With more than 70% of consumers worldwide indicating that environmental impact is currently a factor in their buying behavior, can a CPG brand afford to overlook sustainability?
Within the last year, sustainability has moved beyond being a brand differentiator to a quantifiable driver of sales, loyalty, and long-term profitability in the consumer packaged goods (CPG) sector.
Nowadays, sustainability is ranked with AI and automation as one of the most disruptive forces transforming business strategy. Governments are imposing stricter environmental rules, investors are evaluating ESG performance more than ever before, and consumers are actively rewarding brands that prove to be responsible in their sourcing procedures, manufacture ethically, and have a smaller environmental footprint.
As the latest industry figures indicate, CPG brands that communicate their sustainability programs well were reported to increase their revenue twice as much as their less sustainable counterparts last year, showing that being environmentally responsible is no longer a moral stance but rather a commercial one.
The pressure within the CPG industry is especially high due to its size. CPG supply chains are the biggest contributors to global emissions through energy-intensive production and plastic-intensive packaging, as well as through global logistics networks, which depend on fossil fuels.
The shipping process is the only area questioned, as the transport of goods by sea accounts for approximately 3% of total global greenhouse gas emissions, and fuel consumption, packaging waste, and food spoilage have been sources of criticism among regulators and environmentalists.
Such impediments already affect market behavior. Research indicates that over 50% of consumers would be willing to switch or pay more to purchase products with sustainable packaging or a reduced carbon footprint, according to last year’s research.
Simultaneously, brands’ failure to change will cause reputational harm, weaken shelf acceptance, and provide less support to retailers, as large distributors are increasingly focused on sustainability obligations throughout their supply chains.
However, sustainability is not a smooth sailing process for CPG companies, despite the increased demand. A significant part of existing infrastructure was built with speed, scale, and affordability in mind, not with environmental optimization in mind. Supply chain retrofit, new packaging materials, and decarbonizing logistics entail investment, latest technology, and fundamental-level changes in operations.
This forms a tense criticality not in that sustainability is becoming a critical need for growth, but rather in the difficulty of bringing it into effect in the absence of reforming the nature of CPG business operations. Whether sustainability is important is no longer the question; the more pressing issue is how far it influences sales, consumer trust, and competitive positioning in the current CPG market.
Our blog discusses how sustainability is transforming the CPG industry, its direct effects on consumer behavior and sales performance, and what it actually takes to make brands make environmental responsibility a strategic benefit, rather than a cost burden.
Why Sustainability in the CPG Industry Matters
Sustainability in the CPG industry has evolved over the years. It is becoming more of a normal habit, not just in the eyes of the consumers but also in the financial markets.
It goes without saying that most people agree with the goals of sustainability and environmental friendliness. The rub is that these lofty goals are not as easy to achieve as they are made out to be.
This being the case, the next logical question would be: Why bother with sustainability?
This question is fair because businesses run on pragmatism and not idealism. If these goals are so demanding, why should the CPG industry forsake everything it has built for them?
The answer is quite simple: CPG sales are on the line. Even if the goals are unrealistic, they still resonate with everyone. People want to work towards this goal. If not for themselves, they want a greener world for their children. Given this hope, why on earth would these consumers then monetarily support CPG companies that reject sustainability?
Even if you, as a business owner, find it logically a bad decision to pivot to sustainability, the data is undeniable. McKinsey reports that 60% of consumers would pay a premium for sustainable packaging.
They also cite a NielsenIQ report that found 78% of US consumers prefer a sustainable lifestyle.
The data prove that consumer spending habits are influenced by their feelings about sustainability. As marketing experts have often said, consumers are much more likely to support a business fighting for a cause. And in the case of sustainability, they are also just as inclined to stop supporting companies that reject the cause.
This state of events leaves CPG industry professionals in a tough position. They must find ways to promote sustainability and shoulder the costs of such a shift in infrastructure and procedure.
The Impact of Sustainability on Sales in the CPG Industry
Consumer Expectations and Demands
As we have demonstrated, consumers care about sustainability in the CPG industry. It doesn’t matter that your business isn’t completely green overnight. The point is that they want to see you making an effort. That’s enough for consumers to think, “At least this business is trying, and they need my monetary support to continue trying.”
That’s how the thought process usually goes. Nobody is expecting you to completely flip your business infrastructure in one day. It is a slow process and will likely take more than our lifetimes to achieve fully. With that said, let’s look at the areas where consumers expect you to implement sustainability in the CPG industry:
Environment-Friendly Packaging:
The most vocal consumer demand is for a shift towards eco-friendly packaging. Plastic and any petroleum-derived packaging will be severely looked down upon. 81% of UK consumers surveyed have demanded that CPG businesses use eco-friendly packaging. Whether it be by cloth, cardboard, or any other biodegradable substance, plastic needs to be replaced.
Consumers have also demanded that CPG businesses use as little packaging as possible. For example, there is no excessive plastic wrapping or extra plastic bags inside a box.
The same consumers have also agreed to pay more in exchange for this shift. CPG companies will be hard-pressed to find a better avenue for implementing sustainability. They can save a lot of money by minimizing packaging, which can then be invested in popularizing biodegradable packaging. While paper and plant-based packaging are more expensive than plastic, consumers can cover this cost.
This will be a bitter pill to swallow first, and you will likely find customers angry at a price rise. This is expected. This outrage will subside quickly if you convey your sustainability efforts and are transparent. The key is to stay firm and not budge. Even if you lose five customers, you will end up winning over ten more for standing by your word.
