAT increase completely to the final consumers (for example, we verified in our store check process how leading protein powder Maximuscle Cyclone went from 41 £/Kg to 46 £/Kg from 2012 to 2013), but the focus on new single portion formats and the increased promotional activities helped to mitigate the impact of the price increase,” he told us.
Supplier Bulk Powders told NutraIngredients that it has chosen not to pass the entire price increase onto the consumer. "We felt it important to share the pain. As a direct only supplier our lower pricing was less impacted than the premium brands priced with additional channel costs. Other companies are pushing the higher value add convenience categories but we focus on the value of bulk buying," the company's marketing director Jos Williams explained.
Taxing good health?
Discussing the changes, a spokesperson for the British manufacturer GlaxoSmithKline told NutraIngredients: “We believe that taxing products intended to help people live more active, healthier lives sends the wrong message. As a result of the imposed VAT, overall category growth has declined significantly. Ultimately it is people who buy our products who are hardest hit by this tax.”
Bulk Powders has started a campaign to get the government to reconsider the move and what it says about the country’s attitude towards health.
The company wrote: “[Politicians] tax good health and leave pasties and cake at zero rate.” In the blog campaign there are various references to a similar tax proposal for pasties around the same time which led to the so called pasty tax U-turn whereby the government backtracked from the 20% tax increase it had also planned for the traditional baked pastry.
Jos Williams from Bulk Powders said that the issue was "fundamentally a generational thing" with a large proportion of the people buying these products being aged 18-30. "Which means it’s not understood by politicians or decision makers [and is] a source of huge resentment from the gym community," Williams explained.