Sustainability & its implications for the

Irish Food, Drink & Horticulture

Industry

November 2008
Padraig Brennan
Outline

• Background

• Emergence of Sustainability as an issue

• The Consumer view

• Retailer & Manufacturer strategies

• Implications for Irish Industry

Background

• Work undertaken by Price Waterhouse Coopers

• Mix of primary & secondary research

• 20 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 issue
 “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

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."
Evolution of sustainability
as a global issue

Evolution of Business/Consumer Agenda

1980s 1990s 2000 2005+

Smoking Fast Food GMO’s Carbon

Alcohol use Sweat Shops Bottled Water Water Scarcity
Baby food
Sustainability getting greater
coverage in Ireland
What is driving issue?

Climate
Globalisation Change
• Strategy
Competitor • Brand
• Product Range
Issues

• Raw material • Health & wellness

Supply shortages Business • Sustainable / ethical Demand
Issues • Water scarcity Performance consumerism Issues
• Biodiversity loss • Online connectivity /
transparency

• Carbon & Regulatory

energy Trends
regulation

Expanding Increasing
population consumption
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
Sustainability embraces
full product life cycle

Cultivation/
Disposal & Primary Production
Recycling

Cooking Packaging

Complete Product Production

Life Cycle

Refrigeration/Freezing Manufacturing

Distribution
Sustainability continues
to evolve

Impacts today Additional impacts in the future

Carbon & energy

Biodiversity loss
regulation

Raw material
shortages Water scarcity
Becoming core element
of corporate strategy

“Sustainability is the single biggest

business opportunity of the 21st
century, and will be the next source “This agenda of sustainability and
of competitive advantage.” corporate responsibility is not only
Lee Scott, CEO Walmart 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
“New Zealand aims to be a credible
resources.”
leader in responding to Climate
Frank Ribound, CEO Danone Change.”

Helen Clark, Prime Minister

Sustainability seen to
offer a “win win”
scenario

Financial benefits Enhanced brand image

The Consumer View
Consumers receiving
lots of information!
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%
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
Retailer Strategies
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

Why are retailers
embracing Sustainability?

• Three principal reasons:

• Need to be seen to be acting responsibly
Risk
• Increased scrutiny from NGO’s and consumers

• Commercial benefit through cost savings

Commercial Logic
• Rising energy, transport, waste & packaging costs

• Consumers more conscious of environmental issues

Consumer Awareness
• Expect retailers to play their part

Compliance & Operating Efficiencies &

Evolve over time
Risk Management Brand Enhancement
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
Common themes evident in
retailer strategies

Climate Waste Packaging Health Ethical Trade

Ahold
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
Examples of Retailer
Initiatives

ICA Tesco Marks & Spencer

Reduce GHG emissions Reduce CO2 emissions 20% of the business

by 30% by 2020 per case in transport by switched to renewable
50% by 2012 energy in 2007.

In 2007 ICA conducted a Reduce CO2 emissions 3 “green” stores were

carbon footprint study on In stores and distribution launched in 2007
100 of its private label centres by 50% by 2020
products M&S website tracks real
Carbon labelling trial on time the energy use in
20 products in 2008 stores
Website launched to
encourage consumers to Reduce packaging on Overall target to be
reduce food waste branded and own-label carbon neutral by 2012
products by 25% by 2010
Reduce packaging
volumes by 25% by
2012.

Mainly Internal Initiatives to date

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

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

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

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

Manufacturer Perspectives
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
 Manufacturers developing
programmes with suppliers

Up to 80% of environmental impacts are associated

with sourcing of raw materials*
Nestle

Strongly communicating activity

* PwC Life Cycle Analysis for consumer goods

Common strategic focus
among manufacturers

Sustainable
Water Energy Packaging
Agriculture

Diageo
Common strategic focus
among manufacturers

Sustainable
Water Energy Packaging
Agriculture

Nestle
Process of continuous
improvement

Nestlé's performance in managing the consumption of resources

Long term strategy that can deliver cost savings

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’

……… Others now
following

Sustainability starting to become a product feature

However, claims need to
be credible

• Increased level of scrutiny likely

• While most manufacturers don’t favour carbon labelling……..

• ……They unanimously agree on benefits of Life Cycle Analysis

• Sustainability being incorporated into innovation programmes

Future 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
parts of the Supply Chain

Raw materials and

Manufacturing Distribution Consumption End of life
other supply chains

Energy costs

Transport costs

Other materials costs

• Customer
• Low carbon • Demand for new • New modes of information and
suppliers favoured manufacturing transportation labelling • Ability to re-use or
• Cost and technologies and • Local suppliers • Demand for low recycle favoured
availability processes favoured carbon products • Demand for less
significantly • Implementation of • Local products and new products packaging on
affected renewable energy favoured and services products

Redesign of supply chain Redesign of customer delivery

Window of opportunity to embrace issue

Implications for Irish Industry
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

Key steps towards developing
sustainable corporate strategy

2. Determine Strategy

• What is my overall ambition

and positioning on this issue?
• What are the priorities for us?
• What should be our strategy
1. Input to Strategy Development and targets related to each of
these issues and how does 3. Implement Strategy
• What are the key sustainability this impact:
impacts related to my product? • How do I engage our
• Marketing and branding
• What do end consumers • Range and pricing – Key functions within my
expect? business
• Sourcing and supply chain
• How are my competition – Employees
• Business Operations
responding?
• What metrics, systems,
• How does sustainability fit with procedures and controls need
overall corporate values, brand to be established ?
and strategy?
• What external communications
• What are the possible long strategy should I adopt to
term scenarios related to demonstrate our Sustainability
sustainability? 4. Evaluate outcome credentials?
• 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
all aspects of the business

I Need to understand the role they play in the broader value chain and how
Sourcing &
N they can work more closely with their suppliers and customers.
Supply Chain
T
E
R
N
A
Need to examine their operations to understand their environmental impact,
L Business Operations
reduce the hotspots, and look at ways to create competitive advantage.

E
X
Marketing & Need to leverage their unique benefits and assets with appropriate
T Branding messages reflecting Sustainable values.
E
R
N
A Ranging & Need to understand how they can differentiate themselves using
L Pricing sustainability and decide on their optimal pricing strategy.
Lessons from other
initiatives

Programme Criteria
Potential for Ireland to
• Soil fertility & nutrient use
utilise REPS in this way?
• Biodiversity
• Farm economics
• Water & energy Use
• Animal welfare
• Local economy

Aims
Happy Cows
Happy Farmers
Protected Environment
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

Key actions

• Raise awareness levels

• Help build better industry understanding of sustainability

• Develop industry response using a sectoral approach

• Help identify tools, approaches & frameworks

 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
Sustainability & its implications for the
Irish Food, Drink & Horticulture
Industry

November 2008
Padraig Brennan