Sustainability & its implications for the
Irish Food, Drink & Horticulture
Industry
November 2008
Padraig Brennan
Outline
• Background
• Emergence of Sustainability as an issue
• The Consumer view
• Retailer & Manufacturer strategies
• Implications for Irish Industry
Background
•
Work undertaken by Price Waterhouse Coopers
•
Mix of primary & secondary research
•
20 leading retailers and manufacturers examined
Marks & Spencer
Ahold
Musgrave
Tesco
ICA
ASDA
Co-op
Carrefour
Mercadona
Casino
•
Research undertaken: July to October 2008
Unilever
Danone
Danish Crown
Ben & Jerry
Glanbia
Diageo
Irish Distillers
Green Isle Foods
Nestle
Vion Group
Emergence of Sustainability as an issue
“By 2030, the planet will need to produce
50% more food, with less land, water and
energy while also reducing greenhouse
gas emissions”
United Nations, 2008
What does sustainability
mean?
Defined by the World Commission on Environment and Development as:
"forms of progress that meet the needs of the
present without compromising the ability of
future generations to meet their needs."
Evolution of sustainability
as a global issue
Evolution of Business/Consumer Agenda
1980s
1990s
2000
2005+
Smoking
Fast Food
GMO’s
Carbon
Alcohol use
Sweat Shops
Bottled Water
Water Scarcity
Baby food
Sustainability getting greater
coverage in Ireland
What is driving issue?
Climate
Change
Globalisation
Competitor
Issues
Supply
Issues
• Raw material
shortages
• Water scarcity
• Biodiversity loss
• Strategy
• Brand
• Product Range
• Health & wellness
Business • Sustainable / ethical
Performance consumerism
• Online connectivity /
transparency
• Carbon &
energy
regulation
Expanding
population
Demand
Issues
Regulatory
Trends
Increasing
consumption
Role of food sector in
terms of climate change
•
Food chain accounts for 18% of UK
GHG emissions
•
Agriculture stage, the most
significant contributor
•
However, other stages also
significant:
– Packaging
– Food processing
– Home storage
– Cooking
– Disposal
Sustainability embraces
full product life cycle
Cultivation/
Disposal &
Primary Production
Recycling
Packaging
Cooking
Complete Product
Production
Life Cycle
Refrigeration/Freezing
Manufacturing
Distribution
Sustainability continues
to evolve
Impacts today
Additional impacts in the future
Carbon & energy
regulation
Biodiversity loss
Raw material
shortages
Water scarcity
Becoming core element
of corporate strategy
“Sustainability is the single biggest
business opportunity of the 21st
century, and will be the next source
of competitive advantage.”
Lee Scott, CEO Walmart
“This agenda of sustainability and
corporate responsibility is not only
central to business strategy but will
increasingly become a critical driver
of business growth.”
Patrick Cescau, CEO Unilever
“When most of the raw materials are
natural, you cannot put nature at risk
without endangering your own
resources.”
Frank Ribound, CEO Danone
“New Zealand aims to be a credible
leader in responding to Climate
Change.”
Helen Clark, Prime Minister
Sustainability seen to
offer a “win win”
scenario
Financial benefits
Enhanced brand image
The Consumer View
Consumers receiving
lots of information!
Changes in behaviour
evident
• Survey of 4,000 UK consumers found that:
– > 60% concerned about sustainability
– 73% actively recycling
– 32% focused on electricity use
– 28% using energy efficient bulbs
• Purchase behaviour changing over last 3 years
– Fairtrade penetration up from 20% to 50%
– Organic from 22% to 43%
– Free range from 45% to 65%
However, barriers
remain……………
Three principal barriers, namely:
Price
– 48% unwilling or unable to pay current premium
– Average premium currently stands at 45%
Confusion & trust
– Contradictory information creates confusion
– Lots of different terms being used
– > 50% trust NGO’s on Sustainability, figure for retailers is less than 16%
Lack of alternatives
– Lack of availability cited by more than 20% of consumers
– Choice can be limited
Retailer Strategies
Retailers & Sustainability
Suppliers
Retailers
Consumers
Retailer provide link between consumers
and manufacturers
•
Well positioned to identify trends
•
Able to respond with initiatives & product offerings
•
However, retailers have limited direct impact on Climate Change
Why are retailers
embracing Sustainability?
