UK retailers tackling the combination of a climate crisis and the largest drop in disposable income in generations are forging strategies with both events in mind

Loop scheme advertising in Tesco store

  • Half of shoppers want clear indications of sustainable products in stores, while a third place the responsibility for shopping more sustainably on retailers
  • Tesco and Iceland have both been forced to reverse high-profile green initiatives
  • BRC Climate Action Roadmap aims to combat climate change and help retail reach net-zero in the next two decades

Greener retailing and the sector’s contribution to the UK’s 2050 net-zero carbon ambitions are a central part of today’s industry narrative.

But the post-pandemic economic situation has prompted some to renege on their eco promises, while other retailers are evolving sustainability strategies to match the times.

Retailers also often face a dichotomy between intention and behaviour from customers. A report from management consultancy Gate One found that half of shoppers want clear indications of sustainable products in stores, while 30% place the onus of responsibility for shopping more sustainably on retailers themselves.

But the harsh reality is that, for many, the cost-of-living crisis means buying affordable products will trump shopping sustainably.

Many previous attempts to combine these two shopper missions have fallen flat, such as when Iceland scrapped its trial to sell loose fruit and veg in 2019 after recording a 30% slump in sales.

Against this backdrop, how can retailers marry their lofty sustainability targets with the day-to-day reality of cash-strapped consumers seeking the most affordable shop possible?

Tough decisions

In July, Tesco ended its Loop initiative in partnership with TerraCycle. The scheme in the retailer’s east of England stores made more than 50 big brand products and 35 own-brand items available to buy using reusable packaging, with more than 80,000 products purchased in this way over a two-year period.

Responsible sourcing director Giles Bolton said the retailer will be working with stakeholders to understand how Tesco can scale this initiative in the future. But, nevertheless, the decision was made not to roll out the scheme, due in part to a lack of take-up from shoppers. 

Iceland, meanwhile, has reversed its pledge not to use palm oil in products because of the current economic landscape.

Russia’s war in Ukraine is driving increases in global energy and commodity prices, and with those two nations accounting for circa 70% of the global supply of sunflower oil it has become more difficult to obtain supplies, according to Iceland boss Richard Walker.

Iceland’s reliance on sunflower oil grew as it removed palm oil as an ingredient from all its own-label products in 2018 to – in the words of Walker – “take a stand against tropical deforestation”.

In some cases, he adds, palm oil has become the only suitable replacement for the now-scarce sunflower oil. So, with “huge regret”, Walker opted to start including the ingredient in some Iceland own-label products again from June.

“I haven’t changed my mind about palm oil, which is why this is strictly a temporary move,” he says, adding that Iceland’s prime objective is to feed the nation and deliver affordable food to those on tight budgets.

These two high-profile examples show how sustainability initiatives can change direction based on a multitude of factors.

However, even though Tesco and Iceland’s decisions represent a reining in of specific green strategies, these retailers – like so many in the industry – are still ramping up environmental commitments in other areas.

Tesco’s electric delivery fleet is among the most substantial among UK retailers, for example, and Iceland started working with social enterprise Olio in July to redistribute would-be food waste from stores to local communities in need.

Going where the wind blows

Indeed, Andrew Opie, director of food and sustainability at the British Retail Consortium (BRC), says: “There’s a different emphasis on sustainability than there was a few years ago, when there was much more of a focus on the promotion of the product, but I haven’t seen a slowdown on sustainability work overall.” 

“There’s no real let-up in some of the key areas, such as carbon reduction – you can actually save money by taking carbon out of the chain”

Andrew Opie, British Retail Consortium

The BRC established its Climate Action Roadmap in 2020, which – by encouraging 80-plus retailers to work together and share best practice and common commitments – aims to combat climate change and help retail reach net-zero in the next two decades.

Still from Iceland palm oil ad showing a girl with a sign saying: 'Save my friend'

Iceland has had to reverse its high-profile scrapping of palm oil in products

“There’s no real let-up in some of the key areas, such as climate change work and carbon reduction – a good reason for that is that you can actually save money by taking carbon out of the chain,” Opie adds.

That narrative is starting to play out more and more, agrees Siobhán Gehin, senior partner at management consultancy Roland Berger.

“Retailers are trying to look at the sustainability benefits and are perhaps avoiding the more painful ones,” she notes. “A theme that is really resonating is: how can you drive the sustainability agenda in a really cost-effective way?”

