Sustainability drives CPG purchasing

What this means: Sustainability crosses all components of retail, but the place most easily identifiable to consumers is in the products they purchase. This is especially true for products that they use and consume everyday, such as grocery or CPG items, as these products are often ingested or used in households. As younger consumers continue to grow in buying power, offering sustainable solutions at retail becomes even more essential in long-term merchandising strategies in order to satisfy the demands of these generations. Increasing concern about the environment, more options and product satisfaction are driving more sustainable product purchases, found the CSB Sustainable Market Share Index by the NYU Stern Center for Sustainable Business and Circana. Last year, sustainable products drove a third of all CPG growth, while representing 17% of total CPG Sales. Reasons consumers more often chose sustainable products include: Environmental impact, e.g., climate change — 44%. More sustainable options available — 40%. More sustainable options that work just as well — 34%. More competitively priced nowadays — 24%. More options online — 22%. More concerned about social impact — 21%. On sales/promotion — 21%. “Consumers want to feel good about their purchases, and they want to make a positive difference,” Randi Kronthal-Sacco, senior scholar at NYU Stern Center for Sustainable Business, told Retail Leader Pro. Consumer behavior highlights from the index include: 77% of consumers believe sustainability is important when selecting products to buy. 93% of shoppers have maintained or increased their sustainable purchase habits in the past year. 68% report sustainable actions taken at the individual level have a global impact. 27% of all consumers and 32% of millennials report they seek out retailers that carry sustainable products or demonstrate good sustainable practices. 17% of all shoppers and 20% of Gen Z and millennials choose retailers devoted to sustainability. Younger generations also gave select retailers high marks on sustainability efforts. For example, 28% of Gen Z and millennials rated Whole Foods Market as a retailer that does a “great” job on sustainability, followed by 25% for Trader Joe’s and 14% for Target. A higher percentage of Gen Z and millennials are purchasing more sustainable products. These cohorts also associate the term “sustainability” with environmental factors more than older consumers. Younger generations also are more likely than older generations to identify with several sustainability attributes. For example, 66% of Gen Z and millennials identified reduce by-products/waste as a sustainability attribute versus 62% of older generations. Shoppers — especially those from younger generations — are seeing more new products with sustainable benefits. Nearly half (48%) of Gen Z and millennials and 37% of older generations reported seeing more sustainable new products than in the past. Younger shoppers are also more likely to try new sustainable products. For instance, 35.7% of Gen Z and millennials and 23.9% of older generations have tried some more sustainable food or beverage brands they hadn’t purchased before. For sustainable personal care brands' new product trials, that number jumps to 37.6% for Gen Z and millennials and dips to 20.2% for older generations. In regard to willingness to try new sustainable products in general, 33.2% of Gen Z and millennials have not tried new sustainable products and 54.9% of older generations have not. “The younger user differentially buys sustainable products, and that is the future consumer,” Kronthal-Sacco said. “Marketers and retailers should take note.” While younger consumers will drive future demand for sustainable products, baby boomers and Gen X are driving sales today, the index reported. Last year, millennials owned a quarter of sustainable product sales share and purchased a significantly higher percentage of sustainably marketed products in: carbonated beverages, cookies, frozen dinners, household cleaners and detergent, pet food, skin care, and weight control. Gen X held 32% of sustainable sales shares and bought a significantly higher percentage of floor cleaners and weight control products. Baby boomers possessed the greatest share of sustainable sales at 33% and purchased a significantly higher percentage of sustainably marketed products in cups and plates and floor cleaners. Seniors and retirees hold 10% of sustainable sales share, and the demographic bought a significantly higher percentage of bottle juice and cereal. Willingness to pay a premium During this inflationary period, sustainability-marketed products outperformed conventionally marketed products across 36 categories and grew 0.3 points to 17.3% of purchases last year, the index reported. Sustainability marketed products’ five-year compound annual growth rate sits