• Three principal reasons:
•
Need to be seen to be acting responsibly
•
Increased scrutiny from NGO’s and consumers
•
Commercial benefit through cost savings
•
Rising energy, transport, waste & packaging costs
•
Consumers more conscious of environmental issues
•
Expect retailers to play their part
Risk
Commercial Logic
Consumer Awareness
Compliance &
Risk Management
Evolve over time
Operating Efficiencies &
Brand Enhancement
Common themes evident in
retailer strategies
Climate
Waste
Packaging
Health
Marks & Spencer
- Become carbon neutral
- Send no waste to landfill
- Extend sustainable sourcing
- Help improve the lives of people in our supply chain
- Help customers and employees live a healthier life-style
Ethical Trade
Common themes evident in
retailer strategies
Climate
Waste
Packaging
Ahold
Health
Ethical Trade
Common themes evident in
retailer strategies
Climate
Waste
Packaging
Health
Carrefour
Commitments to the
Environment:
§ Reduce impact on GHG
§ Protect natural resources
§ Waste reduction
§ Preservation of water
§ Preservation of biodiversity
Ethical Trade
Examples of Retailer
Initiatives
ICA
Tesco
Marks & Spencer
Reduce GHG emissions
by 30% by 2020
Reduce CO2 emissions
per case in transport by
50% by 2012
20% of the business
switched to renewable
energy in 2007.
In 2007 ICA conducted a
carbon footprint study on
100 of its private label
products
Reduce CO2 emissions
In stores and distribution
centres by 50% by 2020
3 “green” stores were
launched in 2007
Carbon labelling trial on
20 products in 2008
Website launched to
encourage consumers to
reduce food waste
Reduce packaging on
branded and own-label
products by 25% by 2010
M&S website tracks real
time the energy use in
stores
Overall target to be
carbon neutral by 2012
Reduce packaging
volumes by 25% by
2012.
Mainly Internal Initiatives to date
Starting to engage more
strongly with suppliers
•
Clear targets to work with suppliers
•
Using Life Cycle Analysis to identify “hotspots”
•
Varying views on the merits of carbon labelling
•
Most focus to date has been on private label ranges
•
To date approach has been collaborative and largely voluntary
– Expected over time that will become compulsory
Opportunity for suppliers to take proactive approach
Engaging with consumers
- Building Trust
•
Retailers actively addressing this by:
– Enter broad stakeholder consultation to identify priorities
– NGO’s increasingly used by some retailers to build credibility
•
Helps deliver clear messages that consumers can understand
•
Aim is to educate, raise awareness and inform positive behaviour
Selling products with
“Sustainability” credentials
•
Initial focus was organic, free range and fairtrade
•
Gradually expanding out to a wider range of products
•
Drive by some retailers to promote locally sourced food
•
Potential for low carbon ranges?
•
Focus is on making choices easier for consumers
Where to from here?
•
Retailers will continue to influence consumer behaviour
– Choice editing to drive ‘positive informed choices’
•
Sustainability to become increasing part of brand promise
– Enhance private label ranges through sustainability focus
•
Retailers will increasingly look to their suppliers
– Innovation in terms of functionality and how products are produced
•
Likely to be opportunities for proactive suppliers
•
Large retailers will have strong role in guiding standards
Manufacturer Perspectives
Raw material security is key
driver for manufacturers
•
Long term security of food supply is critical factor
– Water scarcity becoming a major issue
– Biodiversity growing in importance
•
Brand reputation
•
Commercial potential
•
Connecting with consumers
– Sustainability helping to build emotional values into brands
Manufacturers developing
programmes with suppliers
Up to 80% of environmental impacts are associated
with sourcing of raw materials*
Nestle
Strongly communicating activity
* PwC Life Cycle Analysis for consumer goods
Common strategic focus
among manufacturers
Water
Energy
Packaging
Sustainable
Agriculture
Diageo
Common strategic focus
among manufacturers
Water
Energy
Packaging
Sustainable
Agriculture
Nestle
Process of continuous
improvement
Nestlé's performance in managing the consumption of resources
Long term strategy that can deliver cost savings
Communicating improvements
to consumers
• Sustainability now recognised within the brand promise
• Emotional values increasingly used to differentiate
• Led by companies that have been ‘sustainable from birth’
……… Others now
following
Sustainability starting to become a product feature
However, claims need to
be credible
• Increased level of scrutiny likely
• While most manufacturers don’t favour carbon labelling……..
