Retailers: How to find returns on sustainability investments

Context

To gain a deeper understanding of the financial drivers for investing in sustainability strategies across the food and agriculture value chain, Deloitte worked with CSB to use their Return on Sustainability Investment (ROSI™) methodology and framework.

The study examined 12 ROSI™ strategies and included a 25-question survey completed by 350 executives from five value chain segments: processing, manufacturing, food services, restaurants, and retail. We also interviewed leaders in the food and agriculture sector to deepen the credibility of our data gathering.

Our resulting findings: Food and agriculture businesses can realize meaningful value from investing in sustainability, especially considering the holistic value impact.

Below we have listed key findings for retailers.

Retailer value chain overview

Retailers connect consumer-facing brands (that create food products upstream) to end consumers. The format and size of their operations may vary significantly, ranging from multichannel retailers to fresh-format stores and high-end grocery stores. They play an integral role in determining which upstream goods reach end consumers and in what volumes

Top three revenue growth strategies

Retailers seeking to boost revenue through their investments in sustainability may consider the following top strategies that were most effective for our survey respondents:

1. Sustainable packaging solutions: Some examples of approaches to more sustainable packaging include reducing the use of virgin plastic, designing packaging for reuse, and increasing recycled content in materials. Benefits of using more sustainable packaging include boosting the predictability of demand planning, strengthening relationships with suppliers, and diversifying the supplier base.
2. Sell products with verifiable sustainability claims: This strategy not only can attract new customers, but also can enhance existing brand or customer loyalty. Verifiable claims (e.g., humane practices or conservation of natural resources) are often communicated to consumers to fetch a premium, potentially leading to incremental revenue on existing purchases.
3. Sustainable and responsible supply chain sourcing: Purchasing raw materials from sustainable sources, reducing the carbon footprint of transportation and logistics, and ensuring fair labor practices are all examples of this strategy, which builds trust and credibility with consumers. Trust and credibility, in turn, can result in greater profitability.

Top three cost-saving strategies

Retailers found the following strategies delivered the most cost savings:

1. Reduce use of harmful chemicals: Similar to survey results of upstream suppliers, retailers found that minimizing the use of harmful chemicals often lowered the overall cost of materials while also decreasing disposal fees and avoiding potential regulatory penalties.
2. Raise, treat, and/or source animals responsibly: It goes without saying that it’s important to treat animals well by ensuring humane living conditions, minimizing disease, and providing light and dark schedules to regulate normal sleep and wake cycles for animals. Also, retailers that doubled down on this strategy, particularly in sourcing, found that their programs helped to reduce supply disruptions, avoided potential fines, and decreased their exposure to reputational risk.
3. Protect and conserve biodiversity and ecosystems: Protecting biodiversity can lead to more resilient ecosystems and a more stable supply of raw materials, reducing costs of supply chain disruptions. This likely is tied to the previous strategy around responsible sourcing, as retailers can have an impact on the environments immediate to their locations through sustainable landscaping.

The path forward

Retailers are well-positioned to leverage their direct consumer interactions to adapt to their sustainability-related interests and objectives. They can also use sales data to gain further understanding of evolving consumer preferences and respond accordingly.

While much of the focus is on the sustainability of products that retailers offer, it is also beneficial to consider physical storefronts and footprints. For example, retailers can achieve cost savings through energy management strategies that reduce their own carbon footprint. As with all things sustainability, often a holistic approach delivers the most potent results.

¹Catherine Douglas Moran, “Grocery industry profit margins fall to pre-pandemic levels: FMI,” Grocery Dive, July 3, 2024.

*All charts are based on data taken from the NYU Stern Center for Sustainable Business (CSB) report published in October 2024