January 2, 2019
A ShopRite store in West Philadelphia will close in March, its owner announced Wednesday, placing blame on Philadelphia’s tax on soda and other sweetened beverages for a 23 percent loss in sales that has made the store unprofitable.
“This store is closing because of Jim Kenney’s beverage tax,” Jeff Brown, president and CEO of Brown’s Superstores Inc., said in an interview Wednesday morning as workers hung banners announcing the store will close it doors.
Brown said the store, near the edge of the city at 67th Street and Haverford Avenue, has experienced a drop in overall sales since the beverage tax went into effect and has been running at a net annual loss of more than $1 million.
The announcement amounts to the latest attack on the city’s 1.5-cent-per-ounce beverage tax that went into effect two years ago. Brown is broadcasting his reasons for closing the store with a large banner declaring it “a result of the Philadelphia Beverage Tax."
The tax, Mayor Kenney’s signature legislation, funds pre-K; community schools; and improvements to parks, recreation centers, and libraries. It also comes at the start of an election year; Kenney will have to defend the levy as he seeks a second term, and super PACs on both sides of the issue could pour money into the mayoral and City Council races.
In 2016 Philadelphia became the first major U.S. city to enact a tax on soda, and two years after taking effect, the tax remains controversial — and closely watched by other cities. Several other cities have enacted similar taxes since Philadelphia passed its version. Kenney’s administration has defended the tax as a means of fighting poverty by investing in Philadelphia’s children and attacked the beverage industry for pouring millions of dollars into opposing it.
“It is no surprise that Mr. Brown has decided to scapegoat the Philadelphia Beverage Tax, but neither he nor the beverage industry have yet to present any evidence that the tax has had any impact on sales,” Mike Dunn, a spokesperson for Kenney, wrote in an emailed statement.
Dunn pointed to an ongoing study by researchers at Harvard University, the University of Pennsylvania, and Johns Hopkins University that released its first findings last year and found that while Philadelphia supermarket sales have been declining since 2014, the tax did not appear to intensify that trend.
Brown owns seven ShopRite and Fresh Grocer stores in Philadelphia, and five more in surrounding communities. He opened several of his stores in food deserts — or neighborhoods with inadequate access to affordable or healthy food — and earned the praise of former President Barack Obama for doing so. Brown has embraced progressive policies at his stores, such as hiring ex-offenders.
Supermarket Owner Blames the Soda Tax for Store's Closing
Jeff Brown, the owner of seven ShopRite and Fresh Grocer supermarkets in Philadelphia, is closing a store in West Philadelphia in March, saying it has become unprofitable because of the sweetened-beverage tax that went into effect in 2017. Brown said his company would offer free rides via Lyft to his ShopRite at N. 52nd Street to customers affected by the closing.
Brown said his other stores have also experienced drops in sales since the tax went into effect, but the losses have been greatest at the Haverford Avenue store because it is blocks away from the city border, where customers can choose to shop to avoid the tax. The store had $30.5 million in annual sales in 2016, the year before the tax went into effect, Brown said. In 2018, total sales were $23.4 million.
Declines in sales of taxed beverages account for 3 to 4 percent of the sales loss, Brown said, suggesting that the rest comes from customers' decisions to purchase all of their groceries outside of the city due to the tax.
While a Fresh Grocer, owned by Brown, and an Aldi supermarket have opened near the Haverford Avenue Shoprite in the last few years, Brown said those stores did not cut into business.
Brown said he told the store’s 111 employees about the closing in a meeting Wednesday morning, and informed them that they can remain employed with his company and will be transferred to one of his other stores in the region. While Brown has not laid off employees since the tax took effect, he says that he has lost about 200 to turnover that he has chosen not to refill. Even though employees at the closing ShopRite can keep their jobs, he said the positions will eventually be eliminated as other employees leave.
Brown said his company will also offer free rides via the ride-sharing app Lyft to the next closest store, two miles away at 52nd and Parkside, for customers affected by the store’s closing. The Haverford Avenue ShopRite has been open for nearly 30 years; Brown bought it in 2005 from a different owner who was going out of business. Without the store, Brown said the surrounding area will become a food desert.
“I built these stores to help people live healthier, longer lives,” Brown said. “This is taking a success and destroying it.”
Kenney’s office noted that several grocery stores and markets have opened in the city since the tax went into effect and that wage tax revenues in sectors most affected by the tax remain strong. ShopRite’s website also advertises hundreds of open jobs at stores in Philadelphia, Dunn noted. (Brown said that the openings are due to employee turnover.)
Because the tax is levied on beverage distributors rather than retailers or customers, Kenney’s administration has also insisted that passing it down to customers is optional.
“The soda companies, the bottlers, and the beverage industry at-large are multibillion-dollar companies," Dunn said. "They don’t have a need to pass this tax on. They can pass on a portion of it, or they can cover the cost themselves.”
Brown said his decision to close the store was not political, calling it coincidental that he made the announcement at the start of an election year for the mayor and City Council.
“But I’m not shy about the fact that I think we need a different mayor," he said, calling Kenney stubborn for sticking by the tax.
The mayor’s office shot back at Brown: "We are always concerned when a retailer is ‘struggling,’” said Dunn’s statement, with a link to an article about Brown’s purchase of a pricey home near Rittenhouse Square.
Kenney’s office also criticized the beverage industry’s rhetoric against the tax and highlighted the progress of the programs funded by the levy and noted that the pre-K expansion has created 278 jobs.
The Pennsylvania Supreme Court upheld the beverage tax in July, ending a long legal battle over its future. City officials say they will begin spending revenue from the tax that had been reserved during the legal fight.
The city issued its first bond in November for Rebuild, Kenney’s program to renovate parks, libraries, and recreation centers. Previously touted as a $500 million program, Budget Director Anna Adams said in December that the total spending is uncertain, as revenue from the beverage tax and market conditions will determine how much money the city can borrow.
The tax has also raised less revenue than initially expected. The city decreased its projections by about 15 percent last year in response, and scaled back the number of community schools and pre-K seats it will fund. The tax is expected to raise $78 million in the current fiscal year.
To date, the city has opened 11 community schools and 2,250 city-funded pre-K seats. Plans call for 5,500 pre-K seats and 20 community schools by fiscal year 2023.
Yet the tax remains under attack from opponents like Brown, who claim that it hurts businesses and has led to loss of jobs. In a November op-ed in the Inquirer, a group of black clergy called on City Council to end the tax. Council passed a resolution in December sponsored by Councilman Allan Domb that calls for a hearing “to review whether the tax is achieving its goals and to analyze potential solutions to stabilize beverage tax funding for critical investments.”