21ST JANUARY, 2020

Soft Drinks Sector - What Are The R&D Challenges?

The global demand for both soft and alcoholic drinks is rising. Revenue in the non-alcoholic drinks sector alone is worth around 400 billion US dollars with around 16 billion of that being just in the UK.

Innovation and R&D (research and development) is an essential part of any successful industry, but for the soft drinks sector in particular it’s a key ingredient. The market is fierce, and drinks manufacturers must be constantly one step ahead of the game. Here we look at some of the top challenges the soft drinks sector faces and how R&D can help to meet them.

The Sugar Tax

The ‘Sugar Tax’, officially known as the Soft Drinks Industry Levy, was launched in the UK in April 2018. Making up part of the government’s drive to eradicate childhood obesity, it’s designed to put pressure on drinks companies to recreate their products so they contain less sugar. It works by taxing companies more if their drinks contain over the prescribed amounts, with current rates being 24p per litre of drink containing 8 grams of sugar per 100ml, and 18p per litre of drink for 5 to 8 grams of sugar per 100ml. The money raised is put towards funding new sports facilities, healthy eating initiatives and breakfast clubs. All very welcomed, but the R&D costs involved in developing and marketing these new lower-sugar options could well be expensive, with costs having to be absorbed by drinks manufacturers themselves. The challenge is in using R&D to develop products that have the same high quality and taste as they always have done (this is absolutely vital), whilst reducing sugar to avoid paying too much tax.

Clean living

Some people think of clean living as a diet, others consider it a lifestyle. Essentially it’s a modern movement where those participating think very closely about the food and drink they consume in order to stay in optimum health. Rather than just eating because they’re hungry, or drinking because they’re thirsty, it’s about only selecting wholesome, unprocessed options with entirely natural ingredients. However, this can be challenging for soft drinks manufacturers, especially for those whose products contain a lot of additives. R&D is required here in order to create beverages which have a high concentration of fruit and less chemicals for example, which for many products could be incredibly difficult.

Developing new drinks

As part of growing and thriving, soft drinks companies often need to develop whole new products altogether. R&D can take many forms here, from getting the right taste and flavour to designing packaging and building an effective marketing strategy. Prototypes and testing all have to be considered and even once it’s commercially available there will likely still be tweaks to make. Plenty of scope for innovation!

Expanding product lines

For many years now we’ve been no stranger to the diversification of products courtesy of larger drinks brands like Coco-Cola and Pepsi. Low sugar, sugar-free and caffeine-free soft drinks have all become well established in the market, but for smaller, artisan organisations production line expansion can prove incredibly tricky. Not only can R&D costs in this area be high, procuring the software and human resources required for success, whilst maintaining efficiency, can also be a huge challenge.

Reducing waste

With competition in the soft drinks market so fierce, manufacturers are always needing to cut waste in order to hold on to increasingly slim margins. Although cutting such costs is important to any business, it’s especially important for drinks manufacturers who often require massive warehouse spaces in which to store such bottles, other packaging and ingredients. A just-in-time way of working is important here, and R&D can not only be found in the packaging designing itself but in the way inventory management takes place. Inventory software is essential, as well as the ability to gear up - or down - the production line to allow for maximum flexibility.

Recycling, sustainability - and the dreaded plastic

Consumers are becoming more and more aware of plastic pollution, as well as how the product packaging they buy can be sustainably sourced and recycled. Many soft drinks have always been - and continue to be - sold in plastic bottles, and with up to 13 million tonnes of plastic entering our oceans each year this is a real concern. R&D is underway in the packaging industry to develop alternatives to non-biodegradable, wildlife-threatening plastic. Cardboard and compostable alternatives are becoming more popular, as well as refillable options and pouches.

Could your soft drinks company benefit from R&D Tax Credits?

As we’ve discussed, R&D can be expensive - sometimes prohibitively so for smaller companies and start-ups. The good news is that since the year 2000, the UK government has recognised the wider economic benefits innovation brings, and introduced R&D Tax Credits to help.

The scheme works by offering a reduction in a company’s Corporation Tax to reflect the amount spent on R&D work, or paying a cash lump sum. It’s open to all UK industries - not just beverages - and the scope for claiming is purposefully broad. It’s even available to loss-making companies.

All sorts of expenses are covered, from staff salaries to lighting and material costs, and no claim is too big or too small.

Interested?

Our R&D calculator was specifically designed for businesses to work out what they could claim for and how much. Simply put in your own figures and you may well be surprised at what you’re owed.

You can also find out more about the scheme on our R&D Tax Credits page. The application procedure is notoriously difficult however and there are many pitfalls. At best you could miss out on your full entitlement, but at worst you could end up being investigated by HMRC. This is where we come in.

Myriad Associates - developers of Tax Cloud UK - can help you put together a fully optimised R&D tax relief claim. We’ll help you put together your narrative, collaborate documents and much more. R&D tax relief is all we do, and we’re experts in our field.

Call us today on 0207 118 6045 or use our contact form and one of the team will get back to you.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant