Consumer Driven Sustainability is not all about the consumers
5 keytakeaways from a conversation with leaders in sustainable food industry at Harvard Business School
Through the HBS Climate Symposium, this past fall I had the opportunity to attend a discussion among Eleanor Laurans (Co-Founder, Workshop Venture Partners, Senior Lecturer, HBS), John Mennel (Managing Director, Leader in ESG & Sustainability Strategy, Deloitte), Tao Zhang (CEO, Dao Foods), and Priyanka Srinivas (Founder and CEO, Live Green). As someone who had known nothing about the food industry, their insights were particularly helpful in orienting my mental model for the industry and making the “where to start” part a little easier. My pleasure to share these insights with broader audience who, like me, is also clueless and wants to learn.
1. Demand for sustainable food products is increasing in both scale and level of complexity
While majority of consumers with such demand are gen Z or millennial, other age groups and socioeconomic segments start observing a growth in demand for this type of product. The psychology behind the decision to purchase sustainable food products, however, is quite complex. Consumers want variety of choices of sustainability-branded products that entail different combinations of convenience level and prices, as well as prefer products that demonstrates sustainability as a choice rather than a mandate that forces consumers to go out of their way to integrate the product in their daily life. Retail data also show that sustainability-oriented consumers generate the highest life-time value among all food product consumers, due to the premium price of sustainable food products as well as high loyalty among this segment.
2. Historically, strategies for new players to enter this market and compete with established players relied on pricing, but this phenomenon is changing
Three key elements for new players to consider as well as for consumers to consider a new product include: price, convenience, and taste, of which price has historically been the most important factor. Of note, the price doesn’t only reflect the cost entailed in manufacturing and commercializing sustainable food products, but also the politics of targeted geographic markets (i.e. sustainability-related policies, access to ingredients and labor, etc.). As consumers become more aware of ingredients and demand a higher quality of the food, large brands start collaborating more actively with food startups, which create more opportunities for new players to enter this space without relying heavily on operating capital that is reflected on pricing power. This collaboration becomes more prominent as it helps large companies to leverage their brand equity to fuel the growth of new products while allowing new players to take advantage of their agility and ability to adapt to consumers’ changing needs
3. Policies do support the sector, but not all players in the sector received the favor equally.
The IRA likely makes “difficult decision” less difficult for food businesses, by incentivizing them to pursue a more sustainable supply chain through tax credits. However, there are many other policies that are just not the IRA that supports the sector (an example would be USAID grant program and how Tyson Food manufactured sustainable chicken). These policies on the other hands also favor big players over smaller/ newer players, resulting in the latter being on their own for a while before getting to a stage when they are ready for meaningful government grant.
4. Consumers sooner or later will take note of “greenified” brands that aren’t genuine with their sustainability focus
While consumers in emerging markets like China may not pay attention to the genuineness of the sustainability focus, those in other established markets do. More importantly, with the increasing availability of AR/VR technology that empowers augmented reality in retail over the next 5 to 10 years, researchers can collect data of how consumers react to specific sustainability-focused brands or food products on shelves in real time.
5. Even when it comes to a necessity like food, it still comes down to profit vs. impact.
Food is essential, and the good news is we know that people will always need food, so the uncertainty of revenue typically seen with non-food sectors becomes less nerve-wrecking here. But there requires a specialized force to work on sustainable food ventures: many CFOs haven’t mastered the art of fundraising in this sector, while many VCs don’t understand enough about the sector to strike the balance between impacts and profit to tease out the right asset pricing.