CHICAGO — Why did the consumers cross the road?
If they happen to live close to Chicago's city limits, it may have been to save more than $2 on a case of bottled water.
A new 5-cent surcharge is being applied to individual bottles of water sold in Chicago and is inflating the cost of a typical case by about 30%.
The tax, which went into effect Jan. 1, was designed by Chicago's Mayor Richard Daley to help close part of a $196 million budget deficit. In addition to creating a projected $10.5 million in annual revenue, the surcharge is expected to encourage tap water consumption and to reduce plastic water bottle waste.
Earlier this month, a lawsuit seeking to have the tax invalidated was filed by the Illinois Retail Merchants Association, the Illinois Food Retailers Association, the International Bottled Water Association and the American Beverage Association.
They contend that the tax is illegal and will encourage Chicago residents to alienate local retailers and spend all of their grocery dollars outside of the city.
“Retailers located outside the [Chicago] border were gearing up for increased water sales” prior to the tax's implementation, noted Brian Jordan, president of the IFRA.
Among them were Sam's Club locations in Evanston, Cicero and Evergreen Park, Ill., spokeswoman Kristy Reed told SN.
“It only makes sense when you think about the price of a case of water, which is the most popular [package size] purchased, increasing $1.20,” said Jordan.
He noted that with the surcharge, cases of water now typically sell for $5.19 in Chicago.
Still, the effect of the tax on consumers' shopping habits remains to be seen.
The consensus among IFRA's members who operate stores in Chicago is that it's too soon to gauge the impact on grocery sales there, according to Jordan.
So far, an Angelo Caputo's Fresh Markets store located directly across the street from Chicago's city limits in Elmwood Park hasn't noticed a dramatic change in water sales, noted its marketing director, Dale Ohman. The retailer, which doesn't plan to “exploit” the surcharge-free status of its location, marked cases of water down to $2.99.
“We always have water on sale, so that's a draw, but will we be seeing a spike in sales? I don't know,” he said.
A Frank's Super Low Food Center, located just a block away from Caputo's and also outside the city limits, sold out of the bottled water cases that it featured for $2.99.
Although Sam's Club's water sales haven't been noticeably affected, Reed noted its Evanston, Cicero and Evergreen Park stores' managers are still hopeful that the tax will incite greater sales and membership in the future.
It's still unclear whether the surcharge will be short-lived.
“The city doesn't have any authority to tax food that is consumed off-premise,” said IRMA spokesman Peter Gill. “The tax is also in violation of the state's uniformity clause that says that all like products must be taxed in a similar manner. Taxing one food product and not another is not fair or legal, and it imposes a burden on retailers, consumers and employees.”
The city of Chicago is expected to file an answer to the complaint within a month or so, according to Jennifer Hoyle, director of public affairs for the city of Chicago's law department.
“We've not yet reviewed the complaint, but we believe that [the tax] is constitutional and legal, and we're prepared to defend it in court,” she said.
Regardless of the outcome, Chicago retailers have already had to invest in programming changes to their point-of-sale systems.
“Weeks before this went into effect, our members were very busy making adjustments to their POS systems so the tax could be applied automatically,” said Jordan. “Most taxes are based on a percentage, and this is not a percentage tax, it's a 5-cents-per-bottle tax. Further complicating tax collection is the fact that consumers who pay with food stamps are exempt.”
Daley is not the first U.S. mayor to promote tap water consumption.
Last year, San Francisco Mayor Gavin Newsom handed down an executive directive barring any city department or agency from purchasing bottled water using city funds.
Last month, Newsom announced that he would investigate the possible collection of a fee from big-box retailers that sell beverages sweetened with high-fructose corn syrup. The fee would be used to generate revenue to expand the city's anti-obesity initiative, Shape Up San Francisco.
“A small fee on sweetened beverages is an interesting concept which my administration will be exploring,” said Newsom in a statement. “Beverages sweetened by high-fructose corn syrup are standing in the way of our efforts to combat obesity.”