DEGREE PROJECT IN INDUSTRIAL MANAGEMENT, SECOND CYCLE, 15 CREDITS
STOCKHOLM, SWEDEN 2018
How can Swedish food retailers create incentives
for sustainable consumption?
Daniella Bäckman
KTH ROYAL INSTITUTE OF TECHNOLOGY
SCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT
How can Swedish food retailers create incentives for sustainable
consumption?
by
Daniella Bäckman
Master of Science Thesis INDEK TRITA-ITM-EX 2018:342 KTH Industrial Engineering and Management
Industrial Management SE-100 44 STOCKHOLM
Abstract
Sustainable consumption is becoming more and more important when aiming to achieve a sustainable food industry in the future. A sustainable movement requires actions from diverse actors on the market such as politicians, organizations, retailers, consumers etc. This research focuses mainly on retailers and partly consumers. Past research examines consumer behaviour when it comes to sustainable consumption and companies’ incorporation of Corporate
Sustainability. This research seeks to complement prior research by investigating two major retailers in the Swedish food industry, Axfood and ICA. Through semi-structured interviews, with Sustainability Managers working at these companies, the research collects qualitative data that contributes to a better understanding of the Swedish food retailing industry and how they address sustainability issues. The research highlight current trends on today’s market and identify crucial focus areas for the future.
Key words: Consumption, sustainability, food industry, retail, Stockholm, human behaviour, organic, trends
Master of Science Thesis INDEK 2018:342
How can Swedish food retailers create incentives
for sustainable consumption?
Daniella Bäckman
Approved
13-06-2018
Examiner
Terrence Brown
Supervisor
Kristina Nyström
Commissioner Contact person
Innehållsförteckning
1. Introduction and Background ... 1
1.1 Research Background ... 1
1.2 Aim and Research Question ... 3
1.3 Outline ... 4
1.4 Delimitations ... 4
2. Literature Review ... 5
2.1 Introduction ... 5
2.2 Corporate Sustainability ... 5
2.3 Consumer behaviour ... 5
2.4 Trends and Challenges ... 6
2.4.1 Demand and prices ... 6
2.4.2 Waste ... 6
2.4.3 Price – key for decision making ... 6
3. Methodology ... 8
3.1 Research Paradigm ... 8
3.2 Research design ... 8
3.3 Literature Information Collection Method ... 8
3.4 Interview Data Collection Method ... 8
3.5 Ethics and Sustainability ... 9
4. Result and Analysis ... 10
4.1 Big trends in today’s food market ... 10
4.1.1 Global and urban consumers ... 10
4.1.2 Changed consumption patterns ... 10
4.1.3 Healthy lifestyle ... 11
4.1.4 Sustainability and responsibility ... 12
4.2 Focus areas for the future ... 15
4.2.1 Smarter packaging ... 15
4.2.2 New digital systems for production, sales, distribution and consumption ... 15
4.2.3 Develop alternatives for today’s animal products ... 16
4.2.4 More steps of recycling and reuse ... 17
5. Conclusion ... 18
5.1 Limitations ... 18
5.2 Suggestion for future research ... 18
6. References ... 19
Appendix ... 21
1. Introduction and Background 1.1 Research Background
It is commonly known that contemporary food production and consumption can not be regarded as sustainable and raises problems involving diverse actors. The responsibility rests not only on one party and to create a more sustainable food industry, a combined effort from a number of actors is required. Actions from politicians, companies, organizations and consumers are crucial to make a significant impact (Reisch el at., 2013).
The food industry of the future is facing some big challenges. The forecasts say that by 2050 we will have approximately 2 billion more mouths to feed worldwide. Global population growth and rising economic prosperity will increase the demand for both energy, food and water. Even though almost half of the world’s population live in cities, the food industry has managed to meet the demand through a more industrial agriculture and fishing. Apart from having to increase the food production significantly in the future we also have to be cautious with the natural resources, reduce our environmental footprint and decrease the emissions of greenhouse gases. At the same time, we need to cope with the predicted climate changes and the growing competition of farmland (The Royal Swedish Academy of Engineering Science, 2016).
This is one of the most important challenges humanity is facing. In order to create a more sustainable food industry in the future a lot of new solutions are required when it comes to business models, resource efficiency, regulations, innovations, science etc. Many of the world’s biggest and most populated trade nations have set high and ambitious goals in order to reach a leading position within industrial sustainability and resource efficiency. It is crucial for the Swedish food industry to join this journey or it will affect their profitability and competitiveness in the future (OECD/FAO, 2014).
Even though the importance and relevance of sustainability policies regarding food consumption are widely accepted, actions towards an integrated policy of sustainable development that covers all actors are limited. What is problematic when it comes to political action plans is that they rarely touch upon interdependencies along the food chain and the complexities of modern global food systems. This major barrier of mapping out systematic issues is one of the main reasons why food consumption patterns aren’t shifting and pointing toward sustainability (Reisch el at., 2013).
