Shoppers are increasingly demanding more from the brands and retailers they support. In parallel, retailers are setting ambitious climate goals. In order to drive sales and meet these interconnected goals, retailers want to amplify sustainable products on the shelf.
Consumer Demand & Sales Growth
According to a recent McKinsey and NielsenIQ study, brands making credible ESG claims have 8% point higher cumulative sales growth as compared to products not making ESG-related claims. Brands across the grocery store with ESG related claims, specific to a reduced carbon footprint, drove an increase in sales by 10% year over year.
According to SPINS, sustainability continues to buoy food and beverage categories in grocery. We’ve seen significant growth year-over-year in common sustainability qualities on package claims highly recognizable to shoppers. We’re also seeing this growth in a set of emerging sustainability certifications that have high disruption potential.
Building on the groundwork and shopper capital that organic, fair trade and non-GMO have established in the marketplace, innovative, next-gen certifications like Regenerative Organic Certified and Upcycled Certified products are gaining steady ground, growing 19.1% and 14.8% respectively in percent dollar change. In early 2020, Whole Foods Market announced regenerative agriculture would be the No. 1 food trend and in spite of the pandemic and rapid growth of online shopping overshadowing the trend, business interest in the field spiked by 138%. They’re now educating suppliers on the benefits of a regenerative transition through a digital hub.
Later in 2020, Walmart announced an ambitious goal of targeting zero emissions across the company’s global operations by 2040. According to Doug McMillon, Walmart’s President and CEO, “We want to play an important role in transforming the world’s supply chains to be regenerative. We face a growing crisis of climate change and nature loss, and we all need to take action with urgency. For 15 years, we have been partnering to do the work and continually raising our sustainability ambitions across climate action, nature, waste and people. The commitments we’re making today not only aim to decarbonize Walmart’s global operations, they also put us on the path to becoming a regenerative company—one that works to restore, renew and replenish in addition to preserving our planet, and encourages others to do the same.”
Emerging retailer sustainability programs reflect their respective climate goals and initiatives, and indicate a preference for carrying CPG food and beverage brands with ESG-related product claims and brand messaging. Even more, grocers are taking action by offering premium placement to sustainable brands across the omnichannel shopping experience, in-store, online and through apps.
Sprouts has been spotlighting climate-friendly brands and is seeing the results, with a reported $3.2 billion in 2022 sales of products with a social or environmental attribute, and a growth in plant-based alternative sales by 21%.
Aside from increased visibility and a boost in sales, a favorable outcome for brands with robust climate strategies and sustainability initiatives is a repeat purchase, an indicator of brand loyalty. Recent research from NielsenIQ and McKinsey shows that brands with over 50% of sales from products with ESG-related claims achieve repeat rates of up to 34%.
Scope 3 Reduction
A high percentage of retailer emissions—as high as 93% according to McKinsey—come from their value chain. For retailers, the emissions of the goods they purchase from CPG manufacturers and sell in their stores and online, are considered Scope 3, also known as other indirect emissions from greenhouse gasses according to the Greenhouse Gas Protocol.
In our complex food ecosystem where each player has a role in another’s greenhouse gas emissions, retailers have no choice but to evolve to reduce their own impact on the planet by prioritizing their supply chain.
In many cases, we’re already seeing this in action. For example, Kroger has a target to reduce GHG emissions by 30% by 2030, from a 2018 baseline, committing to setting and communicating a Scope 3 reduction target in 2023.
As a pioneer in the mission-driven, climate-friendly food movement, Thrive Market is the largest U.S. grocer to become a B Corp and has been Carbon Neutral since 2014. In 2022, they added 92 new regeneratively grown products, and achieved Gold Level TRUE certification for Zero Waste at their Hanover, PA fulfillment center, among other accomplishments. They’re now tackling their most aggressive goal yet, to become carbon negative in 2025, having a net-positive impact on our planet.
In Amazon’s release of their 2022 Sustainability Report, published July 2023, they announced they will require suppliers to report their greenhouse gas emissions data beginning 2024. Amazon is a first mover in requiring suppliers to disclose emissions. As competitive retailers make their own Net Zero commitments, they too will soon require emissions disclosures and further prioritize suppliers with climate-friendly products.
In the meantime, retailers are incentivizing brands to reduce their emissions by increasing potential for sales growth within brick and mortar and e-commerce experiences. They’re also on the lookout for lower emissions brands to introduce to their merchandising portfolios.
This is only the beginning for retailer sustainability. To dive deeper into existing programs, Download the full guide to the retailer climate program.
