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How are consumers reacting to the impact of cost and climate?
How are consumers reacting to the impact of cost and climate?
Related topics
In our fifth episode, Kristina Rogers, Global Consumer Industry Leader at EY and Suzanne Long, Chief Sustainability and Transformation Officer at Albertsons Companies discuss the latest findings from the EY Future Consumer Index study. They explore the impact of the cost of living and climate change on consumer sentiment and how this is affecting consumer products and retail companies.
Key takeaways:
- How consumers are seeing the impact of climate change and the cost of living in the way they shop.
- How retail and consumer products companies are responding to both challenges.
- Does consumer demand for cheaper products compromise a retailer's ability to deliver sustainable outcomes?
- Do sustainable products have to come at a higher price?
You can also listen to this podcast on Podbean, Apple and Spotify.
For your convenience, full text transcript of this podcast is also available.
Kait Borsay
Hello and welcome to the next episode of our podcast series for leaders in retail and consumer products companies. I'm Kait Borsay and in this episode we're looking at the latest findings from the EY Future Consumer Index study, in particular the impact of cost of living and climate change on consumer sentiment and how this is affecting consumer products and retail companies.It's a warm welcome then, to Kristina Rogers, Global Consumer Industry Leader at EY. Hello, Kristina.
Kristina Rogers
Hi there, Kait.Borsay
Your first time with us. A warm welcome to the show.Rogers
Thank you.Borsay
And also joining us for the first time is Suzanne Long; she's Chief Sustainability and Transformation Officer at the US grocery company Albertsons Companies. Hello, Suzanne, a warm welcome.Suzanne Long
Thanks so much for having me.Borsay
Kristina, let's start with you. It’ll be great to get to know you a little. I understand that you lead a large team, just briefly explain your role.Rogers
Well, my role is really to help our teams to always be thinking ahead. I cover consumer products, retail, food and agribusiness. The role of myself and the team is really to be thinking about the future, thinking about where these industries are going and therefore, what we need to equip our teams with, in terms of how they talk to our clients and what we bring to our clients from EY. And then how does EY start to think about the sort of skills and solutions and technologies that we need to have in place to make sure we can serve our clients to win in the future.Borsay
Suzanne, Albertson's Companies is one of the largest food and drug retailers in the US with well over 2000 stores and over a quarter of a million employees. In a nutshell then what does your job entail?Long
Well, I have a couple of different parts to my job. The first part is the sustainability part, and the sustainability part is really all about our environmental social governance strategy and execution. And we call that our recipe for change. So, I lead our strategy and execution of our recipe for change. And then on the transformation side, like you said, we have over a quarter of a million employees in our business and the vast majority of those are on the frontline.They're taking care of customers. They are you know, slicing the perfect steak and stocking our shelves. As an industry, we struggle with retention, with having people want to build careers with us because they don't understand the growth that you can have between, you know, starting in a store and all the opportunities that are in back offices and around the country. And so, we are working on figuring out how can we better engage our frontline, retain our frontline, and make us a place that they always hopefully want to work, but if not, they always love.
Borsay
That's fascinating. Let's get into our topic, shall we, and look specifically at the EY Future Consumer Index. It's a global biannual study of consumers, and it includes questions on sustainability and cost. Kristina, what have you seen about the way that consumers are reacting to these particular factors in the latest study?Rogers
Well, it's been quite interesting. It's been a journey. So, we launched this work in April 2020 — no surprise all of us remember that date. In my mind I thought, well, things are going to change. We need to start tracking where consumers are and what their sentiments will be going through this and beyond.We're not tracking what's happening with COVID anymore, but we're seeing what is happening out of that and things have changed a lot. People have created different habits, they're thinking differently, and of course, we've got the ugly rearing of inflation that's been going on for quite some time. And of course, we're seeing that there are a lot of climate events that people are starting to feel personally. What we've seen in our research, which is in 28 countries and talking to over 22,000 consumers, is almost two thirds of them are really starting to see climate change as an issue for them, and they're finally starting to understand that it could actually impact their household budget.
