Sustainability is the greatest opportunity in the history of retail and consumer packaged goods, according to Steven Swartz, partner at McKinsey & Company, who presented on sustainability issues around the corner for the retail and consumer products industry at the FMI and GMA Global Sustainability Summit in Seattle, Wash., today.
While most companies and executives first think about the cost and risk involved in the implementation of sustainable practices, Swartz said he takes an “opportunity-oriented view.”
“The next 10 years should be an unprecedented opportunity for retail and FMCG,” Swartz said. “To me, product sustainability is all about innovation; how do we do things in a way that drive innovation that take us to the next level?”
According to new research conducted by McKinsey & Company, together with FMI specifically for the Summit, priorities in the coming years for retailers, manufacturers and NGOs, include resource scarcity (32%), product and supply chain sustainability (27%) and corporate organization (14%). Last on the list for those surveyed — 44% of which were people in the corporate sustainability department — were consumer engagement at 7%, and stakeholder engagement and management at 6%.
The survey also found that consumer requests and inquiries regarding sustainability do have an impact. When one customer inquires about sustainability, supplier compliance was at 15-20%, two customers resulted in 50% compliance and when three customers inquired, supplier compliance was 75-80%. “The more coordination there is, the more impact you’ll have,” Swartz said.
When it comes to technologies that will play a role in the evolution of retail and CPG sustainability, renewable energy was number one, with 56% saying it’s the most critical technology impacting retail and CPG sustainability, but the role of mobile is likely underestimated, Swartz said, citing Peapod’s virtual supermarket in a Chicago subway station as an example of how mobile can work with sustainable efforts.
“There’s no refrigeration, none of the stuff we traditionally think about,” Swartz said. “My push to you today is what’s around the corner in emerging issues in sustainability — the store is not necessarily the center of the universe. What it means to be a store is evolving.” Swartz then referred to a quote from Tesco’s chief executive officer, “Tesco.com provides all the growth we have in our core food businesses these days.”
Cost savings are a popular driver of sustainability, with 56% of survey respondents saying they do it to improve efficiency and lower costs, but driving the positioning of the company and engaging consumers is an opportunity, Swartz said.
In fact, 25% said sustainability efforts are implemented in an attempt to strengthen competitive positioning, which Swartz said may double, and 25% of those surveyed get involved to meet consumer expectations. Forty-eight percent of sustainability participants say the pressure of short-term earnings performance is at odds with sustainability initiatives, and 44% say they don’t have enough resources to get done what they need to get done.
While sustainability leaders say the number-one reason they don’t capture the full impact of sustainability is because they don’t have incentives tied to performance, S&P 500 companies reporting to CDP that set GHG reduction targets achieved an average of 9% better return on investment than those without goals. “That’s the power of having a goal.; it’s a formal corporate effort,” Swartz said.
In addition to setting goals and managing performance, in order to orient sustainability to driving growth, connecting with consumers and cost savings, sustainability executives should speak the corporate business language and communicate the financial value of sustainability, Swartz said.
“My view is that the sustainability execs as a group have been pushed into a corner,” he said. “Unlocking growth through sustainability is an exceptional opportunity for retail and CPG companies to create shareholder value.”