Beyond recycling

Since the early 1970s, environmental advocates and anti-litter activists have managed to get bottle deposit laws — known as bottle bills ­— enacted in at least 10 states, across Canada, in more than a dozen European countries, Australia and other nations.

Research shows the laws do what they’re intended to: dramatically increasing the number of beverage containers that are recycled and reducing the number that end up in landfills or as litter.

But Kristopher Keller, a marketing professor at UNC Kenan-Flagler, wondered what other effects bottle bills might have. Beyond recycling, did they change consumer buying habits, affect prices or alter retail operations?

Keller and Jonne Y. Guyt of the University of Amsterdam reviewed the academic literature and found little research on the subject, so they decided to examine the impact of a 2009 New York law that imposed a 5-cent bottle deposit on all plastic water bottles under 128 ounces. They also examined the impact of a nearly identical law enacted around the same time in Connecticut, and found it had similar effects.

They used a robust database of product prices — broken down on a weekly basis, by individual product SKUs and by retailer — to examine the 52-week periods before and after bottle deposits went into effect.

Their findings, “Consequences of Bottle Bills: How Bottle Deposit Return Schemes Affect Retail Prices and Lead Consumers to Larger Package Sizes,” will be published in the Journal of Marketing.

Their research has generated insights for businesses and policymakers on how bottle bills change consumer behavior and what impact these policies have on retail operations.

Consumers go big

One of the distinct patterns that emerged from their research was that as the prices consumers paid for bottled water increased, they were more likely to buy larger containers to avoid the deposits or at least get more water per container.

Standard bottled water sizes range from 8-ounce to gallon-sized containers (128 ounces) and even larger 320-ounce containers. The New York deposit law applied to all bottled water that came in containers smaller than a gallon.

With the smaller sizes costing more upfront, many consumers chose to buy larger containers. Overall, however, the volume of water sold declined by 6%.

Sales of the most-commonly sold size — 16.9 ounces — declined by 14.88%. While sales of the three largest sizes — 101.4 ounces, 1 gallon and 320 ounces (of which only the 101.4-ounce size incurred a deposit) — rose by 17%, 5.6% and 11.1% respectively.

Retailers raise prices

Consumers do face higher charges on the shelves. On top of that, they’ll face an additional (refundable) deposit, which they only see at the checkout/on the retail receipts.

But the deposit wasn’t the only factor pushing up prices.

Retailers increased prices on the smaller packages by 4% on average and up to 13% in some sizes. These increases — in addition to the deposit itself — might reflect the increased costs that retailers face when bottle bills are enacted.

In the case of the New York law, retailers pay beverage distributors the 5-cent bottle deposit when they receive bottled water. They get that money back when consumers return bottles and earn a 3.5-cent per bottle fee for handling the returns.

Nonetheless, the price increases suggest that costs for collecting and storing returns — which can involve machines, cleaning up spills and storing returns — are higher than the deposit compensates them for. Stores that faced higher return-related costs increased their prices more than those with lower costs.

Politics drive bottle behavior

While higher prices explain some of the differences in purchasing when it comes to deposits, cost isn’t the only factor. Consumers’ ideology also seems to shape behavior.

Keller and Guyt hypothesized that more conservative consumers, who would tend to oppose government interventions in markets, might make a greater effort to avoid the new bottle deposits.

To test this idea, they looked at voting patterns in the 2008 presidential election to determine what proportion of residents in different areas voted for the Democrat candidate versus the Republican candidate. This allowed them to classify areas by the degree of conservatism and then see how that correlated to buyer behavior.

Sure enough, they found that in more conservative areas, there was a greater shift to larger package sizes not subject to the deposit.

Business and policy implications

For businesses facing new container deposit requirements, Keller and Guyt’s research suggests that increasing the price on some package sizes might push consumers to purchase larger sizes. This effect could be more pronounced in areas where more people are opposed to government interventions due to political beliefs.

For policymakers, this ideological factor also suggests that bottle deposits could have unexpected effects in some communities.

For retailers, the research shows that proceeds from the deposit alone might not be sufficient to cover the increased costs of collecting bottle returns.

This means that businesses might need to rethink pricing — and perhaps other aspects of their operations — to comply with bottle bills.