So, I not only see these weather events on TV, etc, but I see that crops are being wiped out and I see that there's a lot of issues around maybe transportation where roadways are wiped out by mud slides. I think finally what we're seeing is that consumers are connecting the dots between some of these events, that they're starting to feel much more personally and their household budgets. We know that over 80% of the people we've spoken to are very concerned about the cost-of-living and their household budgets right now.
Borsay
Suzanne, what measures is Albertsons putting in place to protect their operations and communities from climate change related events?Long
I think there's a couple of different angles to that question, the first is the best and most important thing that we need to do in our business is make sure that we have the products that our consumers want to buy. And in many cases, the types of climate events that Kristina is referring to break that supply chain, right. So, for example, if you think about a distribution center in a grocery store business, that's where our vendors send their goods as sort of a hub model, and then that hub sends products to all of our stores. When there is a climate event, for example in our distribution centers and power goes out, it's not just affecting the distribution center, it's affecting the distribution center’s ability to ship product to all of the stores that service it. And so, we have to think about business continuity, and we have to think about how we create redundancy in our business because food is not an option. In those crisis moments, you have to be able to still get that product out to the consumers who need it.So, we think about things like how we back up our energy systems, our sources of power. We have to think about things like, how do we accelerate things like being able to get bottled fresh water to those communities when that happens on truckloads or ice? Or, you know, whatever the product is that's most in need. So, we have systems where we're working on the redundancy to make sure to support those communities. And then we’re recognizing that in some cases people in certain communities, you know, maybe if you're on a coastal community, for example, they also may want to have emergency supplies or other types of products that they can have on hand should those emergencies or those climate events arise.
The second part of that question though, is within our own business, we're having to find ways of lessening our own impact on those types of climate events or activities. What role can we play as a large company in the US to help offset, to reduce our own impact to try and lessen the chances of those events or the severity of those events going forward? And we're a very small player in the large scheme of things, but a very large player you know in our own right within our industry. So, I think from both of those perspectives, we're taking a lot of action.
Borsay
Kristina, I wonder how much consumer demand for cheaper products is compromising a retailer's ability to deliver sustainable outcomes?Rogers
Yeah, Kait that's a really good question, and it probably is a huge pain point for Suzanne and the people that work across this business around the world. Because consumers do tell us all the time and they tell us in our research around Future Consumer Index, that they want to have sustainable goods, they want to understand the footprint of products. You know, I think a couple of years ago, we saw 17% of people in our research were willing to pay more. It's risen now to 33% of people saying, I'm willing to pay more for sustainable goods. But we do know that there’s always that action and intention gap. And while there's a bit of virtue signaling, maybe, you know, I would love to pay more for sustainable products and to support the environment. But we know that consumers also expect manufacturers and retailers to take the lead.So that also means providing the information and to keep prices where they are. And we know that that's very difficult because let's say it's not even so much the retailers, but we know that manufacturers have played a role in keeping prices down. But that means we've had plastic that maybe we don't want. We've got forever chemicals floating around. We've got companies doing things to keep prices down that maybe are not the best methods for the environment. So, there's now demand for changing that, but less demand so far with regards to wanting to necessarily pay more.
Borsay
What about on the level of a consumer being aware of not wasting so much? Are there any other changes in their behaviors, not just the products that they're buying and where they come from but in their own shopping behaviors?Rogers
Because of inflation, we've seen consumers very much taking care of their household budgets, looking at where they can spend, making choices around what they'd like to spend on. And so, people think about reducing waste, because that also keeps their household budget in check. I'm not sure Kait, if I would say I'm seeing consumers being so active. I do feel there is a household budget aspect to not wasting as much that we're seeing more now, although you know, you do see consumers doing small things like bringing their own reusable bags to grocery stores and that sort of thing, to try and help in terms of not wasting plastic, but I still think there's a way to go for consumers to really take some ownership.Borsay
Suzanne?Long
You know, one of the things that I think about a lot in my job just because my background is actually not sustainability, my background is actually process improvement and cost efficiency and large-scale change and Lean Six Sigma. I think a lot about how the products that we put out there for consumers could actually cost less or at least cost the same, even if we made them more sustainable. And the reason for that is you know, if you think about the plastics and packaging that go into a product that's cost, right, that's cost for that consumer goods company.And if we can lessen that plastic footprint, if we can lessen that packaging, it actually reduces the cost of the manufacturing for that company and those can be passed on to consumers. So I think one of the things that always occurs to me is this idea of you hear people talk about sustainability costs more, and in some cases that is true, but there are many cases where there are things that we can be doing as an industry where we can keep it cost neutral or even less in costs if we do it in a smart way. I think there's a path here where it's less on the consumer that they have to select something that's better for the environment and providing the consumer with something that's already better for the environment in the way that they purchase the same goods every day.
