Consumers go ‘green.’ Are we leveraging this trend enough?

December 16, 2015 |

Sebastian-Soderberg-downloadNovozymes’ Sebastian Søderberg on how the growing consumer trend to choose ‘green’ products can help the cellulosic ethanol industry take off.

Why would people be willing to pay more for an environmentally friendly product?

I believe consumers are becoming increasingly aware and concerned about the damage their consumption can cause to the planet. With this awareness, comes a growing focus on products that reduce GHG emissions and maximize resource efficiency. This creates ‘green’ consumers who accept the idea that green products might come at a premium.

This trend cuts across products and services, everything from organic and sustainable food and textiles to heating homes with electricity from wind power. Consumers are showing a preference for green plastics for food packaging. They’re willing to pay extra for carbon-neutral air flights and less-polluting cars (note the successful sales of hybrid cars like the Toyota Prius, and the massive recent attention to emissions from VW diesel cars). An increasing number of consumers pay attention to the ‘green’ label – it is a differentiator!

Where can we find these ‘green’ consumers?

In the past, these consumers were often stereotyped as adults with an income above average, a high education and low price sensitivity. However, a Deloitte study shows this perception is outdated. They have found that ‘green’ consumers fit no simple demographic description, varying widely in terms of age, education, and income.

Also in terms of geography there are some interesting findings. While green consumption is often perceived as a predominantly Western phenomenon, the Nielsen Global Survey has found that sustainable packaging, for example, matters most to consumers in Asia-Pacific (63%), Latin America (62%) and Middle East/Africa (62%) and to a lesser extent in Europe (36%) and North America (32%). Accordingly, we see a steady increase in ‘green’ product claims particularly in India and China. Two of the leading washing powder brands in China, Nice and Liby, for example position ~80% of their products as green.

Overall, it is nontrivial to identify and cluster ‘green’ consumers, and companies need to carefully analyze these dynamics to meet consumer expectations.

But are there enough ‘green’ consumers to make investment in this trend worthwhile?

‘Green’ consumers may have been a niche group in the early years of this century, but awareness and consumer expectations of green products have become a mega-trend driving demand.

Companies that invest in sustainability today do so because they expect to gain a long-term competitive advantage. Particularly in industries such as consumer goods where a big part of a company’s value is related to its brand, addressing consumer demand for sustainability is key to a strong market position and brand value. Also in areas such as construction, utility or food, the ‘green’ label matters.

And this is not only about perception; it actually pays off for companies. McKinsey surveyed 1,000 consumers in Europe and the U.S. and found that many will pay more for sustainable products that meet the same performance standards as less sustainable alternatives – the so called ‘green premium.’

This is a major opportunity for our industry. As the graph below clearly shows, consumers are willing to pay the highest ‘green premium’ in packaging, with one in two respondents saying they would pay an additional 15% for ‘green’ packaging. Close to one in five would even pay an additional 30%.

The implications for bioplastics are clear: a critical mass of consumers are willing to pay a premium for these products. As an industry, we need to come up with realistic business plans to target these consumers: plans that balance production costs with the right premium to capture sufficient market share.

Also beyond the consumer pull, let’s not forget that there can also be strategic reasons why a consumer goods manufacturer might choose green packaging. Bioplastics allow companies to diversify their supply chain and put some protection in place against the volatility of oil prices.

Also, many major companies now communicate sustainability commitments publicly, and need to show data to prove that they are meeting these goals. Following this moral obligation, choosing bioplastics can help them reduce their carbon footprint and meet sustainability targets.

A consumer survey is one thing, but are there real-life examples that consumer goods companies are following this trend?

According to industry experts, companies including Coca-Cola and Danone are estimated to pay up to 25% more for bio-PET or PLA used in packaging. The most obvious reason they do this is because it is a differentiator and improves their image. The most prominent example is Coca-Cola’s PlantBottle™, launched in 2009. According to industry experts we have spoken to, Coca-Cola was able to gain extra shelf space for its products at some of the world’s largest retailers following the launch.

