Ministers are mulling over proposals to extend the sugar levy beyond soft drinks to include milkshakes and specialty coffee beverages. While these changes aim to combat rising obesity levels, they could have far-reaching implications for beverage companies and investors relying on the sector for growth-focused returns.

For UK investors, it’s crucial to dissect the potential impact on beverage and hospitality stocks and identify opportunities to rebalance your portfolio in light of these developments.

Policy Update

Proposed Levy Changes

The UK Sugar Levy, introduced in 2018, currently taxes sugary soft drinks at 18–24p per litre. Ministers now propose extending it to milkshakes and select coffee drinks above a sugar threshold, phased in over two years to allow reformulation.

Industry Lobbying

Beverage and hospitality trade groups warn the levy could burden small cafés and quick-service restaurants, while health advocates praise its potential to drive down sugar consumption. Exemptions and delays remain on the table.

Volume vs Price-Pass-Through Effects

High-end coffee chains may pass on costs without losing volume, but budget-focused operators could face margin squeezes unless they reformulate offerings.

Stock Implications

• Whitbread Plc (WTB): Costa Coffee’s parent can leverage scale and reformulation to mitigate volume losses from milkshake and specialty coffee levies.
• Greggs Plc (GRG): Value-driven bakery chain may see margin pressure; investors might trim exposure if reformulation costs rise.
• Diageo Plc (DGE): Spirits-focused leader with limited sugar-tax exposure and strong pricing power—an ideal defensive play.

Actionable Tips for Investors

• Overweight Low-Sugar Producers: Tilt towards companies innovating with healthier, low-sugar alternatives to pre-empt tax impacts.
• Focus on Premium Pricing Power: Back upscale brands with affluent customer bases that can absorb levy costs without losing loyalty.

Subscriber Insight

Advisor’s Gateway subscribers get early access to our sugar-tax policy-impact model, forecasting pricing strategies, reformulation costs, and consumer responses across beverage names.

Sweet or Sour Returns?

The sugar levy extension poses challenges but also creates winners among low-sugar innovators and premium brands. Subscribe Now for fortnightly insights on policy-driven market shifts and portfolio strategies.