The Supply Side: Sustainability still in focus despite weaker consumer demand

The Conference Board reported in November that record inflation in energy and food categories was shifting consumer preference toward less pricey alternatives and away from more expensive sustainable products.

“Even consumer segments that our prior research has identified as most enthusiastic about sustainability, such as Millennial, urban, and Hispanic consumers, now seem to be buying sustainable products less because of inflation,” The Conference Board reported.

Another report from Shopkick found that 70% of consumers are adjusting their spending habits in early 2023, and 68% of respondents cited the economy as the main reason they’re tightening their budgets.

“Consumers are getting mixed messages around where the economy is headed, but they continue to be extremely wary of overspending and diligent about finding ways to save,” said Brittany Billings, executive vice president of strategic markets and marketing at Shopkick.

She said now more than ever, brands and retailers should prioritize supporting shoppers by offering deals or promotions on brands, sustainable and otherwise, to help build customer loyalty.

Walmart CEO Doug McMillon was recently asked at the World Economic Forum in Davos, Switzerland, about how retailers should respond to the drop in sustainable products demand. McMillon said many shoppers and manufacturers need to see a financial incentive to make or buy sustainable products.

“Some shoppers buy with the climate in mind, but “there is also a very big part of the population that is under price pressure and can’t afford to make some choices that might cause them to pay more,” McMillon said. “Our job becomes one where you must design a system so that the easiest path, the lowest-cost path, no negative tradeoff associated with it is actually the more sustainable path.”

He said product buyers at Walmart continue to look for sustainable options in product-assortment decisions.

SIMPLE TRUTH
The Conference Board also said the economic downturn is a good opportunity for retailers and product manufacturers to spur innovations that save costs without negative environmental impacts. Walmart and Kroger have said they will continue investing in sustainable products.

“People will make the decisions they are going to make,” McMillon said. “They are going to want to eat. They are going to want some form of apparel. They are going to want a stroller if they have a baby. Our job is to make those products as sustainable as possible should they need them.”

It’s been a decade since Kroger launched its Simple Truth organic line of private brand foods in response to rising consumer demand for organic, natural foods made without ingredients of concern to consumers in a sustainable way. Simple Truth began with 30 product categories — including cereal, frozen pizza, and vegetarian options — and in a phased rollout, expanded to more than 40 categories by January 2013. In September 2019, Kroger added Simple Truth plant-based offerings, sporting a different icon and packaging and including items like fresh meatless burger patties and plant-based cookie dough, pasta sauces, sausages, deli slices and dips. Kroger has grown the Simple Truth sustainable organic brand to more than $3 billion in sales.

Kroger’s data indicates a pullback in consumer spending in early 2023, as 65% of its shoppers said they were seeking sales, deals and coupons, while 39% are buying fewer items per trip. Purchases of non-essential items like snacks and candy are being cut back by 65% of respondents. Kroger also found that 52% said price was the most significant factor for their purchases, ahead of quality or sustainable organic certifications.

Kroger management said it would continue to focus on price through its loyalty program to help shoppers stretch their grocery dollars.

SUSTAINABILITY PARTNERSHIPS
The Conference Board said there are renewed opportunities for retailers, manufacturers and partners within the supply chain to work together on sustainable practices regardless of the economic climate.

Walmart has said its sustainability push is necessary, and investments in the category do not waiver. In the past year, Walmart has piloted recycling programs for beauty products packaging with Procter & Gamble and TerraCycle in 2022, which is geared to help shoppers change their behaviors by dropping off empty packaging at select stores in four states. Walmart also launched a recycling program for its Walmart+ InHome customers with TerraCycle Loop. The program allows customers to repurchase refillable and reusable containers delivered to and picked up from their homes.

Developed by the circular reuse platform TerraCycle, Loop recovers and sanitizes reusable packaging for recirculation with new products. The Loop products available for Walmart+ customers include brands such as Gillette, Clorox, Cascade, Kraft Heinz, Seventh Generation, and Love Beauty and Planet. More brands will be added in the coming months.

“Identifying models that can make shopping easy, convenient, affordable and sustainable is a core part of how we pursue our commitment to becoming a regenerative business at Walmart. By leaning into reuse with Loop and so many of our brand partners, we see a unique opportunity to help our customers eliminate packaging and single-use plastic from many of their regular purchases,” Corey Bender, vice president of merchandising at Walmart U.S., said in a statement.

Kroger has expanded the number of reusable packaging offerings through its partnership with Loop. The grocer now offers reusable packaging for private-label brands and other primary food and household brands.

Subscribers pay a deposit ranging from 15 cents for a glass beverage bottle to $10 for a stainless-steel container of disinfecting wipes. Loop products are placed in a designated section, and customers can return their packaging to the same area when the contents are used.

SUSTAINABILITY CHALLENGES
Walmart has been seen as a sustainability leader among retailers partly because of its ability to get its suppliers onboard for a much larger overall impact. But during economic challenges, participation from suppliers may also fall short of initial goals.

Lisa Morden, vice president of safety, sustainability and occupational health at Kimberly-Clark, said the company’s growth and supply chain challenges recently created “headwinds to advancing our plastic footprint reduction goals.”

Morden added that Kimberly-Clark still doubled the percentage of recycled content in its plastics packaging and is moving to more sustainable materials and processes.

In December, the World Wildlife Fund reported that plastics footprints of Colgate-Palmolive, Starbucks, Kimberly Clark, McDonald’s, Coca-Cola, Amcor, Keurig Dr Pepper Inc. and Procter & Gamble together saw a reduction in problematic plastics and a 35% increase in the use of recycled content.

However, total plastic waste increased by 5.3% in 2021. The increase was attributed to a rebound in volumes after declines brought on by the COVID-19 pandemic.

Michael Kobori, chief sustainability officer at Starbucks, said the company launched 20 trials of reusable and returnable cup programs that help reduce the plastic in hot cups by 25%. He said the company has work to do to meet its goals and reverse the plastics usage from its ongoing business growth.

Cargill, a supplier to Kroger and Walmart, said farmers who transition to more-sustainable practices are paid more to make the leap. Even so, farmers lose money the first year they move to sustainable soil management and fertilizer practices, so they have no financial incentive unless companies like Cargill are willing to pay that premium.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.