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

Transcription

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

2 Outline Background Emergence of Sustainability as an issue The Consumer view Retailer & Manufacturer strategies Implications for Irish Industry

3 Background Work undertaken by Price Waterhouse Coopers Mix of primary & secondary research 20 leading retailers and manufacturers examined Marks & Spencer Ahold Musgrave Tesco ICA ASDA Co-op Carrefour Mercadona Casino Unilever Danone Danish Crown Ben & Jerry Glanbia Diageo Irish Distillers Green Isle Foods Nestle Vion Group Research undertaken: July to October 2008

4 Emergence of Sustainability as an issue

5 By 2030, the planet will need to produce 50% more food, with less land, water and energy while also reducing greenhouse gas emissions United Nations, 2008

6 What does sustainability mean? Defined by the World Commission on Environment and Development as: "forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs."

7 Evolution of sustainability as a global issue Evolution of Business/Consumer Agenda 1980s 1990s Smoking Fast Food GMO s Carbon Alcohol use Sweat Shops Bottled Water Water Scarcity Baby food

8 Sustainability getting greater coverage in Ireland

9 What is driving issue? Globalisation Climate Change Competitor Issues Strategy Brand Product Range Supply Issues Raw material shortages Water scarcity Biodiversity loss Business Performance Health & wellness Sustainable / ethical consumerism Online connectivity / transparency Demand Issues Carbon & energy regulation Regulatory Trends Expanding population Increasing consumption

10 Role of food sector in terms of climate change Food chain accounts for 18% of UK GHG emissions Agriculture stage, the most significant contributor However, other stages also significant: Packaging Food processing Home storage Cooking Disposal

11 Sustainability embraces full product life cycle Disposal & Recycling Cultivation/ Primary Production Cooking Complete Product Life Cycle Packaging Production Refrigeration/Freezing Manufacturing Distribution

12 Sustainability continues to evolve Impacts today Additional impacts in the future Carbon & energy regulation Raw material shortages Biodiversity loss Water scarcity

13 Becoming core element of corporate strategy Sustainability is the single biggest business opportunity of the 21 st century, and will be the next source of competitive advantage. Lee Scott, CEO Walmart When most of the raw materials are natural, you cannot put nature at risk without endangering your own resources. Frank Ribound, CEO Danone 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 New Zealand aims to be a credible leader in responding to Climate Change. Helen Clark, Prime Minister

14 Sustainability seen to offer a win win scenario Financial benefits Enhanced brand image

15 The Consumer View

16 Consumers receiving lots of information!

17 Changes in behaviour evident 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 years Fairtrade penetration up from 20% to 50% Organic from 22% to 43% Free range from 45% to 65%

18 However, barriers remain Three principal barriers, namely: Price 48% unwilling or unable to pay current premium Average premium currently stands at 45% Confusion & 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 alternatives Lack of availability cited by more than 20% of consumers Choice can be limited

19 Retailer Strategies

20 Retailers & Sustainability Suppliers Retailers Consumers Retailer provide link between consumers and manufacturers Well positioned to identify trends Able to respond with initiatives & product offerings However, retailers have limited direct impact on Climate Change

21 Why are retailers embracing Sustainability? Three principal reasons: Risk Need to be seen to be acting responsibly Increased scrutiny from NGO s s and consumers Commercial Logic Consumer Awareness Commercial benefit through cost savings Rising energy, transport, waste & packaging costs Consumers more conscious of environmental issues Expect retailers to play their part Compliance & Risk Management Evolve over time Operating Efficiencies & Brand Enhancement

22 Common themes evident in retailer 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

23 Common themes evident in retailer strategies Climate Waste Packaging Health Ethical Trade Ahold

24 Common themes evident in retailer 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

25 Examples of Retailer Initiatives ICA Tesco Marks & Spencer 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 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 % of the business switched to renewable energy in 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 Mainly Internal Initiatives to date

26 Starting to engage more strongly with suppliers Clear targets to work with suppliers Using Life Cycle Analysis to identify hotspots Varying views on the merits of carbon labelling Most focus to date has been on private label ranges To date approach has been collaborative and largely voluntary Expected over time that will become compulsory Opportunity for suppliers to take proactive approach

27 Engaging with consumers - Building 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

28 Selling products with Sustainability credentials 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

29 Where to from here? Retailers will continue to influence consumer behaviour Choice editing to drive positive informed choices Sustainability to become increasing part of brand promise Enhance private label ranges through sustainability focus Retailers will increasingly look to their suppliers Innovation in terms of functionality and how products are produced Likely to be opportunities for proactive suppliers Large retailers will have strong role in guiding standards

30 Manufacturer Perspectives

31 Raw material security is key driver for manufacturers Long term security of food supply is critical factor Water scarcity becoming a major issue Biodiversity growing in importance Brand reputation Commercial potential Connecting with consumers Sustainability helping to build emotional values into brands

32 Manufacturers developing programmes with suppliers Up to 80% of environmental impacts are associated Nestle with sourcing of raw materials* Strongly communicating activity * PwC Life Cycle Analysis for consumer goods

33 Common strategic focus among manufacturers Water Energy Packaging Sustainable Agriculture Diageo

34 Common strategic focus among manufacturers Water Energy Packaging Sustainable Agriculture Nestle

35 Process of continuous improvement Nestlé's performance in managing the consumption of resources Long term strategy that can deliver cost savings

36 Communicating improvements to consumers Sustainability now recognised within the brand promise Emotional values increasingly used to differentiate Led by companies that have been sustainable from birth

37 Others now following Sustainability starting to become a product feature

38 However, claims need to be credible Increased level of scrutiny likely While most manufacturers don t t favour carbon labelling.. They unanimously agree on benefits of Life Cycle Analysis Sustainability being incorporated into innovation programmes

39 Future Direction Sustainability issues gaining more traction with consumers Emotional values to become key point of differentiation Sustainability to become a product feature First carbon neutral wine East green beer from Adnams Brewery

40 Issue to impact on all parts of the Supply Chain Raw materials and other supply chains Manufacturing Distribution Consumption End of life Energy costs Transport costs Other materials costs 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 Redesign of supply chain Redesign of customer delivery Window of opportunity to embrace issue

41 Implications for Irish Industry

42 Take outs for Irish manufacturers 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

43 Key steps towards developing sustainable corporate strategy 2. Determine 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 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? 3. Implement 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?

44 Sustainability will impact on all aspects of the business I N T E R N A L 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. E X T E R N A L Marketing & Branding Ranging & Pricing Need to leverage their unique benefits and assets with appropriate messages reflecting Sustainable values. Need to understand how they can differentiate themselves using sustainability and decide on their optimal pricing strategy.

45 Lessons from other initiatives Programme Criteria Soil fertility & nutrient use Biodiversity Farm economics Water & energy Use Animal welfare Local economy Potential for Ireland to utilise REPS in this way? Aims Happy Cows Happy Farmers Protected Environment

46 Developments by other countries New Zealand industry has been proactively addressing issue 49% of emissions come from agriculture 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 challenge Seeking 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

47 Key actions Raise awareness levels Help build better industry understanding of sustainability Develop industry response using a sectoral approach Help identify tools, approaches & frameworks

48 Summary 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

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