The Impact of Sustainability on Sales in the CPG Industry

Is sustainability in the CPG industry more than just a nice-to-have today?

Sustainability is currently just as big a topic of interest in the business landscape as AI. Everyone is concerned about the environment and ecosystem. Whether it be governments, organizations, or consumers, everyone has an opinion. While a certain section of naysayers spurn sustainability, the consensus held worldwide is that action must be taken.

The CPG industry faces quite a challenge from the push towards sustainability. For example, the fuels burnt to produce goods is a key subject of heated debate. Then, there is the unhealthy impact of modern logistics on the environment. Sea-faring vessels are under heavy criticism after numerous oil leaks have destroyed ocean habitats.

With so much negativity flowing around how things currently operate, an impact on sales is expected. The question is a very difficult one to answer. While sustainability in the CPG industry is a great goal for the environment and our lives, much of our CPG infrastructure is averse to it. This means that the CPG infrastructure must undergo a fundamental shift if there is any hope of success.

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 environment-friendliness. The rub lies in the fact 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, the reality is that they 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 which found that 78% of US consumers prefer a sustainable lifestyle.

The data is proof that consumer spending habits are influenced by their feelings on 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 businesses 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 does not matter that your business isn’t completely green in one day. 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 flip your business infrastructure in one day completely. 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 demand by consumers is the shift towards eco-friendly packaging. Plastic and any petroleum-derivative packaging will be severely looked down upon in 2024. 81% of surveyed consumers from the UK 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 when implementing sustainability to find a better avenue. They can save a lot of money by minimizing packaging, which can then go towards popularizing biodegradable packaging. While paper and plant-based packaging is 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 should 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 using electrically powered drones to make deliveries. However, while the drone may not be using gas, the electricity and batteries it uses 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 even self-driving in some cases. 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 little strides like our example of using bicycles for deliveries. 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 due to its ability to preserve food, enhance flavor, and improve 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 cut down water usage in manufacturing, as well as enforce strict regulations on toxic waste disposal. Pollution must be actively curbed.

Manufacturers that try to meet these expectations will find much greater brand loyalty in consumers. 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 demands, the next big impact on CPG sales by sustainability is a change 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 that help alleviate challenges. Grants and funds are set up to help CPG businesses shift over 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 common regulations now. Failing to comply can lead to heavy penalties. Before long, sustainability in the CPG industry will be a requirement, and businesses 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 that sustainability has had on CPG trends and sales is in the marketing department. Businesses are no longer limited to fighting over the quality and quantity of products. Now that consumers demand sustainability, businesses 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 promises to pledge a portion of its revenue to an environmental charity, Such a gesture is a perfect marketing maneuver to build rapport with your consumer base. It is a relatively easy way to contribute to the cause as a small business.

The marketing is so potent that, in some cases, consumers will buy an inferior product over supporting unsustainable CPG companies. This means that smaller brands can gain a competitive advantage over big brands just by pivoting to sustainability.

How Outsourcing Can Contribute Towards Sustainability in the CPG Industry

Outsourcing is an unorthodox yet effective method of making 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 focus heavily 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 best use of their saved money. 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 does the state expect CPG companies to prioritize sustainability in the CPG industry, but also consumers. Sustainability has drastically changed the way consumers think and behave.

As sustainability continues becoming more of a standard practice and as legislation gets strict over time, CPG brands must already consider sustainability in their strategies.