December 4, 2008
Working Toward a ‘Green’ Balance Sheet
A new report from A.T.
Kearney and the World Resources Institute concludes that consumer goods
companies that fail to take steps to become more eco-friendly will see
annual profits reduced by nearly half by 2018.
Rattling Supply Chains:
The Effect of Environmental Trends on Input Costs to the Fast Moving
Consumer Goods Industry,
engages in some crystal balling – Kearney calls it “future analysis” – to
determine how environmental legislation, variations in commodity costs
and climate change will affect future operating costs.
“Ecoflation,”
as dubbed by Kearney, will hit companies particularly hard during slow growth
periods.
Daniel Mahler, partner
and global leader for sustainability practice at Kearney, told Brandweek
that companies that take steps to reduce the use of plastic and paper are
in a stronger competitive position during economic downturns such as the
one currently being faced.
“Companies are
desperate to save because they can’t grow. The commodity price pressures
have eased, but now the pressure is to save costs,” Mr. Mahler said.
Kearney’s report projects
that corporate earnings will drop between 13 to 31 percent in the consumer
packaged goods industry over the next five years and between 19 and 47
percent over the next ten if companies do not introduce significant sustainability
measures.
CPG
companies simply cannot continue the “business-as-usual” approach,
Mr. Mahler said.
Joel Makower, executive
editor of GreenBiz.com, said a focus on sustainability may mean that companies
need to rethink products. In the end, he told Brandweek, “It
has as much to do with improving business practices as it does with improving
environmental practices. In fact, the two go hand-in-hand.”
Discussion Questions:
Has sustainability become a business imperative for CPG manufacturers?
How closely tied are sustainability initiatives to corporate bottom line
performance today? Where will it be 10 years from now?
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Certainly, we can all feel the ground shaking beneath our feet on this issue. The momentum of the green movement seems to have reached the proverbial tipping point. Whether or not reports like this are perfectly accurate doesn’t really matter. What does is that the proof would appear to be undeniable that consumers are demanding sustainable business practices. Business must do now what it has always done…give the customer what they want. There’s no point in fighting the inevitable.
We saw significant productivity gains from 1995 until 2000 when corporations upgraded their technology and real-time data became the norm. The false threat of Y2K also pushed companies to replace systems which was often times needlessly done.
It sounds like the new administration will be pushing for productivity gains through environmentally friendly solutions and green jobs. Look at a state such as Colorado where they throw away 87% of their waste. Is this efficient? A Spanish company had to come to Phoenix and build 3 square miles of solar panels because America didn’t have the ambition and common sense to do so?
There is a plethora of opportunity in the extremely inefficient way we run our businesses and homes. I make no assumptions about any business or state, and the way they run their business. Target strives to be a zero waste company. They’re not even in the ballpark and that type of lip service needs to turn into action. We have a couple of dozen stores that have solar panels on their roofs in California and Hawaii. That’s not even scratching the service.
Let’s get out of this archaic, fossil-fuel driven industrial age economy and leverage and incentivize green and organic solutions. Yes, companies will see their bottom line suffer if they don’t change.
Well, thanks to another institution for giving us a handy dandy percentage of how much our profits will suffer if we fail to meet the new “green” standards, but of course those of us in the real business world know that profits will increase or decrease due to any “number” of other factors, too. It goes without saying that products will need to conform to the public and scientific perceptions of what helps to preserve the environment, and yes this is a trend that will continue, and in particular once the recession is behind us.
The green movement has not been just a fad for people who can afford luxuries. Certainly, consumers who can afford to pay more for products and have great discretion over what they purchase have made some selections because they were green. However, that is only one segment of the consumers purchasing green products.
Consumers purchasing green products are not one homogeneous group. Some are experimenting, some are following what they believe to be an “in” trend, some are doing what they can at a minimal level because they are interested in green consumption but not totally committed, some are doing everything green they can afford, and some are totally committed to doing everything they can to be green and save the planet.
The last group will continue to be green. The second last group will continue to be green within financial limits. The third last group will continue to try. When the economy improves the last two groups here will expand. As a result, green issues will continue to be important to consumers and are likely to expand in the future even if there is a mild decrease during times of financial hardship.
