Is a ‘climate cost’ model set to shake up supermarkets’ sustainability stances?
In July 2023, Penny announced it was increasing the price of some of its products. The supermarket adopted a climate cost model, or true cost accounting (TCA) approach, to modify its prices to reflect their impact on environmental factors, such as soil, climate, water use and health.
Consumers and the wider food industry may ask whether a climate cost model is now a core strategy to enable the global food sector to reach upcoming environmental targets, such as the 2030 Sustainable Development Goals (SDGs).
Supermarkets and sustainability
“Supermarkets have a vital role in influencing the everyday food and drink purchasing choices consumers make,” Emma Calvert, Senior Food Policy Officer at BEUC (the European Consumer Organisation), told FoodNavigator. Sustainability as a core decision-making factor among consumers is no different.
“Supermarkets have a highly significant role to play when it comes to achieving environmental targets and working towards a more sustainable food supply chain,” Dr Georg Schirrmacher, Director of West Region at EIT Food, confirmed to this publication. National retailers hold vital relationships with suppliers and have critical decision-making power regarding the products they choose to stock.
“Europe’s food retailers and wholesalers, and the eleven million people working in them, are key actors in the food supply chain, providing an essential service to EU consumers every day,” Daniela Haiduc, Head of Communications of EuroCommerce, told us.
By setting more ambitious targets around sustainability, supermarkets can directly encourage food producers and manufacturers to reduce their environmental footprint. “Retailers and wholesalers have a strong commitment to sustainability, leading the way on a whole range of initiatives to operate sustainably and encourage customers to adopt healthy and sustainable lifestyles,” Haiduc adds.
“Additionally, supermarkets are the only point of contact many consumers have with the whole food supply chain, so the types of products and level of guidance they offer can greatly impact consumer choices,” Schirrmacher adds.
Putting aims into actions
EIT Food’s Trust Report surveyed 20,000 consumers across Europe and found that many people want to make more sustainable food choices but struggle to translate this into action.
Supermarkets have an opportunity to support consumers by choosing to stock sustainable food products and signposting them. They can also work collaboratively with manufacturers to improve transparency so consumers can better understand their food items’ origins.
EuroCommerce, a European organisation representing the retail and wholesale sector, strives to step up the fight against food waste, collecting and recycling–and using recycled–packaging, reformulating its private label products, and sourcing responsibly.
A growing number of leading retailers have made science-based decarbonisation commitments, and 12 retailers signed up to the EU code of conduct on responsible business and marketing practices, EuroCommerce notes. The organisation seeks to provide nutritional and sustainability information to nudge consumers towards healthy, sustainable choices.
Climate pricing
German supermarket Penny’s week-long trial has shone a spotlight on whether a ‘climate cost’ pricing model can help the food industry achieve environmental targets. “Penny’s trial was a fantastic initiative, helping to raise awareness and open up conversations about the ‘true cost’ of food products when we account for their climate impact,” says Schirrmacher.
Some leading retailers, such as Dutch retailer Albert Heijn (part of Ahold Delhaize), have also explored a climate-cost model or TCA for some products, such as oat milk and coffee in some of its stores.
“The benefit of a ‘climate cost’ pricing model is that it showcases the true environmental impact of products and offers a strong incentive to consumers to make more sustainable choices,” says Schirrmacher.
EIT Food supports initiatives similar to Penny’s that help consumers understand the climate impact of different food products. “However, in the longer term, it is critical that we do not pass the cost of transitioning to a more sustainable food system onto the consumer, particularly those who may rely on higher-impact ‘convenience’ or processed foods due to their affordability” says Schirrmacher.
The cost of a climate-cost model
A climate cost model is “unlikely to be financially viable for supermarkets or for consumers in the long term,” Schirrmacher adds, “and as pointed out by the research team behind the trial at Penny’s, it is only possible to make realistic cost calculations for a limited range of products at the moment”.
Initiatives also offer an opportunity for differentiation by supporting transparency on sustainability and enabling consumers to make more informed decisions while shopping, boosting trust. “Such initiatives are still experimental, and retailers must be able to continue to decide their pricing strategies independently,” says Haiduc. “Competition among retailers on prices and ranges of products is key to guaranteeing consumers high-quality products at affordable prices."
“Retailers and wholesalers are also exploring new trends in relation to pricing,” says Haiduc. EuroCommerce anticipates these may provide insights on the external costs for society, enabling more significant comparison of production methods per product groups to develop insight into the differences in impact, such as greenhouse gas (GHG) emissions, air pollution, water use, animal welfare. Collating this information may help the food sector assess where action in the supply chain will be most effective.
Commitment and collaboration
Sharing information to improve food product transparency and to see more supermarkets playing a role in educating consumers on the impacts of different foods and production methods also offers a valuable solution.
EIT Food has been working with Foundation Earth to measure the total environmental impact of individual food products and develop a method to communicate information clearly and simply via a front-of-pack labelling score. “Scaling initiatives like this would also encourage manufacturers and producers to improve their ‘sustainability scores’,” says Schirrmacher.
Supporting and investing in new product developments is a crucial approach to increasing the range of sustainable options on shelves and ensuring these become accessible to all consumers, he adds.
“Retailers and wholesalers also have a lot of experience to share on how they work in close partnership with their suppliers, including farmers, to produce food in an economically and environmentally sustainable way,” says Haiduc. The transition towards environmentally and economically friendly production “requires commitment from every sector in the chain”, Haiduc continues. For example, retailers and wholesalers help drive sustainability by fostering long-term partnerships with primary producers and suppliers.
“Whether it’s the food offer they present to consumers on the shelves, the location of items in the store or price promotions on selected goods, retailers can and do use various tools to push consumers towards buying certain products,” Calvert adds.
Retailers and wholesalers can support local suppliers moving to organic, marketing their produce, and providing training on sustainable practices. Industry players may pay a premium to producers for added quality, EuroCommerce details. A range of farm-to-fork initiatives aim to drive sustainability-led actions and approaches.
“By offering support and access to a much larger market, they allow producers to scale up and expand production, meaning that sustainable and healthy food can be made available to all,” says Haiduc.
However, supermarkets must be willing to utilise tools to improve sustainability initiatives. “Unfortunately, these nudge tools are not always used to help consumers opt for the healthier or more sustainable option, and there is great potential for supermarkets to improve on this,” Calvert details.
Balancing affordability with sustainability
The EuroCommerce/McKinsey State of Grocery Retail Report 2023 found that healthy and sustainable products become less of a priority for consumers amid the ongoing cost-of-living crisis. However, the importance of sustainability continues to increase for retailers despite the current dip in consumer demand.
Several studies, such as those in the UK, Belgium, and the Netherlands, Haiduc details, “have shown the critical role that retailers and retail competition have played in preventing excessive price increases from impacting consumers”. Preventing the full force of this impact among consumers is particularly important in current times of high inflation.
