Sustainability & its implications for the Sustainability & its implications for the
Irish Food, Drink & Horticulture Irish Food, Drink & Horticulture
IndustryIndustry
November 2008November 2008
Padraig BrennanPadraig Brennan
OutlineOutline
•• BackgroundBackground
•• Emergence of Sustainability as an issueEmergence of Sustainability as an issue
•• The Consumer viewThe Consumer view
•• Retailer & Manufacturer strategiesRetailer & Manufacturer strategies
•• Implications for Irish IndustryImplications for Irish Industry
BackgroundBackground
•• Work undertaken by Price Waterhouse CoopersWork undertaken by Price Waterhouse Coopers
•• Mix of primary & secondary researchMix of primary & secondary research
•• 20 leading retailers and manufacturers examined20 leading retailers and manufacturers examined
Marks & Spencer Unilever
Ahold Danone
Musgrave Danish Crown
Tesco Ben & Jerry
ICA Glanbia
ASDA Diageo
Co-op Irish Distillers
Carrefour Green Isle Foods
Mercadona Nestle
Casino Vion Group
• Research undertaken: July to October 2008
Emergence of Sustainability as an issueEmergence of Sustainability as an issue
““By 2030, the planet will need to produce By 2030, the planet will need to produce
50% more food, with less land, water and 50% more food, with less land, water and
energy while also reducing greenhouse energy while also reducing greenhouse
gas emissionsgas emissions””
United Nations, 2008United Nations, 2008
What does sustainability What does sustainability
mean?mean?
Defined by the World Commission on Environment and Development as:
"forms of progress that meet the needs of the "forms of progress that meet the needs of the
present without compromising the ability of present without compromising the ability of
future generations to meet their needs."future generations to meet their needs."
Evolution of sustainability Evolution of sustainability
as a global issueas a global issue
Evolution of Business/Consumer AgendaEvolution of Business/Consumer Agenda
1980s 1990s 2000 2005+
Smoking
Alcohol use
Baby food
Fast Food
Sweat Shops
GMO’s
Bottled Water
Carbon
Water Scarcity
Sustainability getting greater Sustainability getting greater
coverage in Irelandcoverage in Ireland
What is driving issue?What is driving issue?
Supply
Issues
Demand
Issues
Competitor
Issues
Regulatory
Trends
• Raw material
shortages
• Water scarcity
• Biodiversity loss
• Health & wellness
• Sustainable / ethical
consumerism
• Online connectivity /
transparency
• Carbon &
energy
regulation
• Strategy
• Brand
• Product Range
Business
Performance
Climate
ChangeGlobalisation
Increasing
consumptionExpanding
population
Role of food sector in Role of food sector in
terms of climate changeterms of climate change
•• Food chain accounts for 18% of UK Food chain accounts for 18% of UK
GHG emissionsGHG emissions
•• Agriculture stage, the most Agriculture stage, the most
significant contributorsignificant contributor
•• However, other stages also However, other stages also
significant:significant:
– Packaging
– Food processing
– Home storage
– Cooking
– Disposal
Sustainability embraces Sustainability embraces
full product life cyclefull product life cycle
Disposal & Disposal &
RecyclingRecycling
CookingCooking
Refrigeration/FreezingRefrigeration/Freezing
DistributionDistribution
ManufacturingManufacturing
PackagingPackaging
ProductionProduction
Cultivation/Cultivation/
Primary ProductionPrimary Production
Complete Product Complete Product
Life CycleLife Cycle
Sustainability continues Sustainability continues
to evolveto evolve
Biodiversity loss
Water scarcity
Carbon & energy
regulation
Raw material
shortages
Impacts today Additional impacts in the future
Becoming core element Becoming core element
of corporate strategyof corporate strategy
“Sustainability is the single biggest
business opportunity of the 21st
century, and will be the next source
of competitive advantage.”
Lee Scott, CEO Walmart
“This agenda of sustainability and
corporate responsibility is not only
central to business strategy but will
increasingly become a critical driver
of business growth.”
Patrick Cescau, CEO Unilever
“When most of the raw materials are
natural, you cannot put nature at risk
without endangering your own
resources.”
Frank Ribound, CEO Danone
“New Zealand aims to be a credible
leader in responding to Climate
Change.”
