The growing emphasis on climate change and interest in other environmental concerns are leading companies to create more sustainable products – and to overtly market a growing number of products as sustainable. However, brand managers have historically been very reluctant to do either one, feeling that, while consumers may say they will buy sustainable when asked, they don’t actually follow that behavior when shopping.
Sustainable products are outpacing those that aren’t sustainable in sales growth and market share.
Yes, They Will Buy
New evidence from New York University/Stern’s Center for Sustainable Business and published in a recent Harvard Business Review, however, indicated that products branded as sustainable are responsible for an increasing amount of growth. Half of the growth in consumer packaged goods (CPG) in the 2013-2018 period, for example, stemmed from products marketed as sustainable. In fact, products that literally noted their sustainability on the packaging accounted for a 16.6 percent market share last year, a small but steady rise from the 14.3 percent market share they registered in 2013. Sales of those products rose even more dramatically, 29 percent, between 2013 and 2018.
The increasing consumer acceptance – and its translation into actually purchasing decisions – wasn’t found solely in market share and sales. It was found in a more competitive picture for sustainable products versus products that were not marketed as sustainable. A popular sustainable living blog notes that sustainable products grew 5.6 times as fast as nonsustainable products. Even when the growth differential was not that high, 90 percent of CPG products that were sustainable grew faster than their nonsustainable counterparts.
The data seem to be clear; sustainable products are increasingly meeting with consumer favor. If it was mostly lip service in the past, that now appears to be in the rearview mirror.
Consumers are increasingly purchasing products marketed as sustainable.
What Companies Should Do
What does this mean for business strategy and business leadership in CPG companies? The authors are unequivocal. Consumers want sustainable products. Companies that don’t provide them are missing an increasingly large boat.
HBR cites PepsiCo and Unilever as two legacy companies that have increasingly developed and marketed sustainable products ( or sustainable packaging for existing products). Unilever, for instance, has developed a group of “sustainable living” brands that are now responsible for 70 percent of its turnover growth. It has also pursued an acquisition strategy of purchasing brands seen as sustainable to a loyal customer base, such as Sundial Brands, Seventh Generation, and Pukka Herbs.
Kraft Heinz, on the other hand, has pursued a very different business strategy. Kraft and Heinz merged four years ago, and one of the architects of the move, 3G, is known for its emphasis on cost-cutting. The merger also emphasized the venerable consumer brands: ketchup, cheese, and hot dogs, among others. Kraft Heinz has also tried to buy Unilever.
Kraft Heinz missed its own earnings per share targets, and the company is underperforming. Lack of sustainability is only one part of this story, of course, but it does indicate that companies with legacy brands need to take much stronger notice of the move to sustainability not just as a concept but as active engagement in the kitchens and pantries of the U.S.