So, I think there's something here about the responsibility that consumer goods companies have to find those efficiencies take them and then pass that on through the costing to the retailer to the consumer.
Borsay
So, sustainability then doesn't need to come at a higher price tag, Kristina?Rogers
Consumers are saying I want and need better information about products so that I can make the right choice.I've seen some examples around the world. In Denmark, one of the grocery stores there was able to provide very specific information about the beef that they were selling, in terms of what its carbon footprint was. And they found that dramatically reduced purchases of the product because consumers were able to have the information to make the decision.
Over 75% of the people we've researched say well, that's on the retailer and that's on the manufacturer. They better give me the information. I don't want to look it up, I just want to know what it is and then I think that puts your business in a tighter spot because you've got to demand that from the manufacturers and that's maybe hard to get.
Long
But I think that's one of the interesting trends that I see in my role is the interest, the push, the energy going on in the manufacturer side of the business to actually do these things. I mean, we really see a lot of effort being put forward, whether it is in packaging or sustainable goods or the way something is being sourced. The problem I think for a lot of CPGs and manufacturers is what's their mouthpiece for getting that message out. And a lot of times that is the retailer.And so, one of the things we're really talking a lot with our CPG partners around is, what are different creative new ways that they can be sharing that messaging? Whether that's through advertisements on a digital app or through a website or offering up information at shelf or on displays. How can we be helping those manufacturers get that messaging out there so that consumers can feel better about the products that they're buying? Because in the absence of that, you might just think, wait, why did you just make the bag different on my product? I think that I'm getting less even though the amount of product perhaps in the bag is the same. And part of that is making sure that communication is getting through to the consumer of, hey, we have actually reduced the amount of packaging associated with this to do something better for the environment and help keep the cost of the product that you love down. So, I think there's a big relationship that we have to continue to build between the manufacturers and retailers in that space.
Borsay
Okay, we've talked a lot about products, let's talk about the supply chain process in terms of retailers and manufacturers when it comes to things like carbon footprint and emissions, so the transportation process, I guess. Suzanne, you first, how are you working with your supply chain to reduce its carbon footprint? I'm guessing that technology must play a big part here.Long
It does, and I would say that there's really two parts to the carbon equation. On the retailer side, so when you think about what makes up our carbon footprint as a retailer, most people do think it's actually transportation. So, if you think about grocery stores, they are really just big boxes when you think about it. Goods are produced upstream of us and then they flow through these big boxes and then they're consumed downstream. And so, when we think about what's the carbon footprint of our operation, we think from the time those goods hit our doors to the time that a consumer takes them out, right. And so, when we think about our footprint, we have to think primarily around two things.So as of 2019, for example, those two things were energy and refrigerants. 86% of Albertson's Companies carbon footprint as of 2019 were made up equally of those two things. And in both cases, it's the amount that you're using and the type that you're using. So, for us, reducing our carbon footprint has to do with addressing those two issues. But that's not enough actually, we have committed to reduce our own carbon footprint by 47% by the year 2030. But in order for us to affect our total footprint, which also includes our vendor, our vendor community, we actually need our top 250 suppliers to set their own carbon targets and we need those to be in line with what's called the science-based targets initiative.
And so, the top 80 or 90 or 100 of our vendors who have signed up for those goals is wonderful. It's getting the other 150 or so to sign up, because in some cases they're not that big a vendor. So that's one of the big initiatives we're working on and the way we work with them on that is understanding first what their goals are, why it is they haven't set goals yet? Is that they just haven't prioritized that? Is it there's something in their way? And then we partner with them to figure out what might be ways that we can help them in that journey.
