Building a sustainable value chain in the FMCG industry

Over the last few years, sustainability has become an important topic in the retail and consumer sector. Since 2020, interest in “ethical brands” and other sustainability-related issues has exploded, growing between 300% and 600% based on Google searches alone. The pandemic, extreme weather events, and a looming energy crisis, among several other events, have brought the need for a more sustainable economy to public attention, as 52% of consumers globally say that sustainability has become more important to them because of the pandemic.

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But what exactly does sustainability mean, and how does it affect the consumer goods sector?

For many people, sustainability is primarily about the use of natural resources and the climate impact of our actions, which is highly relevant for consumer-goods manufacturers and their supply chains, as the typical FMCG supply chain generates more environmental impact than in-house operations. For example, the supply chain is reportedly responsible for more than 80% of greenhouse gas emissions and over 90% of the impact on air, land, water, and other geological resources.

Today’s consumer brands face a challenge, as sustainability is no longer a nice-to-have but an essential part of every business’s resilience and growth plan. This article explores why sustainability is crucial for consumer goods brands and shows how digitizing the supply chain with Open Commerce can help brands rewire their existing systems to build sustainable, more resilient value chains that will allow them to thrive in the future.

The “value-action” gap in consumer-goods sustainability.

Today’s consumers no longer see sustainable products and brands as an alternative. Instead, they are basing their purchasing decisions, at least in part, on the sustainability of products and companies. Over 60% of consumers now say they are changing their consumption habits in favour of increased sustainability. This “eco-awakening” is not limited to consumers in developed economies but is also strong in emerging economies. A recent report by the Economist Intelligence Unit shows that demand for sustainable goods increased by 24% in Indonesia and 120% in Ecuador.

However, despite the increased attention being paid to sustainability, there is a “value-action” gap between consumers’ sustainability preferences and their purchasing actions. For example, research shows that 65% of global consumers tried to buy sustainably packaged products, but only 29% could avoid plastic packaging. While some parties might see this gap as evidence that sustainability is not as important as consumers make it seem, it is more likely that there are significant barriers that prevent consumers from being as eco-conscious as they want to be.

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This would mean a significant advantage for brands that can make it easier for consumers to make sustainable choices. For example, the 36% gap between consumers who tried to buy sustainably packaged products and those who could avoid plastic packaging is worth over $800 billion. By eliminating the barriers to sustainable retail behaviour and helping close the value-action gap, FMCG brands can unlock valuable revenue streams.

Understanding the ‘green’ customer

To successfully close the value-action gap and unlock the value-action gap, brands must first understand the varying environmental attitudes and actions. Recent research by Europanel, Kantar, and GfK defined three main consumer segments based on their level of concern for environmental issues.

  1. Eco-actives: Consumers in this segment are highly concerned about the environment and invest energy and money in buying sustainably. Eco-actives currently account for 22% of all consumers and are the fastest-growing group. They are projected to make up 50% of the global population by 2029 and 50% of the emerging market population by 2035. They are currently worth $446 billion in FMCG spend and are projected to reach $1.104 trillion by 2029.
  2. Eco-considerers: Like eco-actives, eco-considerers are worried about the environment. However, they consider the barriers to sustainable purchasing hard to overcome. This consumer segment is the largest percentage of the market (62% globally), and the value-action gap is most pronounced among them.
  3. Eco-dismissers: These are the least engaged consumer segment who take little to no interest in the environment. This segment is shrinking rapidly, falling from 41% in 2019 to 28% by 2021.

According to the study, more consumers will become concerned with sustainability in the consumer goods industry, and brands need to identify and surmount the existing barriers preventing consumers from accessing sustainable products. In addition, brands that can communicate their dedication to meeting sustainability targets are more likely to drive growth and unlock new revenue streams.

Improving sustainability with data

While the need for brands to become more sustainable is clear, the path to achieving it is not. Brands, especially in emerging markets, need increased visibility across their value chains to strengthen credibility and prove how they are achieving their sustainability targets. However, companies can only prove what they can measure, so data is crucial for sustainability efforts.

Daily across the consumer-goods industry, there are numerous opportunities for brands to apply data to supply chain sustainability problems, such as inaccurate demand and its effect on inventory planning, logistical and distribution challenges, packaging, and product waste, among others. The only way to achieve this is by integrating data across the entire supply chain – from brands, distributors, retailers, and other partners or suppliers. With real-time visibility and advanced analytics, brands can drill down into key sustainability metrics, mitigate risks, and identify and maximize new opportunities for improvement.

With real-time data syndicated across the supply chain, brands can better understand the demand for their products and what products customers are likely to buy. This data can then be leveraged to make data-driven decisions on inventory placement and optimize deliveries. It can also provide customers with a more personalized product selection, which eliminates a major barrier for the eco-considerers’ customer segment.

Build a sustainable value chain with Open Commerce

In emerging markets, FMCG brands typically lack visibility across their distribution chain and cannot identify who their customers are, what eco-awareness segment they belong to, and what types of products they would be interested in. Thus, these brands are unable to unlock the demand for sustainable products and maximize the valuable revenue streams previously inaccessible.

Until now.

RedCloud has built the world’s first AI-powered Intelligent Open Commerce platform, a digital commerce solution built for the consumer-goods industry in emerging markets. With Open Commerce, brands and distributors can unlock the full value of the supply chain and capture valuable data in real-time. Instantly, brands can see into the retail markets, see who is buying their sustainably produced goods across multiple geolocations, and rewire their supply chains to meet the demand gap.

Schedule a demo today to learn how RedCloud can help you build a sustainable value chain and unlock valuable revenue streams.