When it comes to the Swedish food retailing the industry is characterized by high levels of concentration and a fewer number of large companies sharing the market and competing mainly on price. These major retailers possess a high level of power over both producers and suppliers. In industrialized countries we have access to a wide range of food products year around because they are affordable and can be transported from wherever. In European countries consumers benefit from the comparatively low prices and high convenience due to the changes in food production and globalization. The result of this is that consumer knowledge regarding seasonality and regional food supply is decreasing. In general consumers are becoming more aware of their health and what impact their consumption has on the environment. This can sometimes become contradictive because due to digitalization we are constantly exposed to healthy products all over the world, and being able to
consume for example avocados year around is something we take for granted (The Royal Swedish Academy of Engineering Science, 2016).
Regarding food consumption everyone has their own habits and preferences that has been shaped by a number of factors such as traditions, norms, physiological needs, experiences etc. These preferences combined, with finances, time and other constrains is all affecting our food consumption. Although there is an increased awareness on the benefits of organic food production, there is a behaviour gap between the consumer willingness to buy organic food products and the actual purchases. Price is a major decision criterion for people in many social groups but can differ by household characteristics such as age, income, education and family-type (Vermeir and Verbeke, 2006).
The western food system is characterized by obesity, increasing food-miles, food scares and insecurities, continuously growing fast food culture along with increasing food waste.
Today 1/3 of food is wasted by retailers and consumers and some reasons for that is poor menu planning, lack of food competence, huge package sizes enabled by large home- storage capacities and the attractiveness of quantity discounts. During the last two decades the industry has went through a huge transition when it comes to consuming food out-of- home. People demand quick bites on-the-go or pre-prepared meals that does not require a lot more than heating it up in a microwave (The American Journal of Clinical Nutrition, 2016).
Here the food retailing companies play an important part. By encouraging and making it easier for consumers to consume sustainable we are heading in the directing towards a brighter and more sustainable future. Retailers have the power to require and implement sustainable production and processes along the entire food chain. Changes in our consumption patterns is crucial as it shifts what we demand from the retailers. Take meat consumption as an example. We know that the current meat consumption needs to decrease in order to save the planet and to be able to feed the future population. Here it is partly the consumers’ responsibility to get information and use their knowledge and awareness to consume differently and it is up to retailers to make it easier for us to choose a different alternative to meat. The food retailing companies have a strong position when it comes to help shifting consumption patterns but we can not deny the challenges it involves due to the complexity of today’s food industry and the large number of actors involved along the many steps of the food chain. The distance from field to fork keeps on increasing (The Royal Swedish Academy of Engineering Science, 2016).
1.2 Aim and Research Question
The literature available highlights the major issues the food industry is facing, such as increased demand due to growing population, environmental challenges, lack of resources, strong competition in the food industry etc. In order to achieve a sustainable future, where sustainability is a core element through all the steps in the food chain, a lot of actors need to take their responsibility. Even though consumers are at the end of the food chain we carry responsibilities as our consumption patterns is creating a demand which the market is trying to meet. Prior research (Bolis et al., 2014, Reisch el at., 2013, Normann, 2012) points out actions that has been implemented. This research seeks to complement prior studies by investigating and trying to answer following research question:
“How can Swedish food retailers create incentives for sustainable consumption?”
This research will contribute with increased knowledge and provide greater insight into how food retailers’ actions can affect consumer behaviour by promoting sustainable consumption. This research focuses on how Swedish food retailers can make it easier for consumers to choose sustainable alternatives and also what is preventing a movement towards a more sustainable future. The most optimal research population for this topic is people working with sustainability questions within the retailing industry who possess capability and valuable knowledge. An interview questionnaire is set up to be conducted on the research population, which in this research is Sustainability Managers at Axfood and ICA, which together holds a market share of almost 70% of the Swedish food retailing industry.
In this research there are three dimensions of sustainability; environmental, economic and social, that are related to food consumption. Environmental sustainability is living within the means of natural resources and being aware of environmental limitations. Economic sustainability requires that nations and businesses use financial resources in a sustainable manner while achieving operational profits for sustaining long-term activities. Social sustainability is the social system’s ability to achieve long-term social well-being. Global sustainability is only achieved when environmental, economic and social sustainability are balanced in equal harmony (Circular Ecology, 2017).
Research objectives for research
1. How can food retailers motivate consumers to consume sustainable?
2. What are the factors that prevent sustainable decision making?
3. What are the trends in sustainable consumption?
1.3 Outline
In this section, the outline of the thesis is described. In total it consists of five chapters.
Chapter 1. This chapter is the introduction and outlines the background, purpose and research question.
Chapter 2 consists of the literature review and discusses a mixture of literature within Corporate Sustainability, consumer behaviour and trends and challenges in today´s food industry. These themes are discussed within the framework of sustainable development.
Chapter 3 explains the methodological approach. The reason for using a qualitative research method is described along with the methods for collecting literature information and interview data.
Chapter 4 consists of the result and analysis based on the literature review, interview findings and complementing information from articles and reports. Current trends and challenges were identified and important focus areas for the future were pointed out.
Chapter 5 leaves the reader with the thesis conclusions. Links are made between the analysis of Chapter 4 and the literature discussed in Chapter 2.
