The last few years have seen massive complications in the beverage industry. Growing concern about public health, environmental sustainability, and rising fiscal deficit are encouraging governments to examine their approach to regulations. For instance, regulations around the taxation, advertising, and age limits of certain beverages are being actively discussed in many developed and developing countries, including the US.
Therefore, being a consumer-driven industry, beverage companies need to bring significant changes in their existing processes to drive revenues in spite of rising costs. They need to make well-informed decisions to reposition themselves to continuously provide win-win scenarios for their customers and their stakeholders. But before we get into how beverage companies can combat this new regulatory tide, let’s understand what is driving these complexities.
Key Drivers of Increasing Regulations
Many major economies are facing a surge in their public debts, which is driving product taxation at an unprecedented scale. The beverage industry is not immune to this. Governments are increasingly seeking to balance their budgets by increasing their revenues and decreasing their spending, and increased taxation on less healthy beverages, such as soft drinks and syrups, is being seen as an effective method to increase tax revenues and decrease healthcare spending.
Public health treatments have increased the cost of healthcare all around the world. In the US, it is estimated that obesity itself is costing $190bn annually to society. Moreover, the impact of the obesity crisis is not only limited to being a health issue anymore, but it is also a critical economic issue. In addition to direct costs reflected in healthcare, indirect costs associated with obesity include decreased work productivity, high compensation claims, and lower earnings.
According to Investopedia, the economic cost of obesity amounts to $2tn annually, almost 2.8% of the global GDP, which is as much as global armed conflicts. To limit this, governments have been actively curbing the consumption of less healthy beverages through targeted campaigns and increased taxation. For instance, in early 2010s the Danish and the Hungarian governments raised taxes by as much as 25% on “unhealthy” food and drinks, i.e. foods with high in fat, salt, and sugar. The US lawmakers are currently considering a proposal that could add 30% to the cost of manufacturing soft drinks.
The production, distribution, consumption, and disposal of beverages, especially the less healthy ones, is considered as a major contributor to climate change that costs 5-6% of the global GDP given the increase in the annual global temperature. In contrast, the contribution of the beverage companies, in the form of annual taxation and employment, is the meager percentage of the global GDP. Therefore, governments are likely to enhance regulations and taxation to make up for this discrepancy.
Pitfalls of Non-Compliance
1)Health and Safety
There have been many stories in recent years in which beverages were labeled incorrectly – allergen omission, use of counterfeits, etc. that have resulted in sickness, and even death. These usually lead to lengthy and expensive lawsuits.
2)Fines and Penalties
Regulatory agencies like the FDA have been increasingly cracking down on violations in the past few years. While there’s been a bit of a grace period allowing companies to get their processes in place for some regulations, businesses that don’t adhere to regulatory measures face millions of dollars in fines, suspensions, revocation of licenses, seizures, and criminal charges.
When beverages are mislabeled, businesses typically have to recall them, which takes up valuable resources, disrupts production schedules, and greatly reduces profitability.
The pitfalls mentioned above generate a lot of negative publicity, which can have a lasting effect on a company’s brand, which is sometimes irreversible. It creates an opportunity for competitors and can jeopardize a company’s financial health and future capabilities.
Sustaining Compliance with eCommerce
Would you buy something without being entirely secure about your purchase? eCommerce enables businesses to display real-time data regarding their product, pricing, availability, shipping, and refund policy without any error.
With the rising concerns of the impact of inaccurate labeling and counterfeits, governments have been propagating an increase in transparency through various regulations. eCommerce enables more trust and understanding between the business, the regulators, and the customers through the real-time transfer of information whilst providing an additional channel for engagement and transactions.
2)Increased Visibility across all systems
eCommerce enables greater integration and coordination across various teams and departments within the company. This helps companies enhance the accuracy of their tax liabilities and tax returns, which is a huge boost in the current scenario with government policies in a state of flux.
For instance, the sales team can update the eCommerce platform automatically that can enable the finance and accounting team to obtain real-time information of multiple transactions to better understand their financial position, specifically with respect to credit sales, tax liability, COGS, and cash flow.
While the beverage industry isn’t as regulated as the healthcare or the financial services industry, considering its impact on the society, it is witnessing a cascade of regulatory requirements that are putting a huge burden on it. Since, there is certainly no “one-size-fits-all” tool for managing these changing requirements, businesses that can effectively deploy their time and resources to engage with key regulatory issues and meet the customer requirement towards better lifestyle and health will succeed. Fortunately, technological innovations in the form of digital commerce are one option that is making it faster and easier to sustain compliance whilst driving significant monetary gains.
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