• ……They unanimously agree on benefits of Life Cycle Analysis
• Sustainability being incorporated into innovation programmes
Future Direction
• Sustainability issues gaining more traction with consumers
• Emotional values to become key point of differentiation
• Sustainability to become a product feature
East green beer from Adnams Brewery
First carbon neutral wine
Issue to impact on all
parts of the Supply Chain
Raw materials and
other supply chains
Manufacturing
Distribution
Consumption
End of life
Energy costs
Transport costs
Other materials costs
• Low carbon
suppliers favoured
• Cost and
availability
significantly
affected
• Demand for new
manufacturing
technologies and
processes
• Implementation of
renewable energy
Redesign of supply chain
• New modes of
transportation
• Local suppliers
favoured
• Local products
favoured
• Customer
information and
labelling
• Demand for low
carbon products
and new products
and services
• Ability to re-use or
recycle favoured
• Demand for less
packaging on
products
Redesign of customer delivery
Window of opportunity to embrace issue
Implications for Irish Industry
Take outs for Irish
manufacturers
• Sustainability will become a standard requirement
• Need to be aware of environmental hotspots in their supply chain
• Identify priority areas for action & develop sustainability strategy
• Prepare & communicate clear messages
– Identify & communicate positive attributes
– Understand and tackle negative issues
• Take proactive approach & engage with customers
Key steps towards developing
sustainable corporate strategy
2. Determine Strategy
• What is my overall ambition
and positioning on this issue?
• What are the priorities for us?
1. Input to Strategy Development
• What are the key sustainability
impacts related to my product?
• What should be our strategy
and targets related to each of
these issues and how does
this impact:
• Marketing and branding
• What do end consumers
expect?
• Range and pricing
• How are my competition
responding?
• Business Operations
• Sourcing and supply chain
• How do I engage our
– Key functions within my
business
– Employees
• What metrics, systems,
procedures and controls need
to be established ?
• How does sustainability fit with
overall corporate values, brand
and strategy?
• What are the possible long
term scenarios related to
sustainability?
3. Implement Strategy
4. Evaluate outcome
• What value is derived from the
efforts?
• How effectively is the
programme delivering on
objectives?
• What changes do I need to
make on my strategy?
• What external communications
strategy should I adopt to
demonstrate our Sustainability
credentials?
Sustainability will impact on
all aspects of the business
I
N
T
E
R
N
A
L
E
X
T
E
R
N
A
L
Sourcing &
Supply Chain
Business Operations
Need to understand the role they play in the broader value chain and how
they can work more closely with their suppliers and customers.
Need to examine their operations to understand their environmental impact,
reduce the hotspots, and look at ways to create competitive advantage.
Marketing &
Branding
Need to leverage their unique benefits and assets with appropriate
messages reflecting Sustainable values.
Ranging &
Pricing
Need to understand how they can differentiate themselves using
sustainability and decide on their optimal pricing strategy.
Lessons from other
initiatives
Programme Criteria
•
Soil fertility & nutrient use
•
Biodiversity
•
Farm economics
•
Water & energy Use
•
Animal welfare
•
Local economy
Aims
Happy Cows
Happy Farmers
Protected Environment
Potential for Ireland to
utilise REPS in this way?
Developments by other
countries
•
New Zealand industry has been proactively addressing issue
– 49% of emissions come from agriculture
•
Focusing on:
– Adapting farming systems
– Reducing GHG emissions & creating carbon sinks
– Positioning itself for longer term growth
•
Using positive messages about how it is responding to challenge
•
Seeking to enhance credibility in the marketplace
“I believe New Zealand can be at the forefront of Sustainability, Mike Barry, M&S”
Highlights potential for Ireland to adopt similar approach
Key actions
•
Raise awareness levels
•
Help build better industry understanding of sustainability
•
Develop industry response using a sectoral approach
•
Help identify tools, approaches & frameworks
Summary
•
Becoming a key issue for leading retailers & manufacturers
•
Embracing sustainability for a number of reasons
•
Initially, much of their focus in on internal operations
•
Sustainability now forming part of the brand promise
•
While Ireland has issues to address, being proactive can offer opportunities
Sustainability & its implications for the
Irish Food, Drink & Horticulture
Industry
November 2008
Padraig Brennan