Brands Are ‘In a Race’ To Keep Up with Conscious Consumers, Says CDP

Some of the world’s most recognizable brands are “in a race” to keep up with rapidly shifting consumer preferences, according to a new report from CDP.

The United Kingdom-based organization analyzed 16 of the largest publicly-listed food, beverage, household and personal care companies—and its report, released on Monday, paints a picture of industries in flux. As investors demand more information about top companies’ exposure to climate change, shifting consumer attitudes around what to buy—and who to buy from—are leaving companies in catch-up mode.

The votes are in: consumers want healthier, more sustainable products

In the food sector, more than 60 percent of Americans cite healthfulness as a primary driver of their purchases, surpassing even convenience, according to a 2018 survey conducted by the International Food Information Council Foundation. Another 59 percent said they feel it’s important for the food they buy to be produced sustainably, and over a third are eating more plant-based foods. In response, five of the seven food and beverage companies that CDP analyzed—including Danone and Nestlé—are developing vegan, plant-based alternatives to dairy and meat products.

Health-focused and sustainable personal care products are seeing a similar rise in popularity, with nearly 70 percent of global consumers having purchased natural or organic toiletry products in the past year. Likewise, in this category, six of the seven firms CDP analyzed—including L’Oréal—are introducing biodegradable ingredients and actively looking to phase out petrochemicals. Unilever is among four leading personal care companies to have developed vegan personal care product ranges.

Can M&A win the day?

Along with creating new products, many companies are looking to quench consumers’ shifting tastes by acquiring smaller, sustainable and health-focused brands. Of the companies CDP analyzed, 75 percent have acquired a niche, environmental brand over the past five years, and this type of activity has more than quadrupled over that time. Some recent examples include Nestlé’s acquisition of Sweet Earth and PepsiCo’s purchase of Bare Foods.

Still, some companies have faltered in their attempts to expand into emerging categories. Last year, Campbell Soup Company laid out plans to sell off its international and fresh food businesses—including newly-acquired, health-focused brands like Bolthouse Farms and Garden Fresh Gourmet. The surprise move came after years of building its portfolio through mergers and acquisitions, in response to what former CEO Denise Morrison called a “seismic shift” in eating habits. But company leadership said the legacy food giant was ill prepared to enter the growing fresh foods segment.

“We aggressively pursued the important consumer mega trend of health and well-being without having clarity on our source of uniqueness or whether we brought a competitive advantage to the space,” interim President and CEO Keith McLoughlin told Philadelphia Magazine.

Scrutiny around packaging indicates broader rise in consumer activism

Even as companies struggle to keep up with rising demand for healthy, sustainable products, they must also contend with rising scrutiny around their reliance on single-use packaging, CDP warned. A third of U.S. consumers and over half of those in the U.K. support a tax on all plastic food packaging, according to a recent survey. Additionally, in 2018, a group of 25 institutional investors with a combined $1 trillion in assets called plastic pollution a “clear corporate brand risk,” and several governments—including the European Union—are considering more robust rules on packaging and waste.  

In response, around 60 percent of the companies CDP analyzed are investing in biodegradable plastic and recycling infrastructure. But pushback against plastic is likely only the start of what’s to come with respect to consumer activism, said Carole Ferguson, head of investor research for CDP. “Ongoing activism around plastics and packaging is just the tip of the iceberg,” she predicted in a statement. “We expect to see more environmental issues come to the fore as consumers start to question what goes into the products they buy, use and dispose of.”

The bottom line

Some companies stand out in navigating these rapidly shifting waters. Danone, with its pledge to achieve completely circular packaging by 2025, leads the food and beverage sub-sector, along with Nestlé, according to CDP’s report. Unilever and L’Oréal—both previously recognized by CDP for their efforts to cut carbon emissions—lead household and personal care.

Still, almost 60 percent of the top 10 revenue-generating brands for each company CDP analyzed have failed to deliver low-carbon innovations in the last 10 years. Given that most companies generate over half their revenues from these key brands, “they must up their game or risk falling foul of changing consumer demands,” CDP concluded.

“As consumer-facing brands, at risk not just from climate change but water scarcity and deforestation too, these companies have a unique role to play in driving forward the sustainable economic transition,” said Ferguson of CDP. “Leading companies are taking action across their entire value chain and redefining the role of business in society … these efforts need to be replicated by others in the sector, if they are to justify their role in a society that can no longer be based on fast-paced, rising consumption and linear business models.”

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