How the sugar tax has left Britain's drinks industry tasting a little sour

If you're tucking in to a few Easter eggs this weekend then you might not be grateful for a reminder that each of them likely contains anywhere between 10 and 30 teaspoonfuls of sugar – more than a can of Coca-Cola.

But it's the soft drinks industry that has borne the brunt of a crackdown on the maligned white stuff that is now seen as public enemy number one in the battle against Britain's expanding waistbands.

Two years after it was first mooted, the Government's sugar tax will finally come into effect this week, forcing drinks companies to pay between 18p (34 cents) and 24p for every litre of sugary drink they produce or import, according to the Daily Telegraph.

Fruit juices, milk-based drinks and most alcoholic beverages are exempt, as are small companies manufacturing fewer than 1 million litres per year.

While the levy is small change compared to the sin taxes charged on alcohol and tobacco, it has the potential to significantly bump up the cost of some drinks, adding around 50p to the ticket price of a large bottle of Coke, or 8p to that of a can.

Unwilling to shoulder the cost in their profit margins, drinks companies have essentially been left with two choices: change their recipes to include less sugar; or put prices up and risk putting off consumers.

The makers of Britain's biggest selling fizzy drink, Coca-Cola, haven't tinkered with their secret formula, which won't come as a surprise to anybody who remembers the disastrous launch of "New Coke" in 1985.

The US giant's creation of a new, sweeter recipe lost it ground to its big rival Pepsi. While its customer research had suggested people preferred the revamped flavour, it soon faced a huge backlash, with thousands demanding a return to the original taste. It relented just three months later, and the episode remains a popular cautionary tale of how dangerously fickle consumers can be.

So, instead of cutting out sugar, Coca-Cola is mitigating the cost of the tax by reducing the size of its bottles – as well as putting prices up.

"It's actually a revenue-enhancing move for them," says industry analyst Shiraaz Abdullah, of Sanlam. Pepsi's UK bottler Britvic won't be changing its recipe either.

But both firms have been cutting sugar from their other brands for years, using sweeteners such as aspartame and acesulfame k to keep the taste broadly the same.

Coca-Cola's Fanta, Sprite and Doctor Pepper will not be hit by the levy, while Pepsico's 7up will fall into the lower band after a 30 per cent sugar cut, and Britvic's Robinson's squash is now only available with no added sugar. Britvic has focused on pushing Pepsi's sugar-free alternative Pepsi Max rather than the main brand since 2005.

Not everyone sees sweeteners as the answer. While they have been approved for use in foods by all the major health bodies and there is little medical evidence to suggest they are dangerous, some would rather stick to "natural" sugar grown in the fields than consume artificial ingredients synthesised in a lab.

Many simply prefer the taste. That explains why premium brands whose customers don't mind paying a few extra pennies, such as tonic water maker Fever-Tree, are refusing to make the switch.

Global Brands, which is best known for making its VK alcopops but also makes Franklin & Sons upmarket cola, lemonade and mixers, has reduced the sugar in some of its drinks without adding sweeteners, but left five of its 15 flavours unchanged. Its chairman, Steve Perez, excoriates the sugar levy as a "tax on taste". "The range is made using 100 per cent natural ingredients. Why would we change that?".

But other companies, including Irn-Bru maker AG Barr and Suntory, the Japanese owner of Lucozade and Ribena, have used sweeteners to cut sugar levels and ensure virtually all of their drinks escape the levy. Peter Harding, of Suntory's UK business, says the tax was a "helpful nudge" that encouraged the company to "do the right thing".

"We talked to the relatives of the founders [of Ribena and Lucozade] and they said the founders would have wanted us to reformulate," he adds.

Some consumers aren't pleased. Both companies have faced a backlash on social media, with some even calling for boycotts that echo New Coke's woes.

In Scotland, where Irn-Bru outsells Coke, fans have been stockpiling supplies of the fluorescent orange drink's full-sugar version and 2-litre bottles are currently changing hands on eBay for £10.

"We knew some people would find the change a bit difficult but the vast majority of our consumers got what we were trying to do and continue to be supportive," says AG Barr chief executive Roger White. Sales of the drink have held up so far, but he admits it's "early days".

"We're not going to keep all of our customers happy," adds Harding. "[But] it's a fact of life that if we are going to take sugar and calories out of our diets, which is so essential for the world going forward, then we need to use alternatives in order to maintain the great taste of our products."

Reformulation isn't just a question of coming up with a new recipe. AG Barr and Suntory have both spent millions on market research, changes to their supply chain, production lines and warehousing, product testing and new packaging.

But while there's a big upfront cost, Duncan Brewer, of management consultants Oliver Whyman, says the shift can boost profits in the long-run because sugar is expensive to produce, and you need a lot more of it than you need of sweeteners to create the same taste.

There is still a debate to be had about whether taxing drinks in this manner was the best way to improve the nation's health.

White says the industry has been unfairly singled out, while Coca-Cola points out the amounts of sugar people are consuming from soft drinks is already falling, even as obesity continues to rise.

The tax was originally slated to raise more than £520m in its first year, but the forecast has since been slashed to just £240m – bad news for the Department of Education, which is to receive the cash raised, but a sign of how drastically the industry has responded.

After enjoying such success, don't be surprised if the taxman comes for your Easter egg next.