1.4 Delimitations
The scope of this research can be considered fairly narrow as it investigates two Swedish food retailers. Even though they together hold a large market share it is not enough to deliver a clear description of the market. This is due to time constrains and access to interviews. This research also excludes smaller food retailers such as local and not that expanded organic shops. Philosophy of consumer behaviour is not presented in depth in this thesis due to the absence of customer interviews, but instead it takes focus from the retailers’ point of view and discuss the consumer response.
2. Literature Review 2.1 Introduction
In this chapter literature relevant to the research objectives is being discussed.
Sustainability development as a subject has received a lot of attention and is considered crucial for the future even though the perception of what sustainability actually means may differ. The literature review touch upon Corporate Sustainability (CS), consumer behaviour and current trends and challenges within the food industry. The definition of sustainability development in this research is:
“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”
(Lorek and Spangenberg, 2014, p. 33) 2.2 Corporate Sustainability
In today’s market place sustainability focus is a widely spread concept. In an extensive survey conducted in 2015, it clearly shows how sustainability is no longer a stand-alone activity but is rather incorporated into business strategy, operations, supply chain and partnerships (Ethical Corporation, 2015). One reason why this has increased so rapidly is because of the value and financial benefits it brings to the company, as it is appreciated and demanded by consumers and investors (Orta et al., 2015).
The literature on CS is dominated by empirical studies, which signals that this field of research is still young and evolving. It is common that companies want to develop and advance their sustainability work internally but struggle to find their own path because when following general guidelines on sustainability incorporation it must be adapted to their specific industry, size, management structure and organisational culture (Bolis et al., 2014). This may affect companies’ ability and ambition to incorporate sustainability throughout the organisation. Even though CS fundamentally has a good purpose it has received a lot of criticism. Partly because of its lack of theoretical and definitional precision but also because it mainly focuses on getting confirmation from consumers, employees and other interests rather than on revolutionary sustainability actions that would contribute to actually solving global issues, that are becoming urgent (Crane et al., 2014; Fleming and Jones, 2013).
2.3 Consumer behaviour
The segment of consumers who consciously buy ethical or sustainable products, like organic, fair trade or animal friendly, is increasing. Price is still the key factor when it comes to consumers’ decision making when grocery shopping, but products with other value propositions have started to reduce the impact of just the price itself (Lorek and Spangenberg, 2014).
Although public interest in sustainability increases and consumer attitudes are mainly positive, behavioural patterns are not univocally consistent with attitudes. Consuming food is an activity we all do frequently and we tend to do it under time constraints and there is a strong habitual and routine aspect to it (Normann, 2012). The food choices we make can
therefore not mainly be viewed as based on a rational set of decisions, but rather includes a large degree of automatic, unconscious and intuitive aspects. Because of this more implicit and unreflective part of the practice, there is a tendency to stick to a habitual behaviour, and keep on choosing in the same way as one usually does (Vermeir and Verbeke, 2006).
2.4 Trends and Challenges
2.4.1 Demand and prices
The global population is growing which means the demand for food is constantly increasing. Today there is approximately 5 million tons of food being produced yearly. In Sweden we can see a steady increase in consumption during the last 15 years and the imports have grown a lot (The Royal Swedish Academy of Engineering Science, 2016).
Even the exports have increased but not at the same pace. The cost of food has never been
“cheaper” from a salary perspective, meaning our salaries have increased with a higher percentage than the food prices. During the twentieth century people in Sweden have spent on average 12% of their disposable income on food. Looking back at 1955 for example that number was 33% (FAO, 2011).
2.4.2 Waste
An important part of a sustainable food industry in the future is how we “household” with what we produce. It has been estimated that 1,3 billion tons, which equals one third of the total food production all over the world, is going to waste or being thrown away each year (FAO, 2013). This means that 1000 billion dollars are going to waste each year. If we add to the cost the indirect costs that are connected to the production of the wasted food, we would have a loss of 2600 billion dollars a year. Then it is referring to what the production of the wasted food is causing in terms of carbon dioxide emissions, creation of water shortage, land erosion, depletion of biodiversity etc. In Sweden people throw out food for a value of 16-23 billion Swedish crowns yearly. In Europe and North America the losses of potential edible food that goes to waste each year is around 280-300 kilograms per capita (EU, 2014). In highly industrialized parts of the world, like North America and Europe, around 40% of the waste happens in retail or in the consumption stage. In other less developed parts of the world such as Southern Africa and Southeast Asian, around 40% of the food waste comes from the farming and processing stage (The Royal Swedish Academy of Engineering Science, 2016).
The food wastage every year would be enough to feed the over 800 million chronically hungry and malnourished people all over the world, four times over. The global food wastage also means that 173 billion cubic meters of water goes to waste, which is as much as almost one fourth of all the water used in the global agriculture each year (FAO, 2013).
2.4.3 Price – key for decision making
Price is the dominating “value” and has a central part in business models in the food industry. The desire to maintain low raw material and food prices is one of the main reasons
why we have such problem with food waste. And it is also the biggest obstacle we have when aiming for a more sustainable, profitable and competitive food industry in the future.
