By Randi Kronthal-Sacco, NYU Stern Center of Sustainable Business, and Larry Levin, IRI
During the heights of the COVID-19 pandemic in the U.S., some marketers hypothesized that sustainability-marketed products (those with on-package communication that signaled sustainability to the consumer) would end up ceding share to other types of products that would be prioritized during the pandemic. As we all saw during the early months of the pandemic, out of stocks and pantry loading did impact consumers’ typical shopping behavior.
However, as we discussed in our recent webinar, market share for sustainability-marketed products has continued to grow, with no apparent end in sight. In fact, it has risen each year for the past five years, from 13.7% in 2015 to 16.8% in 2020 as shown in the 2021 Sustainable Market Share Index™. This annual study by the NYU Stern Center for Sustainable Business and IRI explores the performance of sustainable CPG products, using IRI point-of-sale (POS), household panel and e-market insights data to review more than 73,000 products over five years across 36 categories.
Sustainability-Marketed Products Now Account for 16.8% of Purchases
Over the same period, sustainability-marketed products accounted for a whopping 54.7% share of overall market growth (2015-2019) and grew 7.1 times faster than conventionally marketed products.
Even more important for brands and retailers, these products command a price premium that far exceeds their increased cost to manufacture. This makes them an essential driver of higher margins and profitability.
Consumers are not only buying more of these products. They also are continuing to show a willingness to pay more for them. In 2018, sustainability-marketed products enjoyed a price premium of nearly 40% over their conventionally marketed counterparts — a 5.3-point increase over 2014. They also tend to exhibit lower price sensitivity, behaving more like luxury items than commoditized CPG products.
Sustainability-Marketed Products Enjoyed a Sizeable Price Premium at 39%* Over Conventionally Marketed Products and Increased +5.3 pts Since 2014
*Weighted by $ sustainable sales of categories examined; analysis excluded store brand/private label
And while a common narrative has been that sustainability took a back seat during the COVID-19 pandemic, this hasn’t necessarily been the case for sustainable CPG products. Instead, these products generally kept pace with the historic rise in CPG sales and even outperformed overall CPG growth at the onset of the pandemic.
They also grew faster in e-commerce growth from 2019 to 2020 (+65%) versus both the total market (+59%) and conventionally marketed products (+57%). Shares of sustainable products are also greater online than in-store across 75% of categories examined.
Unsurprisingly, sustainable products over-index with younger, more educated and higher-income consumers and do the worst with the oldest, least educated and lowest-income demographics. Among all age groups, consumers define sustainability most clearly in terms of minimizing carbon footprint, minimizing natural resource use, commitment to conservation and use of renewable resources.
As consumer awareness about certain environmental issues increases, sustainability product claims are adapting too. For example, more than $1.3 billion in products in 2020 were labeled as made with 100% certified renewable electricity. Major CPG manufacturers such as Procter & Gamble and Church & Dwight are embracing these claims, and Unilever has committed to carbon labeling on over 70,000 products. We are starting to see more carbon-neutral claims emerge, as well.
As ocean plastic and plastic pollution generate continuing media attention, we are also seeing a growing consumer preference for offerings that address the problem. In a National Consumer Panel survey from May 2021:
- 39% of millennials and 29% of Gen X and boomers said that they are seeking out more sustainable items during the COVID-19 pandemic.
- 47% of millennials and 38% of Gen X and boomers said that they will continue to buy more sustainable products.
- 29% of millennials and 21% of Gen X and boomers said they seek out retailers that carry sustainable products.
- 31% of millennials and 20% of Gen X and boomers said sustainability is important in personal care items.
- 43% of millennials and 35% of Gen X and boomers said that “packaging is excessive” for online purchases and almost the same amount (36% and 35%, respectively) plan to consolidate online purchases to minimize waste.
The growing popularity of sustainability-marketed products can also be seen in IRI’s latest New Product Pacesetters™ report. It marked the first time a plant-based meat product (Beyond Sausage) ranked among the top 10 products. It was also the first time a hemp product (Hempvana Pain Relief Cream) cracked the top 10. In all, a record 36 of the food and beverage Pacesetters had plant-based attributes, and 32 of them were vegan.
As these results show, sustainability-marketed products are more than just a way to help make the world a better place. They’re also becoming increasingly important in CPG as a driver of sales growth, higher margins and customer satisfaction. Yes, even during a pandemic.
Questions? Read more about this topic in our press release, listen to our podcast and reach out to your IRI representative or IRI@IRIworldwide.com.