Gehin cites the introduction of solar panels, consolidating procurement and tackling food waste as areas where retailers can help the environment and their own bottom line in tandem.  

“If you have got the capex to invest, you can get a decent return on investment with some renewable energy commitments – and smart CFOs have identified that,” she explains. 

Recent moves from Kingfisher head office suggest there is no sustainability slowdown at the B&Q and Screwfix parent company.

“Sustainability is not a nice add-on – it’s integrated throughout the business so ESG [environmental, social and governance] measures are baked in from reward structures to reducing energy consumption in our stores,” says Kathryn Thomas, head of planet and interim responsible business director at Kingfisher.

“Sustainability is absolutely part of the Kingfisher strategy and the current cost-of-living crisis doesn’t impact that – our ambitions remain the same”

Kathryn Thomas, Kingfisher

The group revealed its new emissions-reduction targets in July, representing an acceleration of its carbon-reduction work.

The aim is for net-zero across its Scope 1 and 2 operations by the end of 2040/41, which will be supported by its pre-existing science-based target of reducing operational emissions by 37.8% by 2025/26.

Low VoC Paint

Kingfisher’s minimal VOC paint is part of its commitment to net-zero emissions

A transition to 100% renewable electricity, significant investment in energy-efficiency measures and using alternative fuels within its delivery fleet have already reduced emissions by 24.5%, according to the group.

“Sustainability is absolutely part of the Kingfisher strategy and the current cost-of-living crisis doesn’t impact that – our ambitions remain the same,” says Thomas.

Moves by Tesco, Marks & Spencer  and Sainsbury’s in 2022 to introduce programmes to locate and work with the latest sustainability-focused start-ups also show a thirst among the largest UK retailers to invest in the green economy.

Marrying sustainability with affordability

In consumer research published by Kingfisher in February, 79% of home improvers said sustainability is important to them, while 65% described it as more important than three years ago.

Screengrab of Olio website. Text reads: 'Join the food sharing revolution'

Olio is partnering with food retailers to help reduce food waste 

The DIY group has set a target that 60% of its product comes from what the company calls “sustainable home product”, which helps customers live more sustainable lives. This has meant a heightened focus on items such as peat-free compost, low-flow taps and low-volatile-organic-compounds paint.

“If we can help our customers reduce their energy bills at the end of the month, that shows sustainability goes hand in hand with the cost-of-living crisis,” Thomas notes.

And that is a big part of Kingfisher’s Scope 3 goal. If it can get ‘more sustainable’ products into people’s homes, it will contribute to its long-tail carbon-emission reductions, based on its Science-Based Targets initiative-approved targets.

“Customers expect us to keep on improving our sustainability credentials as we go. They don’t expect to pay for the privilege. We’re very conscious that we have to find ways of doing that through efficiency”

Ken Murphy, Tesco

Tesco, too, is seeing that consumers are not separating the needs for eco-friendly and cost-effective purchases in tough financial times. 

Ken Murphy, chief executive of the UK’s largest retailer, said on a preliminary results media call in April: “Customers expect us to provide them with great product at the best possible value. 

“They expect us to do that in a very environmentally-friendly and sustainable way. They expect us to keep on improving our sustainability credentials as we go. They don’t expect to pay for the privilege. We’re very conscious that we have to find ways of doing that through efficiency.”

“The sustainability credentials of products and brands are becoming a much higher factor considered in the decision tree matrix when purchasing – it’s about product, not production”

Nathan Williams, Mamas & Papas

Nathan Williams, chief operating officer at Mamas & Papas, adds: “People are prepared to spend their money on the right things that speak to their values.

“Awareness of climate change and the situation the planet is in has never been greater, so the sustainability credentials of products and brands are becoming a much higher factor considered in the decision tree matrix when purchasing – it’s about product, not production.”

Mamas & Papas launched a take-back scheme in June, allowing consumers to donate clothing. A partnership with Oxfam sees these products sold via the charity’s distribution channels, keeping the items in circulation for longer than they otherwise would be.

EY’s Future Consumer Index from June gives a wider view of customer sentiment. 

The survey of more than 1,000 UK shoppers found that 37% of low- and middle-income consumers are only purchasing the essentials, compared with 26% in the last survey in February 2022. 

Some 32% said they are now switching brands to try cheaper alternatives, also up from 26% in February. Affordability rose in importance by 8% versus the previous index, with 27% of all consumers now adopting an ‘affordability-first’ mindset.