And the thing to remember here is that it's not just Albertsons Companies pushing them on that, right. I mean, Walmart and Target and Kroger and Costco, we're all pushing in that same direction and that's true globally, too. Ahold Delhaize and Carrefour it's all of us as a collective community. And so, I think that's what's moving in for the larger vendors and now we've just got to get the smaller ones in the same direction.
Borsay
That's really interesting. Kristina, quantifying emissions from complex supply chains across many regions well, that must be challenging. What are you hearing about how retailers address their downstream footprint emissions that occur after the sale of products?Rogers
In terms of downstream, I think you mean the consumers at home, what are they doing? Is there circularity in the product? How would they return plastic perhaps? Or you know, are they composting? And I think as you said previously in our conversation, this is challenging trying to figure out Scope 3 emissions for the manufacturers because it's about creating new habits for consumers. It's really trying to give them the option to do certain things that would be better for the environment or to understand if a product claims to have circularity, it means that the consumer has a role in that too.So there's still a lot of training I think for all of us as consumers in terms of how are we contributing, so we can make better choices at the shelf, either online or in the physical space, but then what do we do with these things end-of-life or the packaging is finished or if it's even a clothing item, you know, what are we supposed to do with this now? Because that's becoming a problem in terms of different types of synthetics and things and landfills and so on.
So, I think that we still have a long way to go to pick up the pace on the consumer end and actually we need a lot of education as consumers as well in terms of what we're supposed to do.
We do have a challenge with us as consumers, no matter what we're saying we want. I know from our own research that about 65% of consumers globally are saying I need better information about what to do about the products I'm buying and then maybe I'll have a chance of behaving in a better way.
Long
That's right. And if we think about, for example, let's just take a cereal box, right. So, a cereal box has the box and then it has the bag inside it. So, the box, most consumers actually know that cardboard is recyclable, and they know where they might have a place to put that. The soft plastic bag that's inside that box of cereal is not kerb side recyclable in the US. But so, for example, in our grocery stores, in the large majority of our stores, we have a soft plastics recycling program. So, the same process that would process a cereal bag is the same process that would recycle your plastic grocery bag.And so, one of the things, for example, is last year we partnered with Kellogg's who have actually changed their bags to make sure that they can be recyclable. And then we put together a program to have Kellogg's advertise on those bins to say, don't forget you can bring your soft plastic cereal bag in and put it in the same bin with your dry-cleaning bags, with your grocery bags and we're trying to think creatively about how do we bring that to life for consumers? Because to Kristina's point, I mean, I work in sustainability, I have only four people in my home and none of us do the same thing in terms of recycling. Not one of us, right. And so, imagine that on a scale of our stores, a quarter of a million people, us trying to even get our own recycling right as a business. And then you look at the population of the US, there's a tremendous amount of education and a tremendous amount of infrastructure that needs to be built to really do this right. Everything that we can do to help in that journey is what we want to do.
Borsay
Suzanne, I wonder what changes you're seeing in your customers’ behavior in the way that they respond to worries about climate change? Are you noticing an eco-friendlier approach? Is that something that you've specifically seen?Long
You know an example would be, you can imagine that we get feedback on the fact that we still have single use plastic bags in many of our stores. Well, there's a variety of reasons for that, and I wouldn't expect somebody outside a job like mine to know all of these things. But for example, even if we wanted to move to paper as our bags, there literally is not enough paper bags in production, we are all as grocery companies on what they call allocation for that, we are only allowed and able to get a certain amount of paper bags, so that limits us, for example.And then when we think about the plastic bags that we do have, part of keeping grocery costs low is keeping our own costs as a grocery retailer low. So, we have to be watching for that. The more expensive the bags are that we put your groceries in, the more expensive your groceries get unfortunately, this is a very difficult complex relationship. And then we have to think about what are the local laws and requirements that we have. In places like California, for example, we can't use single use grocery bags, we actually need them to have post-consumer recycled content and there's laws about that.