Even though pricing has a big impact many companies have managed to find other values that are appreciated by customers such as environmental and climate responsibility, health alternatives, animal rights, justice and ethics in the production line etc. This has resulted in a number of certifications to guarantee the customers quality products. These kind of value propositions are taking place in the market more and more but they still have a relatively small share of the market. We can take the ecologically produced food in Sweden as an example. In 2015 the ecological food had a turnover of 21,5 billion Swedish crowns, which accounted for 7,7% of the total sales of food products. That may seem like a small number but it was an increase of 39% from the previous year. (The Royal Swedish Academy of Engineering Science, 2016)
It has been estimated that by 2025 the consumption of ecological food will be doubled. This goes hand in hand with customers becoming more and more aware of the environment and the health aspects that comes by eating clean food. An opportunity for the food industry to become more resource efficient and environmental friendly is the increased use of e- commerce. During the last five years we can see this is a strongly increasing trend. Today the e-commerce only stands for about 1% of the total sales and it is difficult for many of those companies to gain profit (Ekoweb, 2015).
Meat continues to be one of the most important attraction products for food retailers, even though it has low profit margin and a huge negative impact on the environment. But we can also see that being a vegetarian or eating less meat in becoming more and more common, as people become aware of its environmental and health benefits (FAO, 2013).
3. Methodology 3.1 Research Paradigm
A research paradigm guides researchers based on their philosophical beliefs and influences the way they conduct their research. In this research an interpretivist paradigm was used, which “rests on the assumption that social reality is in our minds and is subjective and multiple” (Collins and Hussey, 2009, p. 57). The researcher will investigate and interpret the subject matter differently compared to another researcher due to varying perspectives.
Interpretivism focuses on a small sample size and is concerned with producing subjective, qualitative data. Since this research seeks to explore a certain field rather than to validate it, the interpretivist paradigm was considered appropriate.
3.2 Research design
For the research of this thesis a qualitative method was used, where the interviewees were in focus. Two interviews were conducted with Sustainability Managers from two different Swedish grocery stores, Axfood and ICA, which together hold a major part of the Swedish food retailing market, around 70%. These will be answering a questionnaire according to the Research Objectives. Even though qualitative research can result in a lot of detailed information regarding a certain topic or problem, it is only performed on a small amount of selected people, which means the results are limited to their answers and cannot be used to draw a definite conclusion. Data analysis was performed by analysing the collected interview data and information gained from the literature research. The conclusion section was written based on the literature presented and the data analysis in order to answer the Research Question.
3.3 Literature Information Collection Method
The collection of literature for this research came from multiple search engines. It is a widely studied topic which was both helpful and overwhelming while striving to get an overview of this field. Reliable and valuable sources were collected to establish the core opinion, determine key definitions and potential solutions. The final conclusion was shaped by the literature information combined with the data collected through interviews.
3.4 Interview Data Collection Method
For the interview section, Sustainability Managers at Axfood (Respondent 1) and ICA (Respondent 2) were selected as research population. They have many years of experience, from working with sustainability questions in different organisations and companies, and insight in the industry and therefore possess valuable knowledge. But even though they are coming from two of the leading food retailing companies it is important to keep in mind that these two respondents are representing their companies, meaning they might be biased and are more likely to share information that puts their companies and their work in a good light. The empirical data was collected through semi-structured interviews, which started with the researcher providing the respondents with a brief description of the topic and the chosen research approach. Even though the interview questions were pre-designed and thought through the interviews remained flexible and allowed the researcher and the interviewees to explore around the topic (interview questions available in Appendix). Both
of the interviews were conducted over telephone due to a work trip and limited timeframe.
The names of the respondents are kept confidential and removed from all contents of this thesis.
3.5 Ethics and Sustainhability
The researcher upheld ethical integrity conducting the data for this research. The interview research is considered ethical based on the voluntary participation of the interviewees and the fact that they were pre-informed that the data conducted would be used in a research purpose at KTH, the Royal Institute of Technology. The researcher received consent on carrying out the interview questions prior to the interview. Both respondents have been provided with the opportunity to read the thesis draft, comment and check the correctness of information enclosed. In all stages of the research, the researcher maintained ethical behaviour and was sensitive to the fact that the interviewees are not in any way hurt or affected by the opinions expressed.
An approach to the issues surrounding sustainability are covered in the origin of the research question – “How can Swedish food retailers create incentives for sustainable consumption?”. The thesis sets focus on how Swedish food retailers can contribute to a sustainable food industry by creating incentives for consumers to consume sustainable.
4. Result and Analysis
4.1 Big trends in today’s food market
Both respondents empathized that the food industry is going through a radical transition.