Since its launch, more than 35 billion PlantBottle™ packages have been distributed across water, sparkling, juice and tea beverage brands in nearly 40 countries.

That accounts for 7% of its packaging globally, but Coca-Cola has no plans to stop there. Its goal is to use PlantBottle™ packaging for all new PET plastic bottles by 2020, and at this year’s World Expo in Milan, Italy – it unveiled the world’s first PET plastic bottle made entirely from plant materials.

But how much impact can one company – even a company as large as Coca-Cola – really have?

I think what’s crucial is the message it sends to other companies when Coca-Cola makes a move like this. The fact that it was willing to invest in the level of R&D required to develop its own bioplastic technology proves a real, long-term commitment. So it’s no surprise that the launch of PlantBottle™ was followed by Procter & Gamble’s announcement that it would be moving towards renewable plastics for its Pantene range packaging.

But Coca-Cola is not just leading by example, it’s also sharing the benefits of that R&D investment by licensing its technology to other companies, with the result that consumers can now enjoy Heinz Ketchup from green packaging.

While Coca-Cola and others are pushing green packaging in the market, retailers such as Walmart, Carrefour, and Marks & Spencer are implementing sustainable packaging measures to cultivate a green profile, and welcoming products with green packaging onto their shelves. U.K. retailer Tesco plans to reduce the carbon footprint of products they sell by 30% in 2020.

And the trend is spreading towards durable consumer goods as well. Ford has jumped on the bandwagon to develop green interior fabrics using the PlantBottle™ technology. And it isn’t the only car manufacturer embracing bioplastics – Toyota is also a front-runner. The company’s Prius models include a range of bioplastic elements including headliners, sun visors and floor mats, and up to 60% of their interior fabrics are made of biobased polyesters.

Even IKEA – the biggest furniture manufacturer in the world – is aiming for the plastics in its home furnishings to be entirely made from renewable or recyclable materials by 2020.

Another example comes from the toy industry. This summer, Lego announced it is investing one billion Danish Kroner (which is about $150 million USD) and hiring more than 100 employees for a program to develop new sustainable materials for its plastic toys and packaging materials. Lego also expects to run on 100% renewable energy by 2020 and has begun operations of their first wind turbines, a farm of 78 off the coast of Germany.

It’s great to hear so many large consumer brands are following the trend towards ‘green’ products. What are the next steps to further grow the industry?

Given that green products are initially often more expensive to produce, it is important to address how additional costs are distributed across the value chain. The above examples show that consumers are willing to pay part of it. Other parts can be booked as R&D investments or marketing expenses in finished good companies. The first movers in the cellulosic ethanol and biochemical industries have already been willing to take risks in upfront investments to get this new industry out of its infancy. And let’s not forget the crucial role of regulators who need to ensure tax regimes and duties for polluting products.

Going back to my earlier example of Toyota: the bioplastics incorporated in their cars are initially estimated to raise raw material costs by 15%, but the company clearly sees this as a worthwhile investment. Similarly, it is estimated that Tetra Pak was willing to pay over 30% extra for Braskem’s high-density polyethylene (HDPE) in order to reach its goal of 100% sustainable packaging by 2020. In Tetra Pak’s view, this was justified because it made their product the first 100% biobased solution, which was a clear differentiator from the competition.

The result is a company such as Braskem can sell 200,000 metric tons of bioplastic – at a premium – annually. Given that just a few years ago bioplastics didn’t even exist, these figures really are impressive.

What does this mean for our industry?

Buying ‘green’ is an emerging mega-trend and there are many results which suggest a growing number of consumers are willing to pay a ‘green’ premium for products derived from bioethanol – a premium that will support the growth of the industry.

As consumers’ awareness of the potential damage caused by their consumption grows, so does the demand for ‘green’ products. It wasn’t so long ago that consumers wanted high-performance sports shoes, but had no awareness of how they were made. The child labor scandal that surfaced soon after raised awareness about the whole issue. Once consumers became aware, they started advocating for better conditions for workers in third-world countries, and companies ended up changing how they ran their business. It is the visionary companies that anticipate these trends and act before regulations ask them to do so.

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Category: Thought Leadership

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