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Sustainability & its implications for the Sustainability & its implications for the Irish Food, Drink & Horticulture Irish Food, Drink & Horticulture Industry Industry November 2008 November 2008 Padraig Brennan Padraig Brennan

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  • 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

    GMOs

    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 NGOs 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 NGOs 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

    NGOs 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

    Nestl'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 dont 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