The importance of digitalization is growing rapidly, new technologies are being introduced and we can see changes in consumption patterns and demographics. These market changes force companies to shift their focus to reach the demand of both consumers and international interests such as decreasing greenhouse emissions, ecological farming and fair working conditions through the entire food supply chain. Fast technological development together with big changes in consumption patterns is making it difficult to predict the future and therefore long-term planning is something many companies are struggling with. The ability and capacity to implement fast changes is crucial for big companies, especially in a highly competitive market like the food industry. Access to more customer data opens up new opportunities, such as creating customized offers to simplify sustainable shopping decisions.
The respondents were both sharing many opinions regarding future challenges and areas who need to be streamlined, but were also clear on the point that focusing on sustainability is a key element for economic growth and profitability from a business point of view. The respondents were pointing out trends that are driving them to change their market approach and adapt to new demands. These trends open up for a lot of challenges but there is also room for many opportunities.
4.1.1 Global and urban consumers
Demographic changes are affecting the markets where the food retailers are operating. The Swedish population is concentrated to the three major cities; Stockholm, Gothenburg and Malmö and this amount is only expected to grow. Along with more people moving into cities they are also traveling in greater extent than before. The respondents expressed that this has resulted in consumers becoming more inspired and influenced by other cultures and therefore demanding foreign food from places such as Japan, Middle East and Korea. Other changes affecting the consumption is the immigration, the shift in the populations’ age structure and the fact that the number of single households are increasing. All of this has an impact on what is being consumed, but also when and how. These new influences and demands from customers creates new business opportunities for retailers as they can offer new attractive products and also inspire other to try something new.
4.1.2 Changed consumption patterns
In today’s society people are often rushing and when running errands, especially grocery shopping, we want it go fast, smooth and be convenient. As a result of this a lot of new digital services has been introduced with the purpose of simplifying the shopping process.
The most common ones consist of an app where you place your products of desire in a digital shopping basket, who then gets delivered to your door at a pre-determined time.
During 2017 ICA increased their online sales of groceries by 50% from previous year, an example of what impact digitalization can have. Axfood acquired mat.se during 2017 which will open up a lot of opportunities for them to expand their online platform and reach more
customers. Axfood has witnessed a positive trend; online shoppers usually have a higher receipt on average and they tend to shop more ecological and choose Axfood’s own range of products, which is also beneficial from an environmental point of view. One thing that is problematic when it comes to shopping food online is that it requires planning in advance.
Nowadays customers have a tendency to not do weekly shopping but rather shop spontaneously the same day and buy what they feel like eating in the moment. Shopping online also tends to make people focusing even more on price, as comparison sites help guiding you to the best price, which put more pressure on the retailers to compete on price.
The respondents expressed that during the last two decades the households in Sweden spend around 50% less on grocery shopping as a part of the private consumption. Instead we can see a drifting in the food industry, where a larger part of the consumption is taking place out-of-home in environments like cafés and restaurants.
The digital services are not only introduced to offer e-commerce to the customer but also to make the actual grocery shopping in store more efficient. This can for example be the self- checkout service on the way out of the store, the offering of pre set-up shopping lists with following receipts or getting customized offerings and discounts on products you usually consume. Basically all communication between Axfood/ICA and their customers is based on digital services like mail, through app or mobile texts. The introduction of digital bonus checks at Axfood has resulted in 98% of the checks being used instead of previous 92%
when they were sent home by paper post.
Digital services allow the companies to find more ways to communicate with their costumers. These new communication methods have resulted in most retailers embracing an Omni channel approach, where the customer experience is in focus no matter which channel they decide to use (Axfood, 2017; ICA, 2017).
4.1.3 Healthy lifestyle
The aware consumers manifest their choice of lifestyle through the way they consume.
Having a healthy lifestyle is very associated with high status and this trend is only expected to continue to grow. Today it is not only vegetarians and vegans eating meat free diets for reasons such as animal welfare and care for the environment. Around 1/3 of the Swedish population is considered to be so called flexitarians, meaning their meat diet is getting eased out by healthier, ecological, vegetarian and protein rich alternatives who is also beneficial from an environmental point of view. Today’s customers are becoming more and more aware and they demand retailers for information such the origin of the product, quality guarantees and exact ingredients, which has opened up for numerous certifications and labels such as “Produced in Sweden” and “Fairtrade”. The increasing demand for Swedish and ecological products is a challenge for both ICA and Axfood. Today these products are limited and as the demand rises so does the prices.
Through their own range of products Axfood attract consumers to try more sustainable products, for example halloumi burgers, a yoghurt made of coconut instead of dairy and mushroom-balls instead of meatballs. Every year they are expanding their ecological range of products under their brand Garant. During 2017 Axfood conducted an experiment called
“Vary with vego”, where selected vegetarian alternatives were placed next to for example the meatballs section. This concept was proven to be very successful as it resulted in them selling four times as much of the vegetarian alternatives compared to the same period previous year. At Axfood the sales of frozen vegetarian “protein substitutes” increased by
29% during 2017 (Axfood, 2017). Both respondents believe that with a wide range of vegetarian products with good quality they can create curiosity and inspire more people to replace meat and go green.
16 years ago ICA started a health initiative called “Friend with your body” and today almost one million school kids have gone through the program. The education is teaching kids how to eat healthier and focuses and fruit and vegetables. Last year the program was developed to include a new segment on how to reduce food waste and eat more environmental friendly.