at 9.48%, outpacing its conventional counterpart at 4.98% for the same period. “Our data showed two growing segments in 2022,” Doug Yolen, vice president, center of store, Media Center of Excellence at Circana, told Retail Leader Pro. “There was a 0.8 point share increase in store brands compared to 2021 as consumers feel wallet pressure, and the share of sustainability-marketed products increased 0.3 points, showing that sustainable branded products were more insulated from inflation-based pricing moves to store brands.” Sustainability-marketed products still enjoy a price premium of 27.6% compared to their conventional counterparts, but the price gap did narrow this past year, as many conventional products executed above-inflation price increases and several lower-priced conventional products added sustainable features, the report found. Food categories posted the greatest price leverage among sustainably marketed products, according to Circana. As food products have seen some of the highest inflation rates this year, Yolen still expects sustainability-marketed food products’ price leverage to continue this year. “Largely, our data suggests that consumers care most about human health and what they consume when considering sustainable products,” he said. Given the share growth of sustainability-marketed products overall, Circana believes consumers’ willingness to pay more for sustainable products during this inflationary period will continue. “In part because the differential between the two segments has contracted from a high of over a 40% premium pre-pandemic,” Yolen said. “This premium gap reduction is a result of more historically conventional products adopting sustainable benefits without a commensurate price increase as well as conventionally marketed products increasing price at a much faster rate than sustainability-marketed products. We do believe consumers and manufacturers put a value on sustainability, so we expect buying to continue with the price premium gap holding at 27%.” Since consumers who typically buy sustainably marketed products have higher household incomes, these consumers have helped sustainably marketed products to continue to perform well this year. In tow, nearly a quarter (24%) of consumers in the survey found sustainability-marketed products to be more competitively priced to conventional products than in the past. “It's really the perceived value of sustainable products that is attracting consumers,” Kronthal-Sacco said. “They understand that it might cost more to produce a product that conserves or is committed to renewable resources, and they are willing to spend the extra money for products they feel good about purchasing.” Sustainability online Index data also revealed sustainability marketed products perform better in e-commerce. “E-commerce offers more real estate to tout one’s sustainability benefits versus a small package and limited retail space,” Kronthal-Sacco explained. “E-commerce sites are also helping consumers to navigate conscious consumerism through their certifications such as ‘clean’ at Sephora and Amazon’s Climate Pledge Friendly designation. And finally, the profile of the e-purchaser is similar to the sustainable purchaser: younger, wealthier and more tech-savvy.” When online shopping, 84% of consumers believe sustainability of products is important. Shoppers want sustainably marketed products’ ingredient lists, origin information and recyclability of the packaging that will be delivered. In regard to consumer experience, 17% said finding sustainable products when shopping online is “typically” easy and 69% said it’s “sometimes easy.” Moving forward, brands and retailers will need to be transparent to consumers about their sustainability practices. “Climate change, water scarcity, biodiversity loss, social inequities, worker welfare — these are topics that have a direct impact on the lives and incomes of millennials and Generation Z,” Kronthal-Sacco explained. ”They are increasingly focused on corporate behavior on these topics as employees, consumers and investors. From their perspective, sustainability will be table stakes, and those companies that can stand out from the crowd authentically will earn their loyalty.” What’s next: Younger consumers are more likely to look for sustainable alternatives at retail regularly, but for average consumers, highlighting the features and benefits of these items is key to success. Retailers and brands need to be part of the conversation, and consumer education is an important facet. Using e-commerce for retail and brand storytelling — along with social platforms and in-store signage — can be tools that not only increase awareness but also drive conversion.

Monthly
Subscription

TRIAL
SUBSCRIPTION

ANNUAL
Subscription

Monthly Subscription

TRIAL SUBSCRIPTION

ANNUAL Subscription

Monthly
Subscription

TRIAL
SUBSCRIPTION

ANNUAL
Subscription