Helen Clark, Prime Minister
Sustainability seen to Sustainability seen to
offer a offer a ““win winwin win””
scenarioscenario
Financial benefitsFinancial benefits Enhanced brand imageEnhanced brand image
The Consumer ViewThe Consumer View
Consumers receiving Consumers receiving
lots of information!lots of information!
Changes in behaviour Changes in behaviour
evidentevident
•• Survey of 4,000 UK consumers found that:Survey of 4,000 UK consumers found that:
– > 60% concerned about sustainability
– 73% actively recycling
– 32% focused on electricity use
– 28% using energy efficient bulbs
•• Purchase behaviour changing over last 3 yearsPurchase behaviour changing over last 3 years
– Fairtrade penetration up from 20% to 50%
– Organic from 22% to 43%
– Free range from 45% to 65%
However, barriers However, barriers
remainremain…………………………
Three principal barriers, namely:Three principal barriers, namely:
PricePrice
– 48% unwilling or unable to pay current premium
– Average premium currently stands at 45%
Confusion & trustConfusion & trust
– Contradictory information creates confusion
– Lots of different terms being used
– > 50% trust NGO’s on Sustainability, figure for retailers is less than 16%
Lack of alternativesLack of alternatives
– Lack of availability cited by more than 20% of consumers
– Choice can be limited
Retailer StrategiesRetailer Strategies
Retailers & SustainabilityRetailers & Sustainability
• Well positioned to identify trends
• Able to respond with initiatives & product offerings
• However, retailers have limited direct impact on Climate Change
Suppliers ConsumersRetailers
Retailer provide link between consumers
and manufacturers
Why are retailers Why are retailers
embracing Sustainability?embracing Sustainability?
•• Three principal reasons:Three principal reasons:
Risk
Commercial Logic
Consumer Awareness
•• Need to be seen to be acting responsiblyNeed to be seen to be acting responsibly
•• Increased scrutiny from NGOIncreased scrutiny from NGO’’s and consumerss and consumers
•• Commercial benefit through cost savingsCommercial benefit through cost savings
•• Rising energy, transport, waste & packaging costsRising energy, transport, waste & packaging costs
•• Consumers more conscious of environmental issuesConsumers more conscious of environmental issues
•• Expect retailers to play their partExpect retailers to play their part
Evolve over timeCompliance &
Risk Management
Operating Efficiencies &
Brand Enhancement
Common themes evident in Common themes evident in
retailer strategiesretailer strategies
Climate Waste Packaging Health Ethical Trade
Marks & Spencer
- Become carbon neutral
- Send no waste to landfill
- Extend sustainable sourcing
- Help improve the lives of people in our supply chain
- Help customers and employees live a healthier life-style
Common themes evident in Common themes evident in
retailer strategiesretailer strategies
Climate Waste Packaging Health Ethical Trade
Ahold
Common themes evident in Common themes evident in
retailer strategiesretailer strategies
Climate Waste Packaging Health Ethical Trade
Carrefour
Commitments to the
Environment:
§ Reduce impact on GHG
§ Protect natural resources
§Waste reduction
§ Preservation of water
§ Preservation of biodiversity
Examples of Retailer Examples of Retailer
InitiativesInitiatives
Reduce GHG emissions
by 30% by 2020
In 2007 ICA conducted a
carbon footprint study on
100 of its private label
products
Website launched to
encourage consumers to
reduce food waste
ICA Tesco Marks & Spencer
Reduce CO2 emissions
per case in transport by
50% by 2012
Reduce CO2 emissions
In stores and distribution
centres by 50% by 2020
Carbon labelling trial on
20 products in 2008
Reduce packaging on
branded and own-label
products by 25% by 2010
20% of the business
switched to renewable
energy in 2007.
3 “green” stores were
launched in 2007
M&S website tracks real
time the energy use in
stores
Overall target to be
carbon neutral by 2012
Reduce packaging
volumes by 25% by
2012.
