A Pragmatic Approach to Boost Sustainability in the Middle East Retail Sector
Sustainability has leaped to the top of the agenda for retailers. The expectations of consumers, investors, regulators, and other stakeholders are rising—and rightly so, given the scale of retail operations and the number of customers they touch. Covid-19 upped the ante further.
Moving from sustainability commitments to action is hard, however. First and foremost, the sector faces a funding gap: Sustainable supply chains and food systems can be more costly than existing ones, which don’t acknowledge the full cost of carbon emissions and other previously ignored externalities.
The thin margins of retailers and many of their suppliers make this extra cost a genuine barrier to progress.
Shoppers are a conundrum, too. They say they want progress, but most aren’t changing their shopping behavior; nor are they prepared to pay more for sustainable options, especially amid today’s cost-of-living squeeze.
It’s little wonder many C-suite retail leaders don’t feel fully in control of sustainability, particularly when macroeconomic turbulence is putting extra strain on stretched investment budgets.
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Yet our work with retailers globally suggests it is possible to accelerate progress on sustainability. Moving from “why” to “how” via the pragmatic approach described below won’t just satisfy the moral and social imperative to act; it will also unlock new sources of value in the long run.
Make choices and identify hot spots
To move fast, retailers need to be rigorous in choosing key sustainability themes in their business and prioritizing the actions most likely to deliver both rapid and lasting impact. The initial scoping exercise can be overwhelming, given the scale and complexity of the issues involved.
When they have narrowed down their priority list as much as they can, executive teams have to define the right level of ambition for each theme: Is it to minimize risk and comply with evolving regulations, or is there opportunity to build a reputation for excellence in that area?
The next step is to take a careful look at the gap between where you are now, where the competition is, where consumer and regulatory expectations are heading, and where you want to be.
Above all, that means finding the hot spots in each part of the business—areas that are disproportionately responsible for sustainability challenges and therefore demand priority action.
Armed with granular insight into hot spots, companies can then create a roadmap that sequences the right mix of actions that have sustainability impact, are doable and affordable, and will resonate with their customers.
Nudge consumers to make better choices
There’s now a critical mass of shoppers who talk of making a difference with their purchases. Consumers are willing to pay more for products with a positive environmental impact or health benefits.
For younger people, millennials in particular, sustainable shopping is a mainstream preoccupation.
Overall, however, there’s still a big gap between what consumers say and do on ESG. Looking at packaged food, we quantified this discrepancy by comparing the percentage of shoppers who said sustainability was a top-three priority with the market share of sustainable products.
In mature economies, market share was below what shopper intentions alone would have predicted. In fast-growing markets, the shortfall was even greater.
It would be easy to blame consumers’ reluctance to follow through on the higher cost of sustainable goods. Price is indeed a factor. Yet other barriers have a much bigger collective impact, accounting for three-quarters of the problem in the US, for instance.
These non-price-related issues include inadequate product information, lack of variety, poor quality, and low availability. Retailers can start reducing the “say-do gap” by removing some of these obstacles, through behavioral nudges and more direct means.
A new era of collaboration
Being at the end of long and complex supply chains creates a huge challenge for retailers. They can’t act on sustainability in a meaningful way without suppliers acting, too.
For instance, 95% of greenhouse gas emissions in retail are Scope 3 indirect emissions that retailers can’t tackle without the help of upstream and downstream supply chain partners.
The good news is that most large consumer products companies are also making strong sustainability commitments and will need retail collaboration to achieve them. More collaboration ought to be in the cards outside the supply chain too.
With innovation becoming ever more central to sustainability, leading retailers are turning to trailblazers in areas such as traceability, carbon offsetting, and waste reduction to help them stay ahead.
With sustainability, those who need to do it need to own it. In practice, that means shifting more responsibility from specialist ESG teams to the frontline commercial and operational teams that actually need to make change happen.
At many retailers, commercial and operational teams may view sustainability as something that’s done to them. They can feel overwhelmed by the sheer volume of calls for change. They can also feel isolated when making the tricky trade-offs that real progress entails.
To help them, retailers have to dial down the ESG noise. That can be done partly by prioritizing and sequencing the actions described earlier. Talking about sustainability in simple, concrete terms will help, too.
Commercial and operational teams also need to be involved in planning and target setting, and therefore empowered to make trade-offs. Targets (with linked incentives) should be stretching but realistic.
However, clear accountability and targets are just the beginning—getting it done requires embedding the work into existing “business as usual” practices and the data used for decision making.
Here the sustainability team can play an important role, continuously improving the quality of information available on sustainability metrics, while pushing teams to act with what they have in hand.
Long-term value lies ahead
Retailers face a long road ahead on sustainability, but opportunities will abound at every stage of that journey. There’s the prospect of stronger sales growth, for one thing. With demand rising, marketing a product via its sustainability credentials can have a multiplier effect on growth.
Sustainability improvements also have the potential to reduce costs and generate a positive return on investment. Then there’s the resilience dividend. For instance, sustainable sourcing can make it easier to weather short-term crises such as the Covid-19 supply disruption.
Likewise, companies that are proactive on sustainability are less likely to be hit by regulatory tightening.
The differentiation offered by sustainability isn’t limited to products, either. It can give retailers an edge over their rivals when it comes to attracting investors, tapping rising demand for ESG-focused investment.
Sustainability can help attract and retain the best talent, too. In inflationary times, a strong record on sustainability gives retailers a way to keep staff, beyond just ratcheting up their pay.
On an environmental, social, and economic level, the message is clear and consistent for retailers: Now is the time to move from commitments to action.
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