Sirko Siemssen
Michael Lierow
Sustainable Retail
in Grocery
Most retailers agree that sustainability will be a key competitive advantage in the future.
Unfortunately, however, there remains a gulf between their ambitions and reality. Moreover,
a growing mismatch between supply and demand could erode the profits of the entire food
industry within four decades: Global demand for agricultural production is expected to grow
by 70 percent by the year 2050, and average per capita caloric intake globally is projected to
increase by about 40 percent. The problem is that global food production already utilizes about
50 percent of the earth’s available arable land, and the global agricultural sector consumes
about 70 percent of the freshwater available for human use.
Our research reveals a broad consensus WHY SUSTAINABILITY
among retailers who recognize that they will IS NOT “STICKING”
almost certainly face wrenching cost and
Retail is characterized by low margins,
availability problems as a result of the growing
pressing daily challenges, and complex
divide between food supply and demand.
global supply chains. Where sustainability
Most believe that they will also be confronted
and climate change represent long-term
with very different demand patterns as
challenges, retailers are focused on near-
customer priorities and regulations change.
term, urgent matters and leave sustainability
Ninety percent of the top 50 global grocery
in the backseat. Even deeply committed
retailers market their own private-brand
retailers struggle to achieve real impact.
organic products. (See Exhibit 1.) In their
In our experience, there are two reasons
annual reports, 82 percent of groceries retail
for this. First, retailers fail to incorporate
chief executive officers cite sustainability
sustainability into their daily decision
as a key priority. More than one in three has
making. At many retailers, decision making
opened “green” pilot stores.
is spread out across hundreds of buyers,
Nevertheless, the reality behind these
category managers, procurement managers,
flagship initiatives continues to be largely
store associates, logistics specialists, and
“unsustainable.” While sustainability now
ordering managers.
routinely figures in evaluating investment
Forty-two percent of the top 50
decisions and corporate projects, it’s had
global grocery retailers have established
little effect on the key commercial activities
a sustainability function, and 14 percent
of the business – buying, store operations,
now have a “Chief Sustainability Officer.”
or supply-chain decisions. In most cases,
But only 10 percent of these grocery retailers
sustainable product lines account for only
actually measure and incentivize personal
a fraction of sales revenues, and, with new
performance against key performance
product development and space decisions
indicators of sustainability. In this context,
still dominated by other priorities, change will
it’s not surprising that sustainability often
continue to be slow.
remains limited to a few corporate “lighthouse
Although retailers’ advertising campaigns
projects,” and rarely trickles down into
are increasingly built around green messages
decisions, such as which products to carry or
and products, their in-store price promotions
what to promote next month. If sustainability
largely ignore them – and these account for a
is not an important factor alongside sales,
very significant proportion of sales. The vast
majority of new stores also have little to do
with their “green” concept stores. More than
82% of groceries retail chief executive
99 percent of all stores are still “traditional,”
officers cite sustainability as a key priority
“non-green” entities.
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volumes, and margins, decision makers will the link, for example, between improving
tend to ignore it. a company’s ecological footprint and its
The other challenge retailers face is economics is far from straightforward.
that they cannot manage what they do
not measure. In order to make their core MAKING
business model sustainable, retailers SUSTAINABILITY HAPPEN
must understand the financial impact of Nonetheless, leaders in sustainability have
sustainability initiatives. But only eight of the shown that it is not only possible to find
top 50 grocers evaluate how sustainability ways to measure the impact of their efforts,
efforts translate into financial outcomes. As but also to use this knowledge to achieve
a result, it is hard to define realistic targets, their ambitions. Given how decentralized
shape decision making, and measure decision making is in a typical retailer, making
progress. Identifying and generating the right sustainability a reality requires getting “into
key performance indicators can be a difficult the bloodstream” of the whole organization,
undertaking. Often, there is insufficient data. particularly those working in trading
Even when such data exists, disentangling and operations.
Exhibit 1: Share of top 50 grocers worldwide
92%
93%
78%
North America Europe Rest of world
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Our work with clients points to five important been, or to ensure that sustainability
success factors: remains top of mind for those making
1. Clear, strategic intent. Organizations day-to-day decisions.
must establish a clear strategic plan
that is regularly reinforced over multiple CONCLUSION
years. Achieving this requires continuous
Building a sustainable retail business model
and unambiguous top-level support.
is not easy. It costs money, and is not without
A company’s management team must
risk. The argument for becoming sustainable
acknowledge the organizational and
is fundamentally underpinned by a need:
cultural challenges involved in targeting
coping in a world of finite resources and
longer-term and more holistic objectives –
increasingly stark trade-offs. The business
while not losing focus on short-term sales,
case for sustainability is fundamentally long
costs, and margins.
term, driven by the need to address emerging
2. Greater transparency. Measuring the but foreseeable realities – ones that only
ecological and social footprint of an become obvious over time.
organization’s products and operations However, sustainability offers immediate
is difficult, especially on the product tangible opportunities to drive growth and
side, as most resources are used earlier reduce costs. In Switzerland, sales of the
on. But the task is not impossible. To Coop Group’s private-brand sustainability
date, most retailers have focused on brands and quality labels have reached
availability, cost, and time-to-market $2 billion – more than 18 percent of its food
in their attempts to better understand revenues. Coop Group’s market share in
upstream supply chains. In the future, Switzerland in organic products exceeds
supply-chain management and supply- its overall market share by more than
chain collaboration will need to put as 100 percent. Initiatives like this are driving
much, if not more, emphasis on resource changes in all aspects of supply chains,
usage, renewable resources, and social including fleet transportation and operational
standards. energy use. Similar to adopting energy
3. Defined targets. Realizing a sustainability efficiency initiatives, Marks & Spencer in
strategy requires quantified, the United Kingdom has generated more
operationalized objectives for functions than $168 million in net benefits by reducing
and individuals, for both the short and packaging, decreasing landfill waste, and
long term. For sustainability to become improving transportation efficiency systems.
a reality, decision makers need to place These and other pioneers have shown
it on par with financial performance. there is a path to profitability in sustainability.
This requires setting specific goals. Over the coming decades, companies that
4. Inclusion of sustainability in daily follow in the footsteps of these early and
decisions. Sustainability needs to be intrepid leaders, as opposed to those that
incorporated into daily decision making do not, may find the key to prospering in an
in a dispassionate, transparent, and increasingly harsh landscape lies in doing the
quantitative way. To be effective, there “right thing” and building climate resilience.
needs to be a detailed understanding of
how, when, and by whom decisions are
being made, as well as how to influence
and change them. Just throwing more
data at buyers and at category and
operations managers is not enough.
5. Measuring the impact. Organizations
must be vigilant in measuring detailed and
quantified results delivered against the
targets set. As described earlier, ongoing
measurement using key performance
indicators is a vital part of embedding
sustainability into the organization.
Without that, it is very difficult indeed to
know how successful the strategy has
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