Manufacturers and retailers need to be aware of the different segments, their interests, and trends.
Consumers talk green, but they spend to stay in the black. They have yet to prove they’re willing to spend more for product just because it is green. Additionally, American consumers do best with one crisis at a time. So they’re not likely going to change until we’re able to resolve our current economic crisis. Green may not be dead, but it is certainly on the back-burner.
Consumers will eventually address the next crisis with the same aplomb to which we’ve become accustomed. But, don’t assume it will be sustainability. It may be health care, terrorism, a new plague, etc.
Retailers are fond of saying consumers only respond to fear and greed. It is interesting to read a report regaling business with both.
Going forward, sustainability will continue to drive business development for CPG manufacturers. Today, companies have moved to sustainable practices because it’s the right thing to do. Reducing energy consumption, transportation costs, and waste just makes good economic sense. Designing products/packaging for better cube efficiency and distribution delivers solid returns.
Developing products from a sustainable perspective from sourcing to packaging to end of life drives business to consider better choices that reflect core consumer values. According to Peter White, P&G, Global Director of Sustainability, “..over next the five years, P&G is going to develop a $20 billion market of sustainable innovation products. Sustainable innovation means a 10 per cent improvement over the whole life cycle of a product in one of six environmental categories.”
In order for CPGs to stay competitive, sustainability will drive the way they do business. Retailers from Walmart to Wegmans demand transparent accountability for the products sell. The return on the triple bottom line–doing the right things for people and planet that drive profit will continue to be an imperative for CPG investment and growth.
Some environmental concessions will be cost prohibitive to companies. But it makes sense for companies to implement the easy, environmentally responsible, and inexpensive solutions first. Things like recycling and reducing packaging. Also, bringing in new technology that promotes a “paperless” environment can be fairly painless and will often pay for itself through paper savings within a year.
Consumers are aware of the environment and I believe they like to do business with companies that are trying to be environmentally conscious. But in today’s economy, I also think the environment takes a back seat to cost, convenience and value for most consumers.
This study’s projections about future earnings are debatable – plenty of things can and will happen between now and 2013. That said, the primary conclusion seems to be that CPGers have an opportunity to realize cost savings by going green. Along with growing consumer awareness, both are forcing companies to get smarter about green issues and how to address them. Studies like this highlight the opportunity to achieve positive bottom-line impacts while also creating positive environmental change. Where I think more is needed is the development of effective ROI measures, so companies can determine what works best for them, their consumers and the environment.
I am always skeptical when some consulting group tries to tell businesses that profits will go down unless they do something that would appear to have minimal financial short term gains. However, it’s just common sense isn’t it? Cut back on resources such as fuel, electricity, and stuff that turns into garbage and you will save money. The more innovative that companies can get now with being green the more it will give them an advantage 10 years from now. It could mean the difference between success and failure.
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Certainly, we can all feel the ground shaking beneath our feet on this issue. The momentum of the green movement seems to have reached the proverbial tipping point. Whether or not reports like this are perfectly accurate doesn’t really matter. What does is that the proof would appear to be undeniable that consumers are demanding sustainable business practices. Business must do now what it has always done…give the customer what they want. There’s no point in fighting the inevitable.
We saw significant productivity gains from 1995 until 2000 when corporations upgraded their technology and real-time data became the norm. The false threat of Y2K also pushed companies to replace systems which was often times needlessly done.
It sounds like the new administration will be pushing for productivity gains through environmentally friendly solutions and green jobs. Look at a state such as Colorado where they throw away 87% of their waste. Is this efficient? A Spanish company had to come to Phoenix and build 3 square miles of solar panels because America didn’t have the ambition and common sense to do so?
There is a plethora of opportunity in the extremely inefficient way we run our businesses and homes. I make no assumptions about any business or state, and the way they run their business. Target strives to be a zero waste company. They’re not even in the ballpark and that type of lip service needs to turn into action. We have a couple of dozen stores that have solar panels on their roofs in California and Hawaii. That’s not even scratching the service.