This health trend is positive from many perspectives. Even though being healthy and thinking about sustainability does not necessary have to go hand in hand, it is an excellent opportunity for retailers to combine these value propositions, through for example customized offerings and quantity discounts when shopping sustainable.
4.1.4 Sustainability and responsibility
When it comes to the choice of products we purchase sustainability has become a decisive factor for many customers. Customers’ awareness of what impact certain food have on the environment and our health is increasing. Social conditions for the workers along the production line is also something that has been gaining a lot of attention and customers require certifications showing that companies take this seriously. Environmental friendly packaging, eating seasonal food and ethical aspects are issues that are becoming more and more important. Axfood was for example the first retailer on the market 2016 to introduce plastic bags that are made out of sugarcanes, who is a renewable resource. Today ICA has switched to using those plastic bags too. Both respondents say that they are constantly expanding their ecological range of products and their goal is to become the leading actor when it comes to sustainability work. ICA has for example developed a digital platform where ICA owners and local producers can find each other easier and create long-term relationships. This is an important development within sustainability as it improves conditions for local producers/farmers and ICA can offer its customers locally produced and fresh food and contribute to a cleaner environment due to less transportation.
Selection of suppliers
The respondents explained that the most important responsibility they have is when signing long-term contracts with new suppliers outside their own brands, because their production chain is more difficult to monitor as it involves a number of “subcontractors”. Therefore, they have implemented a strict process structure of how to select suppliers. The purchase contract they sign with the supplier includes a code of conduct at both ICA and Axfood.
The supplier has to describe the entire production chain and explain where there could be social or environmental risks and what they have done to reduce these risks. The retailers do check-ups frequently to make sure that the suppliers are certified according to the standard required. Even the packaging information needs to be controlled and accepted.
Domestic and environmental actions
Both ICA and Axfood have made investments to ease out dairy products from foreign countries and replace them with dairy products, primarily milk, produced in Sweden. This has increased the profit of Swedish farmers and is also appreciated by customers who usually associate Swedish products with high quality (Arla, 2017). Even the range of meat is mostly represented of Swedish meat nowadays, around 80%, which is a very positive development as it allows the retailers to easier monitor and guarantee high quality products.
ICA has invested in new techniques for farming and storage, with the purpose of extending the seasonal time of for example root vegetables. They can now be offered in store ten months instead of previous eight.
Food consumption stands for almost 25% of the human impact on the environment and around 25% of what we consume is going to waste (Swedish Environmental Protection Agency, 2014). To contribute to less food waste ICA last year introduced the new so called skin packages for meat. The skin package consists of vacuum which extends the best- before-date twice as long compared to previous plastic packaging. It also contains less air which contributes to making the transportations more efficient due to more loading capacity. This way of packaging the meat also creates a natural tenderize-process which improves the flavour of the meat. Creation of more efficient packaging has also been used on some frozen fish products. To contribute to less food waste in the consumption stage of the food chain Axfood and ICA are taking different actions. For example, they have pre- made grocery bags who are composed to create less food waste and offer recipes on how to cook out of left-overs. Information are also being shared to customers via different communication channels on how to handle the food and not being afraid of eating something as soon as the best-before-date passes.
During 2017 ICA, in collaboration with Rescued Fruits, was one of the finalists of the Nordic Co-operation environment award. Together they make juices from the left over fruit from ICA’s storages and stores (ICA, 2017). Respondent 2 also pointed out that the reason for this initiative and collaboration is mainly because of its positive environmental contribution and not the aim for maximal profit margin. The respondents agree that these type of collaboration is becoming more and more important for future innovations and sustainable development.
Last year Axfood and ICA started using a new labelling technique for fruits and vegetables.
Instead of the usual plastic sticker placed on the product they now use laser directly on the peel, which is more sustainable for the environment but also result in a more secure traceability. The laser creates a pigment in the peel which shows the name of the product, its county of origin and PLU-code. Using this method, the labelling is following the fruit and vegetables in a safe way without mix-ups along the way.
Political support
Axfood has made a lot of effort to try and affect political actions when it comes to a sustainable food industry. Last year they came up with 72 proposals who were presented for the government. One of them was to reduce the food waste by educating and informing the
public about what the best-before-date really means. The purpose of that is to prevent and reduce food waste by developing national guidelines for follow-ups of food waste. After that the government included an investment of 7,5 million crowns in their Food Strategy which will go to the National Food Agency, the Swedish Board of Agriculture and the Swedish Environmental Protection Agency to produce an action plan for how Sweden will work on food waste reduction in the long term. ICA even introduced a day called, the Lunchbox-Day, with the purpose of encouraging people not to throw away edible food.
According to what has been presented above, it is easy to see how the companies in this research have incorporated sustainability throughout their entire business. This is required for them to be able to guarantee and provide their customers with products of high quality that has been produced in a sustainable way. Axfood and ICA are both involved in different global initiatives for sustainable development between companies and industries, one example is the Global Compact initiated by the United Nations.
