Sustainability in FMCG

In 2019, definitions of sustainability have expanded beyond the three pillars of economic, environment and social wellbeing, writes IRI Senior Associate Consultant Lucas An and Associate Consultant Sheena Rochiramani. Its true meaning now lies in the combination of environmental protection and economic growth.

Consumers from around the world follow a common theme of sustainability, especially with Millennials and Gen Z citing environment/climate as their top concern (Deloitte 2019 Millennial Survey). Consumers have demonstrated a shift towards purchasing sustainable products, in terms of packaging and ingredients used. Manufacturers are also evolving to ensure consumer needs are satisfied.

Are retailers catching up with the sustainability trend?

Retailers such as Aldi, Target, Coles and Woolworths have made headway in reducing plastic pollution by following the ACT Legislative Assembly’s countrywide bill passed in 2017 to ban lightweight plastic bags (except in NSW and VIC). This effort was positively received by consumers who embraced the change, with an IRI Shopper Panel poll finding that 36 per cent of respondents agree that the plastic bag ban is a ‘great initiative’, compared to 15 per cent who found it ‘inconvenient and will not make a difference’.

Along with the removal of single-use plastic, supermarkets around the world are consciously working on a scheme to remove plastic used in fresh produce. This has enabled retailers to save over 40,000 tonnes of plastic from entering the environment and divert over 1.7 billion single-use plastics from landfill.

What are manufacturers doing differently?

Packaging

In recent years, many brands in the FMCG industry have converted to more eco-friendly packaging. Champagne Veuve Clicquot revolutionised the meaning of sustainable winemaking back in 1990 and has continually reduced carbon emissions and packaging waste since. The company created the first 100% biodegradable champagne packaging made from potato starch in 2013 and in 2015, introduced packaging made from grape skin and recycled paper.

A2 Milk is also pioneering the shift towards eco-friendly packaging in the Dairy industry, as it switched to 100 per cent recyclable paper-based cartons in the UK and US. However, it’s yet to be introduced in Australia.

Ingredients

Plant-based products are rising in popularity as more dairy and meat-alternative products take over shelves in-store. According to the IRI Shopper Panel Survey 2019, 31 per cent of Australian households intend to cut red meat intake while more than half (55%) also say they try to buy environmentally friendly products.

Plant-based yoghurt saw 28 per cent dollar growth in FY19 and household penetration increased by 3.2pts to 11 per cent, primarily driven by Cocobella (IRI Shopper Panel, MAT To 23/06/19). The growth in plant-based yoghurt was driven by new shoppers, accounting for a 50 per cent increase in dollar sales, and two-thirds of plant-based yoghurt shoppers claimed to also purchase environmentally friendly products (IRI Shopper Panel, MAT to 26/05/19).

Limitations and opportunities

The rise in popularity of eco-friendly products poses risks to manufacturers, including the potential for supply chain disruption and the added cost of resources to justify return on investment. There is also a potential disconnect between shoppers’ claimed and actual behaviour when they face purchasing decisions.

However, an eco-responsible approach can help improve brand equity and the authenticity of the brand, thereby enabling longer-term growth.

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