Let’s get out of this archaic, fossil-fuel driven industrial age economy and leverage and incentivize green and organic solutions. Yes, companies will see their bottom line suffer if they don’t change.
Well, thanks to another institution for giving us a handy dandy percentage of how much our profits will suffer if we fail to meet the new “green” standards, but of course those of us in the real business world know that profits will increase or decrease due to any “number” of other factors, too. It goes without saying that products will need to conform to the public and scientific perceptions of what helps to preserve the environment, and yes this is a trend that will continue, and in particular once the recession is behind us.
The green movement has not been just a fad for people who can afford luxuries. Certainly, consumers who can afford to pay more for products and have great discretion over what they purchase have made some selections because they were green. However, that is only one segment of the consumers purchasing green products.
Consumers purchasing green products are not one homogeneous group. Some are experimenting, some are following what they believe to be an “in” trend, some are doing what they can at a minimal level because they are interested in green consumption but not totally committed, some are doing everything green they can afford, and some are totally committed to doing everything they can to be green and save the planet.
The last group will continue to be green. The second last group will continue to be green within financial limits. The third last group will continue to try. When the economy improves the last two groups here will expand. As a result, green issues will continue to be important to consumers and are likely to expand in the future even if there is a mild decrease during times of financial hardship.
Manufacturers and retailers need to be aware of the different segments, their interests, and trends.
Consumers talk green, but they spend to stay in the black. They have yet to prove they’re willing to spend more for product just because it is green. Additionally, American consumers do best with one crisis at a time. So they’re not likely going to change until we’re able to resolve our current economic crisis. Green may not be dead, but it is certainly on the back-burner.
Consumers will eventually address the next crisis with the same aplomb to which we’ve become accustomed. But, don’t assume it will be sustainability. It may be health care, terrorism, a new plague, etc.
Retailers are fond of saying consumers only respond to fear and greed. It is interesting to read a report regaling business with both.
Going forward, sustainability will continue to drive business development for CPG manufacturers. Today, companies have moved to sustainable practices because it’s the right thing to do. Reducing energy consumption, transportation costs, and waste just makes good economic sense. Designing products/packaging for better cube efficiency and distribution delivers solid returns.
Developing products from a sustainable perspective from sourcing to packaging to end of life drives business to consider better choices that reflect core consumer values. According to Peter White, P&G, Global Director of Sustainability, “..over next the five years, P&G is going to develop a $20 billion market of sustainable innovation products. Sustainable innovation means a 10 per cent improvement over the whole life cycle of a product in one of six environmental categories.”
In order for CPGs to stay competitive, sustainability will drive the way they do business. Retailers from Walmart to Wegmans demand transparent accountability for the products sell. The return on the triple bottom line–doing the right things for people and planet that drive profit will continue to be an imperative for CPG investment and growth.
Some environmental concessions will be cost prohibitive to companies. But it makes sense for companies to implement the easy, environmentally responsible, and inexpensive solutions first. Things like recycling and reducing packaging. Also, bringing in new technology that promotes a “paperless” environment can be fairly painless and will often pay for itself through paper savings within a year.
Consumers are aware of the environment and I believe they like to do business with companies that are trying to be environmentally conscious. But in today’s economy, I also think the environment takes a back seat to cost, convenience and value for most consumers.
This study’s projections about future earnings are debatable – plenty of things can and will happen between now and 2013. That said, the primary conclusion seems to be that CPGers have an opportunity to realize cost savings by going green. Along with growing consumer awareness, both are forcing companies to get smarter about green issues and how to address them. Studies like this highlight the opportunity to achieve positive bottom-line impacts while also creating positive environmental change. Where I think more is needed is the development of effective ROI measures, so companies can determine what works best for them, their consumers and the environment.
I am always skeptical when some consulting group tries to tell businesses that profits will go down unless they do something that would appear to have minimal financial short term gains. However, it’s just common sense isn’t it? Cut back on resources such as fuel, electricity, and stuff that turns into garbage and you will save money. The more innovative that companies can get now with being green the more it will give them an advantage 10 years from now. It could mean the difference between success and failure.