Mainly Internal Initiatives to date
Starting to engage more Starting to engage more
strongly with suppliersstrongly with suppliers
•• Clear targets to work with suppliers Clear targets to work with suppliers
•• Using Life Cycle Analysis to identify Using Life Cycle Analysis to identify ““hotspotshotspots””
•• Varying views on the merits of carbon labellingVarying views on the merits of carbon labelling
•• Most focus to date has been on private label rangesMost focus to date has been on private label ranges
•• To date approach has been collaborative and largely voluntaryTo date approach has been collaborative and largely voluntary
– Expected over time that will become compulsory
Opportunity for suppliers to take proactive approach
Engaging with consumersEngaging with consumers
-- Building TrustBuilding Trust
• Retailers actively addressing this by:
– Enter broad stakeholder consultation to identify priorities
– NGO’s increasingly used by some retailers to build credibility
• Helps deliver clear messages that consumers can understand
• Aim is to educate, raise awareness and inform positive behaviour
Selling products with Selling products with
““SustainabilitySustainability”” credentialscredentials
• Initial focus was organic, free range and fairtrade
• Gradually expanding out to a wider range of products
• Drive by some retailers to promote locally sourced food
• Potential for low carbon ranges?
• Focus is on making choices easier for consumers
Where to from here?Where to from here?
•• Retailers will continue to influence consumer behaviourRetailers will continue to influence consumer behaviour
– Choice editing to drive ‘positive informed choices’
•• Sustainability to become increasing part of brand promiseSustainability to become increasing part of brand promise
– Enhance private label ranges through sustainability focus
•• Retailers will increasingly look to their suppliersRetailers will increasingly look to their suppliers
– Innovation in terms of functionality and how products are produced
•• Likely to be opportunities for proactive suppliersLikely to be opportunities for proactive suppliers
•• Large retailers will have strong role in guiding standardsLarge retailers will have strong role in guiding standards
Manufacturer PerspectivesManufacturer Perspectives
Raw material security is key Raw material security is key
driver for manufacturersdriver for manufacturers
•• Long term security of food supply is critical factorLong term security of food supply is critical factor
– Water scarcity becoming a major issue
– Biodiversity growing in importance
•• Brand reputationBrand reputation
•• Commercial potentialCommercial potential
•• Connecting with consumersConnecting with consumers
– Sustainability helping to build emotional values into brands
Manufacturers developing Manufacturers developing
programmes with suppliers programmes with suppliers
Up to 80% of environmental impacts are associated
with sourcing of raw materials*
* PwC Life Cycle Analysis for consumer goods* PwC Life Cycle Analysis for consumer goods
NestleNestle
Strongly communicating activity
Common strategic focus Common strategic focus
among manufacturersamong manufacturers
DiageoDiageo
Water Energy PackagingSustainable
Agriculture
Common strategic focus Common strategic focus
among manufacturersamong manufacturers
NestleNestle
Water Energy PackagingSustainable
Agriculture
Process of continuous Process of continuous
improvementimprovement
Nestlé's performance in managing the consumption of resources
Long term strategy that can deliver cost savings
Communicating improvements Communicating improvements
to consumersto consumers
•• Sustainability now recognised within the brand promiseSustainability now recognised within the brand promise
•• Emotional values increasingly used to differentiateEmotional values increasingly used to differentiate
•• Led by companies that have been Led by companies that have been ‘‘sustainable from birthsustainable from birth’’
……………… Others now Others now
followingfollowing
Sustainability starting to become a product feature
However, claims need to However, claims need to
be crediblebe credible
•• Increased level of scrutiny likelyIncreased level of scrutiny likely
•• While most manufacturers donWhile most manufacturers don’’t favour carbon labellingt favour carbon labelling…………....
•• …………They unanimously agree on benefits of Life Cycle AnalysisThey unanimously agree on benefits of Life Cycle Analysis
•• Sustainability being incorporated into innovation programmesSustainability being incorporated into innovation programmes
Future DirectionFuture Direction
• Sustainability issues gaining more traction with consumers
• Emotional values to become key point of differentiation
• Sustainability to become a product feature
East green beer from Adnams Brewery
First carbon neutral wine
Issue to impact on all Issue to impact on all
parts of the Supply Chainparts of the Supply Chain
Window of opportunity to embrace issue
• Low carbon suppliers favoured
• Cost and availability significantly affected
• Demand for new manufacturing technologies and processes
• Implementation of renewable energy
• New modes of transportation
• Local suppliers favoured
• Local products favoured
• Customer information and labelling
• Demand for low carbon products and new products and services
• Ability to re-use or recycle favoured
• Demand for less packaging on products
Raw materials and
other supply chainsManufacturing Distribution Consumption End of life
Energy costs
Transport costs
Other materials costs
Redesign of supply chain Redesign of customer delivery
• Low carbon suppliers favoured
• Cost and availability significantly affected
• Demand for new manufacturing technologies and processes
• Implementation of renewable energy
• New modes of transportation
• Local suppliers favoured
• Local products favoured
• Customer information and labelling
• Demand for low carbon products and new products and services
• Ability to re-use or recycle favoured
• Demand for less packaging on products
Raw materials and
other supply chainsManufacturing Distribution Consumption End of life
Energy costs
Transport costs
Other materials costs
Redesign of supply chain Redesign of customer delivery
Implications for Irish IndustryImplications for Irish Industry
Take outs for Irish Take outs for Irish
manufacturersmanufacturers
• Sustainability will become a standard requirement
• Need to be aware of environmental hotspots in their supply chain
• Identify priority areas for action & develop sustainability strategy
• Prepare & communicate clear messages
– Identify & communicate positive attributes
– Understand and tackle negative issues
• Take proactive approach & engage with customers
Key steps towards developing Key steps towards developing
sustainable corporate strategy sustainable corporate strategy
1. Input to Strategy Development
• What are the key sustainability
impacts related to my product?
