How Retailers Struggle to Be Green

Daily_reckoning_jpegOriginally posted March 11, 2008
by Glynn Davis, The Daily Reckoning: UK Edition

Retailers are trying to become “greener” businesses but profits remain the priority.

Commercial priorities remain paramount as retailers struggle to make themselves “greener” says Fleet Street Letter’s retail correspondent Glynn Davis… 

How Retailers Struggle to Be “Green”

Pick up a paper, turn on the television, visit the cinema or walk
into a shop, and the chances are that you will be bombarded with
information on the environment, ethical trading, sustainability and the
whole carbon family comprising footprints, labelling, emissions and
offsets.

Inevitably, some aspects of this barrage of information being thrown
into the marketplace by the ‘Green Lobby’ are having an effect on the
commercial practices of the retail industry and on the behaviour of
shoppers.

The big question is how exactly do these effects manifest
themselves? Regardless of what consumers hear or read about the
environment there are no doubts that they like the idea of being green.
Thus the recycling of home waste goes down well even if it provides
them with nothing more than something to talk about down the pub.

But consider how many people would continue recycling at home if
they had to pay for it to be collected? The reality is that there would
be a massive fall-off in numbers. Deep down most consumers’ green
efforts would come to a swift end if there was a cost attached, or it
became inconvenient

Another issue with many consumers’ ‘green credentials’ is that there
is a divergence between what they claim to do, and their actual
behaviour. This is leading to some seriously conflicting results in
surveys.

Rowland Hill, sustainability manager at Marks & Spencer,
recently spoke at the recent Responsible Retailing Summit in London. He
revealed statistics from GlobeScan that showed as many as 70% of people
believe individuals have to take more responsibility for climate
change. He then said that only 35% of people considered themselves
‘motivated’ or ‘potentially motivated’ to be more
environmentally-friendly.

This means the remaining 65% are unlikely to behave in a greener way
unless they are actually forced to do so. This conflict is highlighted
by their shopping patterns. The Henley Centre found that while 34%
claim to be eco-friendly shoppers, a puny 6% actually deliver on this
when out shopping. And while an impressive 53% of consumers claim they
buy Fairtrade products, the reality is that only 30% actually do so.

Further research, from a confidential source, reveals that 13m
shoppers bought a green product over the past 12 months but of these
less than 700,000 buy across all forms of ethical products – such as
organic, Fairtrade, Ecover and free range.

The bottom line for many people is that they recognise the likes of
Fairtrade are great in principle, but they will not veto their
favourite brand and switch to ethical products – regardless of the
environmental impact.

But despite the reluctance of millions of consumers to switch, there
is consumer pressure in some areas, with shoppers demanding tangible
change from the retail industry. A key area of focus is the reduction
of packaging. This provides a tangible benefit for shoppers, since they
are being made increasingly aware of councils’ proposals to charge
households for collecting their rubbish.

Packaging is where retailers currently achieve the lowest levels of
customer satisfaction because many people believe they are failing to
cut back on unnecessary packaging. According to recent research from
grocery experts IGD, as many as 35% of respondents regard packaging as
their main area of dissatisfaction with retailers’ products. This leads
all other areas of dissatisfaction, including delivering value for
money, which was only thought key by just 11% of people questioned.

Despite the consumers’ continued discontent in this area, retailers
are making some progress, with the major retail groups running various
initiatives to reduce the amounts of cardboard, plastic and paper
wrapped around their products. It represents a key part of the
much-publicised ‘Plan A’ environmental initiative from M&S, and is
a major component of all the supermarkets’ green strategies.

One major problem retailers and manufacturers have with implementing
green initiatives is that they will almost inevitably end up being
regarded as providing a competitive advantage to be exploited as any
other trade secret is. As such, this will put the mockers on any
sharing of knowledge and expertise that might benefit the planet. A
director at Tesco says: "People say this is not a place where you can
get competitive advantage, but then they go and do something else."

This is why retailers are not sharing delivery trucks or suppliers
who manufacture in an environmentally friendly way. To some more
ethically-minded retailers this is hard to accept. Soap retailer Lush,
for one, is incredulous that other retailers do not share information
on environmentally sound suppliers.

The bottom line is that commerciality overrides the green issue for
retailers. One of the many areas where the dichotomy over profits
versus sustainability rears its ugly head is, of all places, packaging
again.

The rise of Retail Ready Packaging (RRP), which is being
increasingly used by all the food retailers, enables products to be
delivered to stores and almost immediately placed on the shelves. Its
use is on the rise because it increases retailers’ efficiency, but the
downside is that it increases the amounts of packaging used, since
products still need to be protected during transportation.

"There is an obvious dilemma here. If retailers want to reduce
packaging but they’ve also just got their suppliers to invest in plant
that does RRP, that sticks a lot more cardboard and plastic around the
products," says the Tesco director.

It is undoubtedly because of these conflicts that consumers have
serious questions about how committed retailers are to their green
activities. This suspicion appears justified, if a recent survey from
SEE Potential is to be believed. It found as many as 41% of UK managers
believed that CSR (Corporate Social Responsibility) was just tokenism,
instead of having a valuable role to play in business.

If this really is the case, then it is not surprising that an Ipsos
MORI poll found a mere 5% of people believe retailers are doing as much
as they can on social and environmental issues, and that a massive 79%
reckon companies are pretending to be ethical just to sell more goods.
Although this latter finding must put fear in the heart of the Green
lobby, it is undoubtedly true. Retailers are more than willing to admit
(behind closed doors, mainly) that they are in the business of making
money, and that being green is a subsidiary part of this.

Getting the board to sign off on a green initiative that does not
ultimately add to the top and bottom lines is unlikely to happen,
according to Richard Ellis, group head of CSR at Alliance Boots. When
speaking at the Responsible Retailing Summit he stated: "If it drives
profits and our brand values then [our private equity owners] KKR are
interested as we can describe what is good economically and not just
socially." He highlighted a joint project with The Carbon Trust that
cost £1.1m to implement, but which generates £1.35m of annual savings
and reduces the company’s carbon dioxide usage by 10,000 tonnes per
annum.

Thankfully for retailers, at this relatively early stage in the
‘greening’ of the industry, there is plenty of just this type of
‘low-hanging’ fruit to be picked off before any of the more painful
(unprofitable) decisions have to be made.

To edit and adapt their product range down to only those products
that adhere to green principles will be a quantum leap for most
retailers – especially if it involves passing any price increases on to
the consumer. Retailers are likely to make a coldly calculated
assessment of whether the planet was really worth the possible drop in
sales before increasing their prices.

Regards,

Glynn Davis
For The Daily Reckoning

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