Whether you attribute it to Gen Z, Covid-19, economic disruption or a number of other factors, there is no denying the fact that we are living in a purpose-driven era. Everything from purchasing behavior to whom you work for is increasingly being steered by purpose. Nowhere is this more evident than in the consumer goods and retail industry where increasing consumer and especially regulatory pressure have led to environmental, social and corporate governance (ESG) topics being high up on the list of priorities. The rules of the game are changing rapidly at the moment. Roland Berger’s latest study ‘The Sustainability Game: How new rules are reshuffling consumer goods markets’ makes it amply clear that if companies are to secure future sales and growth – and thereby remain in the game - they will have to place sustainability and its implications firmly at the heart of their strategy.
The four key consumer goods industries – food and beverages, fashion, personal and home care, and luxury – are worth around USD 14 trillion globally, and are expected to see a CAGR of around seven percent through 2030. However, growth is expected to slow down further, particularly in the West, leading to more players fighting over the same piece of the pie. Consumer pressure is one of the key factors accelerating change in the industry. Some industries, however, are feeling it more than the others.
Based on an analysis of 84 million conversations on social media, e-commerce sites, forums and blogs across 14 countries we developed the Consumer Pressure Index (CPI) that shines light on what is driving changes in the consumer goods market and how companies can best leverage them. The data gathered from our research shows that consumers are demanding increased action from companies within the food and beverages and fashion industry in all 14 countries.
"Companies that fail to respond to the sustainability challenge will be punished by both consumers and institutions and may even face a threat to their survival."
Within this context, embedding sustainability – a crucial factor in consumers’ purchasing decisions - within the fabric of the company can be the differentiating factor that allows them to stand out from the crowd.
The second criterion of the study is the Regulatory Pressure Index (RPI), which quantifies the sustainability pressure on the economy through laws and regulations. It is based on the evaluation of ESG legislation in 13 countries and the "Roland Berger Climate Combat Radar" as well as the "Global Risk Profile Human Rights Index".
Let’s take a closer look at the four key industries, the sustainability challenges facing them, and the trends and developments we predict will take place by 2030:
The food and beverages industry is focused on minimizing waste and ensuring sustainable sourcing. With 56 percent of companies having no Scope 3 emission reduction targets though, there is still substantial room for improvement. Even as transparency is becoming increasingly important, complex supply chains are challenging this goal. Our research findings show that consumer awareness (and willingness to pay) is much higher for environmental topics than for social or governance topics in the industry. We foresee a number of developments in the industry in the run-up to 2030. For example, e-trucks fueled by 100-percent green energy will become the standard, and in the area of production, there will be a greater focus on biodiversity and sustainable farming.
The fashion industry, to no one’s surprise, is the second-largest polluter in the world. In recent years, several brands have committed themselves to net-zero targets and new ones have emerged that place a strong emphasis on environmental credentials and build their brand story accordingly. However, product lifecycles and waste, more circular or recycling solutions as well as a lack of industry-wide definitions for a sustainable product present as a challenge. Our analysis reveals that consumers, especially in Western countries, are aware of the negative environmental impacts of the industry and likely therefore, show the greatest willingness to consider these aspects when making purchasing decisions. In the near future, we predict that the environmental and social impact of textiles particularly will be a critical decision criterion and especially much more strictly regulated. Eco-friendly materials will be used as a first choice in the production process and water consumption significantly reduced. The closed-loop challenge will be solved, fashion items will be recycled or have a second life and the demand will be much closer to supply, leading into a new seasonality. The educated consumer will make more conscious buying choices. And finally, the industry players will work closely together, enabling innovation and driving change.
Sustainability issues are too prevalent in the personal and home care industry. The current focus of the industry, which is facing high pressure from consumers and strict regulations, is on switching to reusable packaging. Companies that are addressing the pervasive issue of single-use plastic packaging are not only being considered more attractive by consumers, but by mergers and acquisitions departments too. As a result, we foresee companies increasingly switching to organic products and refilling solutions becoming the norm.
A growing number of companies within the luxury industry – subject to intense pressure from Gen Z and millennials who are driving 85 percent of global luxury sales growth – are committing themselves to net zero and zero waste. However, complex supply chains, high product standards and circularity challenges or 'the only new attitude’ of consumers pose an obstacle. Our findings reveal that the CPI differs significantly between countries (8.8 in Netherlands to 2.5 in Japan). This difference is also evident in the willingness to pay a premium for sustainable products, with countries such as India showing an extremely low one. In our vision for 2030, the industry will pivot to using more sustainable and recycled raw materials, and companies will offer customization at the Point of Sale. Transparency and traceability will be the norm as well as a block-chain driven certified pre-owned market.
"For sure not addressing sustainability is a major business risk! But let’s focus on the opportunity it creates and how it is going to become a key value driver. Every brand or retailer should prepare to win the sustainability game or others will."
So what does the sustainable consumer of 2030 look like? Our findings show a digital-savvy individual that views sustainability as a lifestyle and is intensely aware of their individual responsibility; holds companies accountable and rejects greenwashing and waste creation; subscribes to the buy-less mentality and is selectively willing to pay a premium for environmentally-friendly products that align with their personal values.
To appeal to the future consumer and especially keep up with shifting and stricter regulations, consumer goods players must integrate sustainability as a pillar in their overall company strategy. When doing so, they should consider our key findings:
Neglecting sustainability aspects will pose significant business risks for all industries in the near future. However, companies can attain a robust competitive edge by actively adopting sustainability strategies in a systematic manner. This entails taking into account all environmental, social, and governance (ESG) dimensions, implementing actions throughout the entire value chain, and avoiding the practice of greenwashing at any expense. Additionally, it is vital for companies to adapt their strategies according to the specific requirements of each country, as these can vary significantly.
The food industry should prioritize environmental matters, as this aspect is more important to consumers than social or governance topics. Authorities are about to increase the pressure through ESG-related laws and regulations. Thus, it is important for the fashion industry to implement consumer demands in terms of ESG criteria into the corporate strategy. Businesses that don’t react are running the risk of falling by the wayside. Personal and home care industry will best meet consumer demands if they focus on sustainable resource utilization and green disposal concepts. Recycling, second-hand articles and the transformation of the current system into functioning circularity will be at the forefront for manufacturers of luxury articles in the coming years.
Due to growing consumer and regulatory pressure, sustainability is evolving from a nice-to-have to a requirement. That means not only the implementation of sustainability criterias into existing businesses. The actual process of change will force the rise and growth of new business concepts in order to comply with the demands of consumers and regulations. Re-use, pre-owned and second-hand will grow huge in the future and make the conventional first-hand market shrink.
Across all industries, consumers exhibit a growing inclination to invest in sustainable products and services. Nevertheless, it is crucial for these offerings to maintain affordability while also ensuring transparency in explaining any price premiums associated with them.
Numerous sustainability investments may not yield immediate returns. To evaluate their effectiveness, companies must consider additional viewpoints, including their appeal to employees and ESG-focused investors. Furthermore, investing in sustainability can assist in connecting with younger demographics and effectively reaching their target audience with the company's products.
Companies can only meet this challenge with a holistic approach. Based on a well thought-out strategy, sustainability initiatives and lighthouse projects are an effective tool on the way to fully implement ESG criteria.
Companies must place sustainability at the heart of their strategy if they are to survive in a shifting landscape.