• What do end consumers
expect?
• How are my competition
responding?
• How does sustainability fit with
overall corporate values, brand
and strategy?
• What are the possible long
term scenarios related to
sustainability?
• What is my overall ambition
and positioning on this issue?
• What are the priorities for us?
• What should be our strategy
and targets related to each of
these issues and how does
this impact:
• Marketing and branding
• Range and pricing
• Sourcing and supply chain
• Business Operations
2. Determine Strategy
• How do I engage our
– Key functions within my
business
– Employees
• What metrics, systems,
procedures and controls need
to be established ?
• What external communications
strategy should I adopt to
demonstrate our Sustainability
credentials?
3. Implement Strategy
4. Evaluate outcome
• What value is derived from the
efforts?
• How effectively is the
programme delivering on
objectives?
• What changes do I need to
make on my strategy?
Sustainability will impact on Sustainability will impact on
all aspects of the businessall aspects of the business
Sourcing &
Supply Chain
Business Operations
Need to understand the role they play in the broader value chain and how
they can work more closely with their suppliers and customers.
Need to examine their operations to understand their environmental impact,
reduce the hotspots, and look at ways to create competitive advantage.
I
N
T
E
R
N
A
L
Ranging &
Pricing
Marketing &
Branding
Need to understand how they can differentiate themselves using
sustainability and decide on their optimal pricing strategy.
Need to leverage their unique benefits and assets with appropriate
messages reflecting Sustainable values.
E
X
T
E
R
N
A
L
Lessons from other Lessons from other
initiativesinitiatives
Programme CriteriaProgramme Criteria
•• Soil fertility & nutrient useSoil fertility & nutrient use
•• BiodiversityBiodiversity
•• Farm economicsFarm economics
•• Water & energy UseWater & energy Use
•• Animal welfareAnimal welfare
•• Local economyLocal economy
AimsAims
Happy CowsHappy Cows
Happy FarmersHappy Farmers
Protected EnvironmentProtected Environment
Potential for Ireland to Potential for Ireland to
utilise REPS in this way?utilise REPS in this way?
Developments by other Developments by other
countriescountries
•• New Zealand industry has been proactively addressing issueNew Zealand industry has been proactively addressing issue
– 49% of emissions come from agriculture
•• Focusing on:Focusing on:
– Adapting farming systems
– Reducing GHG emissions & creating carbon sinks
– Positioning itself for longer term growth
•• Using positive messages about how it is responding to challengeUsing positive messages about how it is responding to challenge
•• Seeking to enhance credibility in the marketplaceSeeking to enhance credibility in the marketplace
“I believe New Zealand can be at the forefront of Sustainability, Mike Barry, M&S”
Highlights potential for Ireland to adopt similar approach
Key actionsKey actions
• Raise awareness levels
• Help build better industry understanding of sustainability
• Develop industry response using a sectoral approach
• Help identify tools, approaches & frameworks
SummarySummary
• Becoming a key issue for leading retailers & manufacturers
• Embracing sustainability for a number of reasons
• Initially, much of their focus in on internal operations
• Sustainability now forming part of the brand promise
• While Ireland has issues to address, being proactive can offer opportunities
Sustainability & its implications for the Sustainability & its implications for the
Irish Food, Drink & Horticulture Irish Food, Drink & Horticulture
IndustryIndustry
November 2008November 2008
Padraig BrennanPadraig Brennan
