Sustainability: Key Challenges Facing Food and Beverage Ingredient Markets and Implementing Best Practices

Increasing media attention on changing climate fears, product recalls, and the volatile cost of energy has had an irreversible affect on consumer awareness of health, safety, and energy conservation issues as it related to the food and beverage products they buy. This in turn is affecting purchasing behavior and the rapid growth of food products that have strong sustainability messages. Despite this growth, manufacturers and formulators are generally not able fully meet the increasingly excess demand for anything perceived as “Green”. In short, ingredient manufacturers are simply coming up short in their effort to effectively adopt sustainable marketing practices and turn this into a growth opportunity.

Sustainability, in a broad sense, is the ability to maintain a given process or state. In an ecological context, sustainability can be defined as the ability of an ecosystem to maintain ecological processes, functions, biodiversity, and productivity into the future. With respect to business applications, the key processes that are meant to be sustained overtime are the economic bottom line, social responsibility, and environmental awareness.

Ideally, the objective of sustainable business processes (or being ‘Green) is an alternative ability to enhance yield production and maximize cost savings by using fewer inputs, generating less wasteful byproduct and assuring that the firm’s direct and indirect constituents are safe. Most manufactures do not have a clear plan of action with regard to sustainability. However, there is some activity; some manufactures are beginning to target products toward end-user markets with a high potential of adoption of Green alternatives. Other manufacturers have begun to explore to new biologically based production processes and new natural feedstock sources such as the shift away from petrochemicals toward renewable biomass.

The present evidence that sustainable business practices can be adopted and can succeed within the food and beverage industry is still mixed. In some situations, end-users are willing to pay a substantial premium for products seen as ethical, not environmentally damaging, or produced in environmentally friendly processes. In other cases, customers are still price sensitive and will buy green products only when other important determinants, such as cost and quality, are perceived equal to the non-green alternative. Specifically, particular marketing outcomes depend on the industry sector, specific product category, supply chain characteristics, and the consumers being targeted. However, many factors can thwart adoption rates such as an economic slowdown, low consumer acceptance, and consumer confusion and mistrust of quality claims.

The primary objective of a food ingredient company will be to generate, evaluate, and implement an effective sustainability strategy. An optimal sustainability strategy will attempt to satisfy the following seemingly unrelated, but highly interactive, objectives:

• A sustainable profitability margin (The Economic Bottom Line)
• A sustainable competitive advantage (The Economic Bottom Line)
• Sustainable Revenue Growth (The Economic Bottom Line)
• Minimize/maximize the production of negative/positive externalities produced by the company over time that impact a given company's constituents (The Social Responsibility Bottom Line)
• Minimize wasted inputs and unusable byproduct (The Environmental Awareness Bottom Line)
• Avoid/minimize use of non-renewable resources such as resources that have a virtually fixed amount (petroleum) and resources that have a virtually fixed amount whereby the resource’s harvest rate is greater than the resource’s renewal rate (The Environmental Awareness Bottom Line)

In July 2009, Wal-Mart announced its plan to develop a standardized index for evaluating the sustainability of the products it sells and their suppliers. According to Wal-Mart, customers are increasingly demanding product lifecycle information – specifically related to product safety and made in a socially and environmentally manner - in order to help them make better buying decisions. Because of these findings, Wal-Mart has developed a survey for their suppliers which includes 15 questions that evaluates a specific supplier’s sustainability efforts with respect to energy and climate, material efficiency, natural resources, and, people and community. I am currently in the process of administering a version of this same survey for our Growth Partnership Services membership in order to assess where our members stand with respect to the adoption of socially and environmentally responsible business strategies. Please take time to review the survey here. A summary of the results will be released on this blog once we have a statistically significant sample of responses. For more information, please feel free to contact Frost & Sullivan.