However, the same research showed that 90% are trying not to waste food and 55% are paying more attention to the environmental impact of purchases. 

Silvia Rindone, EY’s UK and Ireland retail lead, says “more economic and sustainable consumer behaviours are here to stay”.

Retail initiatives launched in July by M&S and John Lewis reflect how the cost-of-living crisis and sustainability agenda can be broached in tandem.

Exterior of B&Q St Albans store

DIY group Kingfisher has accelerated its carbon-reduction targets

M&S Food teamed up with chef Tom Kerridge to launch a meal planner based around its Remarksable range, featuring family meals made from ingredients equating to circa £2 per person per meal. The budget-focused collaboration includes tips on making the most of leftovers to reduce food waste, a major contributor to greenhouse gases.

And John Lewis launched FashionCycle exclusively for its members on July 22. Customers bringing in five items of old clothing for recycling can receive £5 off a home or fashion purchase worth £20 or more if they make the transaction on the same day.

Opie highlights the “strong” potential of the second-hand market, too, which a growing number of retailers – including Mulberry, Jigsaw  and Dr Martens – are tapping into.

“Resale taps into a market where value is really important for the customer, but if that delivers a sustainable goal at the same time, then that’s fantastic.”

Leading or managing?

Williams suggests those looking inwardly as the economy continues to contract will lose out in the long run, while those thinking about the bigger picture will thrive.

“When things get tough, you have to balance your costs, but it also becomes more important for retailers to continue to invest into their businesses because once you lose momentum it can be difficult to get back,” he says, adding that times like these represent an opportunity to gain market share over those who stand still.

Plans are being put in place at Mamas & Papas to build on the retailer’s recent Oxfam clothing take-back scheme, while also capitalising on burgeoning new markets and opportunities that arise when consumers are now more willing to buy pre-loved items.

According to Williams, much of the sustainability narrative in modern retail has highlighted the growth in good leadership within the industry.

“Companies pressing ahead with greener strategies, and not solely focusing on profit and EBITDA but instead taking the long-term view, demonstrate great leadership,” he explains.

“More of an infinite mindset is required – it’s all about ensuring the long-term sustainable growth that improves the quality of the business, as well as the financial performance, and not just short-term fixes.”

Ian Shepherd, author of Reinventing Retail and a non-executive retail director, bemoans the way sustainability has been framed by the government.

“The reframing of sustainability as a value generator, as a profit driver and as an efficiency booster can change attitudes. But I think plenty of businesses don’t see that, just as plenty of politicians don’t see it that way either”

Ian Shepherd, non-executive retail director

UK policymakers have failed to articulate “the massive business opportunity for Britain PLC” from the green economy, he argues.

“The national debate about sustainability among governments and activists is framed as: ‘Here is some medicine to take because it is good for you’. It makes it feel optional and a kind of penance you need to go through.”

He acknowledges that some businesses may be “reverting to type” as the economy weakens, by not putting their foot down on the sustainability accelerator. Any new business case requires an upfront investment, he says, and not everyone has that resource.

Exterior of Mamas & Papas store

Mamas & Papas launched a take-back scheme with Oxfam in June 

“For many retailers, when times are tough, investment gets cut back and they’re faced with that difficult choice between opening the new store and upgrading their website on one hand and a sustainability strategy on the other,” Shepherd remarks.

“With that in mind, it’s not surprising some retailers are doing what they did before where they understand the payback better and might perceive the risk to be lower, and investing less in sustainability because they have less money overall.”

Shepherd beats the drum for a repositioning of the sustainability strategy debate.

“The reframing of sustainability as a value generator, as a profit driver and as an efficiency booster can change attitudes,” he explains, adding that many challenges retailers face can be solved by focusing on more sustainable policy. 

“But I think plenty of businesses don’t see that, just as plenty of politicians don’t see it that way either.”

According to one retail sustainability lead, until recently many c-suite and retail shareholders were not generally advocates for sustainability strategy, but they are now much more positive about embedding wide-scale sustainability work.

“Obviously, when you read headlines that fossil fuel companies still have investments going into big carbon bonds, that can be depressing,” they added, highlighting the scale of the challenge in terms of facilitating rapid societal change.

“But there’s been so much interest from consumers, NGOs and charities, and it means the agenda has been lifted and it’s actually a really exciting time in sustainability.”

Some initiatives may fall by the wayside, but sustainability strategy is still high on retailers’ list of priorities – even in such testing economic times.