Global Compact
Axfood and ICA are both a part of the UN Global Compact, which is the largest corporate citizenship and sustainability initiative in the world. It is a strategic policy initiative for business that are willing and committed to aligning their operations and strategies with ten universally accepted principles. These ten principles lay in the areas of; human rights, labour, environment and anti-corruption. By collaborating across nations a market place that is beneficial for all parties can easier be established. This is a natural development due to increasing globalization, as it is making companies more dependent on each other than ever before. The Global Compact is policy framework for the development, implementation, and disclosure of sustainability principles and practices. The participants are offered a wide range of management tools, resources and topical programs and projects, who are designed to help advance sustainable business models and markets in order to contribute to the initiative's overarching mission of helping to build a more sustainable and inclusive global economy.1
1 United Nations – Global Compact (https://www.unglobalcompact.org/what-‐‑is-‐‑gc/mission/principles)
4.2 Focus areas for the future
Based on literature, articles and inputs from the respondents during the interviews the researcher wanted to identify focus areas to achieve a more sustainable future. The respondents say it is difficult to predict the future of the food industry due to digitalization but it is also easy to identify areas who need to be more resource efficient and sustainable in the near future. In order to obtain realistic opportunities when identifying focus areas for a more sustainable future, the areas had to be based on four selected parameters. These four parameters were determined through conversation with the respondents and information gathered during literature research:
• financial potential
• feasibility
• potential resource efficiency
• potential positive impact on the environment
4.2.1 Smarter packaging
Innovations related to packaging opens up for new business opportunities. The packaging needs to be suitable for each step in the supply chain; production, the process and manufacturing industry, sales, consumption, and recycling and reuse. Opportunities are available in developing new technologies, new smarter materials and innovative design and functions.
Tetra Pak has for example proved that just by changing the packaging from cylinder shaped cans to square shaped packages they have been able to increase the load capacity by 14%
(The Royal Swedish Academy of Engineering Science, 2016). This will have a positive impact on both their revenue and on the environment due to less transportation. Even Arla made a big investment in 2014 where 1 million packages a day would get their current plastic caps replaced by caps made out of recyclable bio plastic from sugar canes (Arla, 2014).
4.2.2 New digital systems for production, sales, distribution and consumption
Today we are importing a lot of food in Sweden who are produced in other countries using unsustainable methods. Sweden is developed when it comes to technologies, infrastructure and usage of natural resources, like water for example, and should be able to produce some of these products ourselves in a more sustainable way. It would reduce our environmental footprint from the food production and create new opportunities for export.
By developing new digital tools based on Big Data, Internet of Things and Artificial Intelligence the industry would face a lot of new opportunities. It could revolutionize the process of planning, organize and optimize the food supply chain in all the stages. It could help to improve the profitability and make the Swedish food industry more competitive on the global market. By developing and introducing new technologies we would be able to increase the food productions while at the same time wasting less resources. Atomization of inventory management and logistics is expected to have big potential according to the respondents, especially when used for packing online orders.
To encourage internal innovation ICA started ICAx last year. It is called the innovation-hub and its main focus is to work on digital development projects, strategic collaborations and possible acquisitions. Through this investment they can combine the stability, customer base and resources that the company has to offer with the benefits of a start-up, such as being fast moving and changeable. This allow the company to elaborate separately from the operational work and hopefully develop and provide the ICA-concern with new digital services.
Investments in new technical solutions is very important in order to create a resource efficient and sustainable food supply chain. By introducing new effective machines and production processes the industry have been able to speed up the production time, extend the best-before-date on products and reduce the amount of waste of raw materials during manufacturing. By developing packaging methods and implementing new technology the food industry has been able to improve the profitability and contributed to a more sustainable process. There is still a lot of potential in this industry.
Today it is normal to use precision technology in the primary production (agriculture, animal farming and fishing). It means that they are trying to increase the productivity by monitoring processes using computers and sensor technology. This can for example be monitoring and controlling the nutrition for farmlands or do data analyses of milk from individual cows in order to determine what their nutrition need to contain to maximize the milk production. There is a Swedish Agricultural organization called Växa who has developed a computer programme to help monitoring the production of wheat. It has helped to increase the production by 10-20% per hectare, which is about an extra ton. The programme can optimize the growth by analysing data about the local land conditions and then for example suggest where different crops should be planted. It also provides you with the information about how much phosphorus and nitrogen you need to add in order to reach optimal growth (Lantmännen, 2015).
4.2.3 Develop alternatives for today’s animal products
Finding alternative solutions that can replace or reduce the amount of animal products (meat, dairy and eggs) will have a huge impact on the resource efficiency in the food supply chain. It will generate more profit and make Sweden more competitive. It can mean focusing on establishing new sources of protein, for example insects. In Sweden a concept called “Insect city” was presented 2014 and consisted suggestion on building insect farms in Stockholm. According to calculations it would have been enough to use the space of nine roundabouts in the city to produce animal protein corresponding today’s meat consumption.
The insects would be brought up on food waste from different parts of the city (Belatchew Arkitekter, 2014).