And what I think about a lot is the perception of where the problems are versus the reality. So, let's just take a grocery bag, for example. We want to get rid of single use bags. We do want that as a company and we're looking every day for ways of doing that. And I worry about the packaging of the seven items in that grocery bag, that's where the plastic and packaging footprint is its most intense. The bag itself I would love to solve, but it's representative. It's actually not where the bulk of the problem is. Similarly, to people believing that transportation, trucking groceries around is the biggest part of our carbon footprint when it's actually the energy and refrigeration that I was mentioning earlier. So, this perception versus reality education of where can we make the biggest difference and how do we do that?
Borsay
What's the responsibility here that retailers are under? They were at the heart of it during the pandemic, and now they've got a really important role to play when it comes to the cost-of-living crisis and also influencing climate change. How do you process that as a retailer?Long
Well, you know, one of the interesting things about being inside this business for 20 years is that the big thing that changed during the pandemic was awareness about the heroes that we have working in our stores every day. It didn't actually change the fact that they'd always been that. They had to show up when everybody else was safe at home and I think it accelerated an increase for the awareness of it, but it didn't actually change who they've always been. So, I think it was wonderful from the fact that people understood I think the importance and the gravity of making sure that we have people working in our stores who can care for us every day. And we've always had these responsibilities too, around cost and care and making sure that everything is food safe.And the only thing that I would say around sustainability and the direction of that is that for those consumers who this is important, we want to make sure we are providing products that meet that need for them and that as consumers change and shift hopefully over time to being more conscious of that, that we provide more and more products. And that the things that we say about the products, you can feel good that we are accurate in those claims, that we are not saying anything that is untrue.
Borsay
Finally looking ahead now, what do you think are going to be the key challenges for retailers to ensure that they meet their sustainability goals? Let's get both your thoughts on this one. Kristina, let's start with you.Rogers
As we've talked about, consumers say they want a lot of things, but a lot of these things are going to have an impact on the cost of the products we buy. So, either we're going to have to look carefully at buying less, wasting less, or rethinking how we live our lives if this is really, truly important to us. Because I think manufacturers, retailers and consumers, the whole trifecta of all of us have been doing things to keep the cost of things low and maybe some of those choices over the last number of decades, were not the right choices in terms of what we're faced now with the environment.So, I think the challenge here is for consumers to really understand what it is they can do, what are they willing to do. Suzanne, you'll know this, in the US certain states have bottle recycling programs or canned recycling programs where you get five or 10 cents on returning these things. People are willing to do it, and they do it. I think we also need to start thinking about manufacturers and retailers working together and they're trying hard to make things happen and make change and that's going to take some time. It's going to maybe add some expense, as Suzanne was saying. And then consumers on the other hand need to really understand what is truly important to them.
Borsay
Suzanne, let's give you the same question about key challenges really for retailers to ensure that they meet their sustainability goals.Long
I think one of the biggest things is a goal is just a goal until you achieve it. And I see a fair amount in the industry and actually across industries where very ambitious goals have been set, but there isn't really a clear path on how they're going to get there. So, you know, I joke a lot about, just think about anywhere in your life, forget business, anywhere in your life where somebody says, hey, where are you going to be in 10 to 20 years and exactly how are you going to get there? And yet that is literally the question that we ask ourselves in sustainability, set a 2030, 2040, 2050 goal and then we want to know how you're going to get there. And I don't think it's the detail of that in the out years that matters, I think what matters is that you actually have a strategy for how you would achieve that.And then we think there's very much also a responsibility to help people not to throw their hands up in the air. You know, in Albertson's Companies for example, 35 million people walk through the doors of our stores every week, and while it's not my responsibility or our collective responsibility to make sure that they make great choices every day, arming them with information to make better choices can always be a good thing. And one of those better choices can be, hey, just the same way as wasting less in a business, make sure that wasting less in your homes is actually a way things can cost less. Forty percent of food in the US is wasted every year and the majority of that is in consumer’s homes.
So, listen, I'm incentivized the same way everyone else in my businesses is, I want you buying your calories from us. You know, I want all the sales we can possibly get. And if there's a way we can do that and also help you as a consumer better understand how to spend your money wisely and how to waste the least amount of product possible, help the environment, help you as an individual, I think that's a responsibility we should take very seriously.