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Jonathan Gunz on Sustainability and evolving consumer concerns

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Risk taking, passion and an entrepreneurial spirit are more vital than ever in a rapidly changing retail and consumer environment, reminds Jonathan Gunz, senior business analyst, IGD, and author of the report Global Retail Innovation: Ten to Watch 2007.

Q. How do you define ‘sustainability’ for a retailer?
Put simply, ‘sustainability’ means operating in a way that is maintainable and viable in the long term. It is captured in the concept of the ‘triple bottom line’ – the impact an organisation has on the economy, environment and society, while maintaining financial success.

IGD’s research indicates consumers are becoming increasingly passionate about sustainability themes such as the environment, ethics, health and well-being. The food and grocery industry, including retailing, has found itself in the centre of the debate, thanks largely to significant interaction with the natural environment in sourcing products.

Retailers have to react to the rapidly evolving consumer concerns, and many of the major players globally are displaying innovative responses to sustainability issues, as IGD’s Ten to Watch research shows.

Q. What parameters can sustainability be measured on?
There are a number of different standards for measuring sustainability and corporate responsibility, with different regions, industries and countries taking different approaches. Financial-based systems such as the Dow Jones Sustainability Index can provide an impartial assessment.

It is important that any approach to measuring sustainability be grounded in robust, independent research. Consumers will see through approaches that are half-hearted or ‘PR gloss’.

IGD is closely following sustainability trends and hosted the Sustainable Food Industry Summit in London in late 2006, bringing together industry and sustainability experts for the first time to help in mapping out a way forward for the future.

Q. How does one reconcile the dichotomy of premium and discount ends of the price spectrum?
We are seeing a polarisation, with strong growth at both the premium and hard discount ends of the market. Retailers that occupy the shrinking ‘middle ground’ between premium and hard discount will struggle into the future unless they have a point of differentiation.

Consumers are increasingly prepared to pay a premium for products offering health and well-being, convenience, ethical sourcing and environmental sustainability, while also strongly demanding value-for-money in other product lines.

Some of the large-scale retailers are catering for both ends of the market within the same store, or using different fascias to do this. Other retailers are specifically targeting either the premium or hard discount ends.

Q. During your study trips, what has been the one prominent factor that you found was missing in retailers’ understanding of their customer universe?
It is hard to isolate a single factor, but the best retailers, as outlined in the Ten to Watch 2007, are successful in differentiating themselves from their competitors with a specific part of their strategy.

We are seeing retailers achieve differentiation through sustainability, premiumisation, format innovation, branding and communications, and also by pioneering emerging markets.

Q. What measures/mindset do you propose to retailers looking at better execution of a long-term vision?
Risk taking, passion and an entrepreneurial spirit are vital components in implementing a company’s vision, even more so in a retail and consumer environment that is changing at a rapid pace.

Q. What areas need to be taken care of when expanding into new or emerging (or both) markets?
Retailers and suppliers should consider a series of factors before making an investment decision, including the level of competition, political and economic stability, quality of infrastructure, levels of consumer affluence and market growth prospects.

Any new market investment will need to sit well with existing operations and be in line with that company’s strategic aims.

Q. What opportunities would you rate high for retailers planning to consolidate/expand? Along the same line, what are the issues and challenges?
Markets such as India are displaying strong organic growth and dynamism, which provide significant opportunities for retailers. In a number of markets we are seeing growth at the premium end of the market, in particular in product segments that tackle health and well-being, convenience, ethical sourcing and environmental sustainability.

The challenges include responding to consumer trends and providing value through convenience, foodservice or innovative store formats, while ensuring management and cultural excellence.

Q. Rapid expansion by a retailer inherently comes with the risk of the brand proposition getting diluted. Agree?

Not necessarily. The Ten to Watch 2007 research emphasises the importance of brand communications in connecting with consumers and telling a story about company values and products. The best companies will factor brand communications into every aspect of their business operations, including rapid expansion.

Q. Private labels have finally come into their own even in emerging markets like India. How do you think the equation will develop between private labels and branded products?

We expect private labels to continue to show strong growth globally. We are seeing retailers use private labels to develop close links with consumers, and innovate so that these brands cater to different areas of the market, including consumers seeking premium products.

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