Another alternative could be just focusing on the most recourse efficient meat production on today’s market and invest in making that as sustainable as possible. Even the most resource intensive meat production today can be made more sustainable. A new technique has been developed for lab-grown meat, which might contribute to both health benefits and decreased the impact on the environment due to less animal retention (Washington Post, 2016).
4.2.4 More steps of recycling and reuse
To create and maintain a more sustainable flow of resources we need to find new ways of recycling residues and waste from agriculture, animal farming, industries, retail, service sector and households. A lot of business opportunities is predicted to appear within this segment. The success of this mainly depend on the establishment of collaborations and circular flows where residues from different parts of society can be reused for new purposes. The positive impact on the environment and the financial potential is expected to be very high here.
5. Conclusion
The food industry is very complex and is characterized by fast digitalization, changing consumption patterns, demographic changes, sustainability and responsibility work etc.
These constant changes create difficulties to predict the future and forces companies to be responsive and fast changing to be able to meet the demand of consumers. As today’s consumers have much higher demands than previous decades it is crucial for the success of today’s food retailers to focus on sustainable value propositions.
By studying the literature and conducting the interviews it is clear that the importance of sustainability work and development is highly accepted and prioritized. Even though the companies represented in this research are focusing a lot on corporate responsibility and sustainability it is difficult to affect consumption patterns as human behaviours while consuming is under the influence of a number of factors. As presented in this research the trends of consuming out-of-home and on-the-go is increasing and is only expected to continue to grow. Our consumption patterns can vary a lot from week to week which make it difficult for retailers to identify the typical behaviours of their customers, as a lot of our decisions are done impulsively.
There is no isolated solution for how to change consumption patterns. To actually motivate consumers to make sustainable decisions retailers need to guide us in that direction. Even though price still is a strong and decisive factor, sustainable products could be distinguished on the shelves by colourful arrows promoting extra bonus points if you purchase a product with a sustainable label. Retailers should definitely continue to spread information and awareness among their customers, but the core contribution is how they incorporate sustainability throughout their companies. By only accepting suppliers who take social responsibility and focus on sustainability development the retailers make it easier for us consumers to consume sustainable and remove the pressure of us having to make a conscious “green” decision.
5.1 Limitations
This research does not include a consumer perspective, which would have added great value. It would have required a large sample group and due to the time frame of this thesis period it was not included. Instead the main focus was put on interviewing experts, Sustainability Managers at Axfood and ICA, as they possess valuable knowledge due to their long and diversified working careers.
5.2 Suggestion for future research
This research has been exploratory research and may open up for several future studies.
One alternative could be using the same methodology, but including a larger sample size in order to base the conclusion on more data. Another valuable addition would be including the consumer perspective even more, by for example investigating consumers’
responsiveness to retailers’ sustainability actions.
Future research should be even more critical to the retailers’ actual willingness to encourage sustainable consumption. Market competition and ambitions to maximise profits will always stand in the way of incorporation of sustainability and should be taken into account when examining the opportunities for the future food industry.
6. References
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(https://www.axfood.se/globalassets/startsida/investerare/ar17/axfood-ars-och- hallbarhetsredovisning-2017.pdf)
Arla (2017). Half-Year Report – Creating the future of dairy
(https://www.arla.se/om-arla/nyheter-press/2017/pressrelease/halvaarsresultat-2017-baettre- betalt-foer-arlas-aegare-mjoelkboenderna)
Belatchew Arkitekter, 2014, Insect City och Buzz Building gör Stockholm självförsörjande Bolis, I., Morioka, S.N., and Sznelwar, L.I. (2014) When sustainable development risks losing its meaning. Delimiting the concept with a comprehensive literature review and a conceptual model. Journal of Cleaner Production, 83, 7-20.
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EU, 2014, Report on critical raw materials for the EU
FAO, 2013, Food Wastage Footprint – Impacts on Natural Resources
FAO, 2011, Global food losses and food waste – Extent, causes and prevention ICA (2017). Årsredovisning 2017
(https://www.icagruppen.se/arsredovisning/arsredovisning2017/globalassets/annualreportpd f/20180305/ica_gruppen_ar2017_sve.pdf)
Lantmännen, 2015, Så ska skörden öka med ett ton. Nr 11
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Zaraska, Marta (2016). Lab-grown meat is in your future, and it may be healthier than the real stuff. Washington Post. May 2, 2016
(https://www.washingtonpost.com/national/health-science/lab-grown-meat-is-in-your- future-and-it-may-be-healthier-than-the-real-stuff) 2018-04-28
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Appendix
Interview questions
How can food retailers motivate consumers to consume sustainable?
What is preventing sustainable decision making when consuming?
What are the trends in sustainable consumption?
How is digitalization affecting the way retailers operate?
How is the competition between retailers affecting sustainability development?
What are the main challenges to deliver sustainable products in the future?
How effective is campaigns promoting ecological products?
How effective is campaigns promoting sustainable values?
What areas within the food industry are in urgent need of sustainable development and how can you contribute to that?
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