Energy drinks war

01 July 2013

Bálint Halász, Bettina Kövecses

As a result of the so-called “chips tax”, a tax imposed on food and beverage products considered unhealthy, manufacturers and distributors of energy drinks encounter extreme competition on the Hungarian market. The “chips tax” introduced in 2011 made the market situation for the manufacturers of energy drinks harder and less profitable. Two players dominate the Hungarian market with approximately 45% of sales: Hell Energy (Hell), a Hungarian company, and Bomba Drink (Bomba, which means bomb in English) which has Austrian ties. Hell and Bomba have been aggressively fighting for customers. The introduction of chips tax opened a new front in this war: Bomba reduced the amount of caffeine in its drinks to 15 mg/100 ml to evade chips tax, as a result of this Hell launched series of comparative advertisements focusing on the amount of caffeine and emphasizing that while products of Hell is still to be considered as energy drinks other products containing less caffeine are rather soft drinks. 

The era of health

In 2011 the so called “chips tax” act was introduced by Act 103 of 2011 (Chips Tax Act) imposing taxes on certain salty and sugared goods, energy drinks and soft drinks. The theory behind this new tax was on the one hand to raise state revenues and on the other hand to force Hungarian consumers to follow a healthier eating habit. 

The tax affects the following consumer goods:
- soft drinks containing more than 8 g /100 ml of added sugar (customs tariff heading N°2009.2202);
- energy drinks containing methylxanthine (caffeine, theobromine or theophylline) in which the amount of taurine is more than 1 mg /100 ml, or the amount of caffeine is more than 15 mg/100 ml (customs tariff heading N°2009.2202);
- pre-packed sugared snacks, sweets, confectionary and ice cream containing more than 25 g of added sugar/100 g or chocolates containing more than 40 g of added sugar/100 g;
- ready to consume salted snacks containing more than 1 g/100g of salt;
- food seasonings containing more than 5 g /100 g of salt;
- flavored beer and/ or alcoholic beverages containing added sugar of more than 5 g /100 ml;
- jams containing added sugar with sugar content higher than 35 g/100g (there are some exceptions).

The imposed taxes are however quite high, in respect of beverages ranging from EUR 0,02/l to EUR 0,86/l, meanwhile regards other goods it is between EUR 0,34/kg to EUR 0,86/kg. Certain provisions of the Chips Tax Act had been already amended as manufacturers are in a constant try to find the loopholes in the system. Currently EUR 0,86/l tax must be paid for energy drinks containing 1 mg /100 ml taurine, which means that the tax is almost 20% of the average final price. (Note that the applicable rates are set in Hungarian forints therefore the above Euro rates are subject to change of the EUR-HUF exchange rate.)

In the name of consumer protection

One of the main purposes of the Chips Tax Act was to guide and educate consumers to choose healthier goods. The Hungarian Authority for Consumer Protection (NFH) however has received several anonymous complaints about certain products that do not live up to the expectation of an energy drink, namely they do not enhance concentration or fight fatigue. The authority has not published names of products concerned but it is likely that complaints addressed the product of Bomba (2.5 dl) which contains a reduced amount of caffeine (15 mg/100 ml). 

To avoid the possible confusion of consumers the NFH advised the shops and markets to accompany these drinks with a notice clearly stating that these are not energy drinks, and also to remove them from shelves for energy drinks. These measures are likely to result in a decline of less efficient drinks for example Bomba. 

Neither Hungarian statutory law, nor official food safety manuals contain a proper definition of “energy drinks”. The Chips Tax Act in fact contains the description of energy drinks from a taxation perspective when it states that chips tax must be paid after the sale of certain drinks that contain more than 1 mg /100 ml taurine or more than 15 mg/100 ml caffeine. The NFH’s interpretation suggests that if a product is not subject to chips tax then, according to the aforementioned limits, it cannot be considered an energy drink, and thus should not be labeled as such and shall be separated from other energy drinks in shops. Usually the NFH imposes such obligation if a product has or is likely to have dangerous effects, and not as a result that it is less unhealthy. The NFH explained that the interest of consumers shall also be protected against this type of confusion.

Even though the complaints filed with the NFH are anonymous, according to press coverage, it is likely that these can be associated with competitors of Bomba which are trying to ride the wave of possible confusion of consumers. Recent advertisements of Hell Energy have specifically drawn the attention of the public to the fact that an energy drink, such as Hell, shall contain at least 32 m/100 ml caffeine. The advertisement also compares Bomba to a regular bottle of Coke stressing that the level of caffeine in these products are almost on the same level. As far as confusion of consumers are concerned, it is worth mentioning that Bomba’s label contains that it is a “caffeinated beverage” so Bomba does not qualify itself as an energy drink.
It is likely that finally a judicial review will make it clear whether the approach of the consumer protection agency is justified, so soft drinks giving less “push”, such as a medium strength coffee, cannot be displayed among, and marketed as energy drinks.

Tough decisions ahead

As a result of the chips tax energy drink manufacturers and distributors are forced to decide whether or not to decrease the level of caffeine or other “unhealthy” ingredients in their products to evade the chips tax. However if they decide to do so then they may face that their products cannot be marketed as energy drinks. This may result in a decrease of sales and also trigger need for reevaluation of their brands.

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