The significance of this growth – and the long-term market potential of sustainable products – is underscored by sustainably-marketed products often being significantly more expensive than conventional competitors, and the fact that both the coronavirus pandemic and its economic fall-out show no signs of slowing the trend, added Randi Kronthal-Sacco, senior scholar, marketing and corporate outreach at NYU Stern Center for Sustainable Business.
She explained that Stern and IRI partnered to review point of sale data for more than 73,000 packaged goods in 36 categories from January 2015 through June 2020, and found market share for sustainably-marketed products, excluding alcohol and tobacco, grew from 13.7% in 2015 to 16.1% in 2019.
While this growth alone is notable, Kronthal-Sacco said, “what was really stunning and exciting for us is that that 16.1% delivered 54.7% of the growth for all CPG from 2015 to 2019.”
[Editor’s Note: Interested in learning more about sustainability in the food and beverage industry? Join FoodNavigator-USA Aug. 6 at 12 CT for a free webinar exploring environmentally-friendly packaging, responsible ingredient sourcing, waste reduction and more. Register HERE.]
She explained that the market share growth of sustainably-marketed products began pulling away from conventionally-marketed products and the overall category between 2015 and 2017, but the gap widened significantly between 2017 and 2018 and remained elevated in 2019 for a compound annual growth rate of 5.86%. This is compared to a CAGR of only 0.83% for conventionally-marketed products and 1.56% for the total market during the same four-year period.
This discrepancy in market share growth is seen across 32 of the 36 categories reviewed with the only outliers being paper towels, toilet tissue, cups and plates and paper napkins, sales of which are dominated by private label into which researchers could not verify if they made sustainability claims.
Within sustainably-marketed food, the most pronounced difference in sales change from 2015 to 2019 is seen in soup, which grew 110% compared to conventional soup, which remained flat. A similar discrepancy was seen in cookies, but the divide narrowed for natural cheese, bottled juices, crackers, salty snacks, coffee and chocolate.
Sustainable marketing also helped buoy some cereals, which as an overall category declined during the period except for those with sustainable marketing, which grew both dollars and market share, Kronthal-Sacco said.
Sustainably-marketed product sales surge despite premium pricing
Much of this growth comes despite significant price premiums for sustainably-marketed products – reinforcing other research that shows consumers increasingly are shopping based on values and willing to pay more for brands that share their priorities.
“Sustainably-marketed products enjoy a very sizable premium on average of 39% higher than the conventionally marketed counterparts, and what was surprising to me is rather than the premium gap decreasing overtime, the premium gap has widened from 34% in 2015 to almost 40%. And, when you look at what the range is, because 40% is the weighted average, you see price premiums ranging anywhere from 3% to 150% with only a few categories having a price discount versus conventionally marketed products,” Kronthal-Sacco said.
Given that sustainably-marketed products grew seven times faster than conventional marketed products, despite this price difference, indicates that consumers are willing to pay these higher prices, she said.
“Moreover, what we found is that sustainably marketed products have lower price sensitivity, by and large, in two-thirds of the categories we look at. So, in other words, when brands take price they aren’t going to have the same negative volume impact as the conventionally marketed product.”
Sustainably-marketed products hold their own against coronavirus pandemic
Sustainably-marketed products not only hold up to higher prices, they also are holding up to the coronavirus pandemic, which has altered how many consumers evaluate purchases – most notably was the return to iconic brands from so-called ‘big food.’
As with conventional products, sustainably-marketed goods saw a similar spike in dollar sales in early March at the start of the pandemic with week to week increases of 56% for the week ending March 15.
According to the research, the market share for sustainably-marketed products also increased more than conventional products – reaching close to 3 percentage points higher for the week of March 15 compared to 2 percentage points for conventional products in the same period. This increase, so far, has been maintained for the balance of the year to date.
A look behind the numbers at consumer sentiment
To better understand these numbers, IRI’s executive VP of market & shopper intelligence Larry Levin, revealed that top drivers for why consumers choose sustainably-marketed products include the “obvious” concerns about environmental impact, but increasing also include social issues and the benefit to their community.
For example, 42% of consumers say that they purchase sustainably-marketed products to minimize negative environmental impact, 41% are attracted to commitments to renewable resources, 34% say they buy these products to reduce by-products and waste and 30% say they buy them to minimize exploitation of natural resources.
And while less frequently mentioned that environmental reasons, Levin said, many people also cited community benefits as reasons for buying sustainably-marketed products. About one in five said they do so to come together as a community for the greater good, 18% say they want to support people and organizations the benefit society at large and 14% do so to protect human rights.
Consumer focus on sustainability isn’t just influencing what products they buy, but also which retailers they support. According to Levin, 29% of consumers report seeking retailers who carry sustainable products and 62% choose retailers that practice sustainability.
Ultimately, he noted, consumers’ definition and perception of sustainability is evolving quickly and brands and retailers should follow and respond nimbly if they want to take advantage of the higher sales and velocity represented by sustainability marketing.