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Sustainability & its implications for theSustainability & its implications for theIrish Food, Drink & HorticultureIrish Food, Drink & Horticulture

IndustryIndustry

November 2008November 2008

Padraig BrennanPadraig Brennan


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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


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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 DiageoCo-op Irish Distillers

Carrefour Green Isle Foods

Mercadona Nestle

Casino Vion Group

Research undertaken: July to October 2008


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Emergence of Sustainability as an issueEmergence of Sustainability as an issue


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By 2030, the planet will need to produceBy 2030, the planet will need to produce

50% more food, with less land, water and50% more food, with less land, water and

energy while also reducing greenhouseenergy while also reducing greenhouse

gas emissionsgas emissions

United Nations, 2008United Nations, 2008


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What does sustainabilityWhat 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 ofpresent without compromising the ability of

future generations to meet their needs."future generations to meet their needs."


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Evolution of sustainabilityEvolution 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


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Sustainability getting greaterSustainability getting greater

coverage in Irelandcoverage in Ireland


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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


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Role of food sector inRole of food sector in

terms of climate changeterms of climate change

Food chain accounts for 18% of UKFood chain accounts for 18% of UK

GHG emissionsGHG emissions

Agriculture stage, the mostAgriculture stage, the mostsignificant contributorsignificant contributor

However, other stages alsoHowever, other stages also

significant:significant:

Packaging

Food processing

Home storage

Cooking

Disposal


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Sustainability embracesSustainability 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 ProductComplete Product

Life CycleLife Cycle


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Sustainability continuesSustainability continues

to evolveto evolve

Biodiversity loss

Water scarcity

Carbon & energy

regulation

Raw material

shortages

Impacts today Additional impacts in the future


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Becoming core elementBecoming 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 onlycentral 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


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Sustainability seen toSustainability seen to

offer aoffer a win winwin win

scenarioscenario

Financial benefitsFinancial benefits Enhanced brand imageEnhanced brand image


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The Consumer ViewThe Consumer View


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Consumers receivingConsumers receiving

lots of information!lots of information!


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Changes in behaviourChanges 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%


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However, barriersHowever, 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


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Retailer StrategiesRetailer Strategies


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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


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Why are retailersWhy 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


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Common themes evident inCommon 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


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Ahold


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Carrefour

Commitments to the

Environment:

Reduce impact on GHG

Protect natural resources

Waste reduction

Preservation of water

Preservation of biodiversity


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Examples of RetailerExamples 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-labelproducts 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


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Starting to engage moreStarting to engage more

strongly with suppliersstrongly with suppliers

Clear targets to work with suppliersClear targets to work with suppliers

Using Life Cycle Analysis to identifyUsing 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


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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


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Selling products withSelling 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


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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


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Manufacturer PerspectivesManufacturer Perspectives


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Raw material security is keyRaw 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


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Manufacturers developingManufacturers developing

programmes with suppliersprogrammes 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


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Common strategic focusCommon strategic focus

among manufacturersamong manufacturers

DiageoDiageo

Water Energy PackagingSustainable

Agriculture


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Process of continuousProcess of continuous

improvementimprovement

Nestl's performance in managing the consumption of resources

Long term strategy that can deliver cost savings


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Communicating improvementsCommunicating 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 beenLed by companies that have been sustainable from birthsustainable from birth


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Others nowOthers now

followingfollowing

Sustainability starting to become a product feature


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However, claims need toHowever, 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


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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


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Issue to impact on allIssue to impact on all

parts of the Supply Chainparts of the Supply Chain

Window of opportunity to embrace issue

Low carbonsuppliers favoured

Cost andavailabilitysignificantlyaffected

Demand for newmanufacturing

technologies andprocesses

Implementation ofrenewable energy

New modes oftransportation

Local suppliersfavoured

Local productsfavoured

Customerinformation andlabelling

Demand for lowcarbon productsand new productsand services

Ability to re-use or

recycle favoured Demand for less

packaging onproducts

Raw materials andother supply chains

Manufacturing Distribution Consumption End of life

Energy costs

Transport costs

Other materials costs

Redesign of supply chain Redesign of customer delivery

Low carbonsuppliers favoured

Cost andavailabilitysignificantlyaffected

Demand for newmanufacturing

technologies andprocesses

Implementation ofrenewable energy

New modes oftransportation

Local suppliersfavoured

Local productsfavoured

Customerinformation andlabelling

Demand for lowcarbon productsand new productsand services

Ability to re-use or

recycle favoured Demand for less

packaging onproducts

Raw materials andother supply chains

Manufacturing Distribution Consumption End of life

Energy costs

Transport costs

Other materials costs

Redesign of supply chain Redesign of customer delivery


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Implications for Irish IndustryImplications for Irish Industry


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Take outs for IrishTake 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


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Key steps towards developingKey steps towards developing

sustainable corporate strategysustainable corporate strategy

1. Input to Strategy Development

What are the key sustainabilityimpacts 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?


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Sustainability will impact onSustainability 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

AL

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

ER

N

A

L


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Lessons from otherLessons 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

AimsAimsHappy CowsHappy Cows

Happy FarmersHappy Farmers

Protected EnvironmentProtected Environment

Potential for Ireland toPotential for Ireland to

utilise REPS in this way?utilise REPS in this way?


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Developments by otherDevelopments 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


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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


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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


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Sustainability & its implications for theSustainability & its implications for the

Irish Food, Drink & HorticultureIrish Food, Drink & Horticulture

IndustryIndustry

November 2008November 2008

Padraig BrennanPadraig Brennan

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