Regenerative Practices
Consumers are increasingly favoring products from companies that adopt regenerative agricultural practices. These methods focus on restoring soil health, biodiversity, and ecosystem balance, mitigating environmental degradation, and promoting sustainable farming.
Sustainable Supply Chains
This is by far the hardest consumer expectation to meet. Supply chains are not easy to change, and many factors must be considered. For example, many things change if a CPG retailer goes from a shipping van to a bicycle for deliveries. Deliveries will take longer, perishable goods may spoil, and many other new challenges arise. And this is just on the local retail level.
Now, imagine trying to make the global supply chain sustainable. So far, the most successful solution we have seen in this area is the use of electrically powered drones to make deliveries. However, while the drone may not use gas, the electricity and batteries it relies on also affect the environment. Drones are also unfit for global logistics spanning long distances.
Walmart is one of the leading examples of how to enact sustainability in the sector. Their fleet is electric-powered and, in some cases, self-driving. The problem is that such monumental change is only doable by corporations like Walmart. Small CPG manufacturers and retailers cannot foot the bill for such sustainability ventures.
It is also quite difficult to be completely transparent and show consumers your true claims. The supply chain is a back-end process. This means that consumers will always harbor skepticism against any sustainability claims in the supply chain.
If your business can afford it, this is an amazing incorporation of sustainability. For the majority, though, it is simply undoable. However, this does not mean you cannot make small strides, as our example of using bicycles for deliveries shows. These are little supply chain changes that even small businesses can manage.
Climatarian Diets
As awareness of the environmental footprint of food production grows, more consumers are adopting climatarian diets, which prioritize foods with lower carbon footprints. CPG companies are responding by offering sustainable and climate-friendly food options, such as plant-based alternatives and locally sourced ingredients.
Fermentation
Fermentation is gaining traction as a sustainable food production method because it preserves food, enhances flavor, and improves nutritional value without artificial additives. CPG brands are incorporating fermented ingredients into their product lines to meet consumer demand for healthier, eco-friendly options.
Ethical Manufacturing
Another major consumer demand is sustainability in manufacturing. Consumers expect modern manufacturers to be aware of crises concerning water scarcity and the ozone layer. Manufacturers are expected to reduce water usage and enforce strict regulations on toxic waste disposal. Pollution must be actively curbed.
Manufacturers that try to meet these expectations will find much greater consumer brand loyalty. On top of that, this is the age of social media. A Facebook video of your sustainable manufacturing process is enough to turn heads. As we said, the change doesn’t need to be monumental initially. It is the effort that counts.
Regulatory Compliance and Incentives
Beyond consumer demand, the next big impact on CPG sales from sustainability is a shift in regulations and incentives. The government recognizes that a major shift towards sustainability is not easy. That is why there are many incentives offered to businesses, depending on where they live, to help alleviate challenges. Grants and funds are designed to help CPG businesses transition to sustainable practices.
At the same time, regulatory authorities have also started enforcing sustainability rules. For example, businesses needing to reduce plastic use or carbon emissions are now subject to common regulations. Failure to comply can result in severe penalties. Before long, sustainability in the CPG industry will be mandatory, and businesses will need to start investing in it.
CPG companies are closely monitoring the wealth of innovation in sustainability to stay ahead of consumer trends and meet evolving demands. This includes adopting new technologies, collaborating with startups, and investing in research and development to create innovative products and processes that align with sustainability goals.
Sustainability as a Competitive Battlefield
The biggest impact sustainability has had on CPG trends and sales has been in the marketing department. Businesses are no longer limited to fighting over the quality and quantity of products. Now that consumers demand sustainability, enterprises are also in a race to achieve public approval.
As the data shows, if all else is equal, then consumers will buy the product that markets itself as eco-friendly. For example, if a shoe store pledges a portion of its revenue to an environmental charity, such a gesture is a perfect marketing maneuver to build rapport with its consumer base. It is a relatively easy way for a small business to contribute to the cause.
The marketing is so potent that, in some cases, consumers will buy an inferior product rather than support unsustainable CPG companies. This means that smaller brands can gain a competitive advantage over big brands just by pivoting to sustainability.
CPG Industry
How Outsourcing Can Contribute Towards Sustainability in the CPG Industry
Outsourcing is an unorthodox yet effective way to make CPG companies sustainable. While outsourcing does not directly affect sustainability, it allows small businesses access to professionals who do. These professionals can contribute to the sustainability effort.
For example, outsourced supply chain management firms place a strong emphasis on sustainability. These firms have connections in the sustainable supply chain space. Thus, they can connect the business with affordable carbon-free logistical solutions.
They can also help optimize delivery routes and set up drone deliveries for small businesses. Outsourced sustainable supply chain experts can also devise a demand and supply plan that fits the cause.
Outsourced accounting is also very potent on the sustainability journey. For one, an outsourced professional means the business is saving on the cost of an in-house accountant. Plus, they are also not using office space, which means more money is saved.
Outsourced accounting firms also operate entirely on the cloud and have the infrastructure to go paperless, which boosts sustainability.
On top of this, an outsourced accountant can help small CPG companies make the most of their savings. Without capital, no sustainability effort can happen, and an outsourced accountant is the most accessible option.
Your outsourced accountant will devise a budget for the business and allocate resources for the sustainability effort.
They can also help the business financially, advising on the projected results of sustainability campaigns.
Conclusion
Among the many CPG trends to look out for in the future, sustainability is very high on the list. Not only do the state and consumers expect CPG companies to prioritize sustainability, but so do CPG companies themselves. Sustainability has drastically changed the way consumers think and behave.
As sustainability becomes more of a standard practice and legislation gets stricter over time, CPG brands must already consider sustainability in their strategies.
