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06/02/2010

Sustainability Focus Can Drive Profits for Food and Beverages Companies


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An upcoming NYSSA forum will explore how companies can begin to view their mandates to operate more sustainably as opportunities to drive future performance and mitigate risk rather than as societal burdens that must be addressed at the minimum cost.

Arlene Meritz, a strategic organizational consultant with 25 years experience leading centers of excellence in organizational effectiveness, change, and talent at Cadbury Schweppes, admits that it is difficult for companies to take the long-term view required to implement sustainable practices when financial markets and investors are so focused on short-term performance. That said, she notes, consumers' needs and interests ultimately drive a food and beverage company’s profits. 

“Consumers eyes are now wide open, and they are holding companies to a higher standard,” says Meritz. “The food and beverage industry faces even greater challenges than some other sectors because it is so tied into consumer trends. These days issues of balanced and healthy diets are high on the consumer agenda along with quality and safety.”

Consumers also care equally about issues of environmental and social justice. “During my years working for a food and beverage company, I always maintained that we should leave the communities in which we operated in a better condition than the one in which we found them,” says Meritz. “We need to be deserving of what we leverage from these communities.” Companies that recognize that imperative and the value that consumers place on it are likely to be rewarded in the marketplace. “Corporate social responsibility across all stakeholder groups will lead to financial benefits in the long run," says Meritz.

Paul Block, CEO of sweetener manufacturer Merisant, also believes that farsighted companies in the industry should be looking to implement market-based solutions that will not only allow them to fulfill their sustainability responsibilities but also contribute to their long-term profitability. Companies that fail to act from this perspective today, he maintains, will inevitably lose their competitive edge tomorrow.

Block reports that perhaps the most significant current challenge the food and beverage industry faces is managing social responsibility in a fiscally responsible way. On the one hand, he notes, sustainability advocates argue that “social responsibility is important for the good of the planet and society and it must be done at any cost.” Corporations on the other hand are looking for “least cost” solutions to placate these advocates. But, says Block, “in the end, the practice of sustainability has to be sustainable!”—and both sustainability advocates and corporations need to acknowledge this.

The food and beverage industry currently operates in a challenging business environment where many of the real costs of industry practices to human and ecosystem health are not fully internalized. This leads in many cases to the mispricing and misallocation of resources and to the manufacture of end products that are sometimes misaligned with broad sustainability goals.

But being a free market advocate, Block believes corporations can meet this challenge without government or regulatory intervention if they act wisely and creatively: “I would like to see companies innovate to make sustainability profitable and to create societal benefits to consumers that the latter see as having real value to them and that they are willing to pay for. Instead of asking, ‘how can we be socially responsible at an incremental cost to the company,’ we should be asking, 'how do we think about monetizing sustainability in terms of revenue and margin enhancement?' Then you are talking about something that is sustainable in terms of your business model.”

The world-class question, says Block, is how does this translate into action inside a corporation? “We have to provide some guidance and thought and a systematic approach,” he says. “It is like any idea in society that requires thought leadership. We need to get a handful of food and beverage industry leaders to embrace this and others will come on board. Once it becomes a passion for them leaders will then go back and start to build that thought into their companies and challenge their executives. They will be saying ‘it is not just good to be green, you have to be green and fiscally responsible.’ For example, one person in the organization will introduce the concept of 'material balance' and others will get interested. This goes beyond not wanting to create waste but to reuse the waste we create in a way that creates economic value to the company and helps the planet. Now here is a win/win. This is going to be a fascinating area to play in.”

Block is taking action to walk the talk at Merisant, where he helped found a new subsidiary called Whole Earth Sweetener dedicated to manufacturing plant-based low or no calorie sweeteners using sustainable practices. “We are evolving from a synthetic company to a whole earth company dedicated to pure products with vertically integrated operations,” says Block.

Whole Earth Sweetener started by creating a vertically integrated business around a zero calorie sweetener called PureVia sourced from the stevia plant native to Paraguay. Whole Earth Sweetener purchased a local factory whose employees now receive health benefits and access to a company supported pharmacy and health clinic. Advanced filtration techniques that could potentially reduce water consumption at the factory by fifty percent are now being evaluated. All plant waste created in the production process is converted into fertilizer which is returned to the soil to help reduce the costs of production for local micro farmers or sold for profit to third parties. Farmers are being trained by the company in organic agricultural methods. For example, they are being instructed in ways to create "green cover," which eliminates the need for weed killer. Block reports that farmers are earning thirty percent more growing stevia than they were growing the crops they formerly harvested.

Merisant has entered into a partnership with PepsiCo to brand and promote PureVia. PepsiCo is using PureVia as the sweetener in its new Gatorade G2 product, which was recently launched in Whole Foods in the US markets. Block says that Whole Earth Sweetener’s gross margins for PureVia, taking into account the sustainability practices now in place, are in the 40 percent range. Although the price of natural low and zero calorie sweeteners are currently higher than for their synthetic counterparts, “as scale and consumption increase this business will become even more economically feasible,” says Block.

“A good way for companies to start to spread the word and build internal passion for fiscally sustainable businesses is with a pilot subsidiary like ours,” says Block, “At Merisant everyone wants to work on this new, exciting business. We are training people in sustainable practices who will then be returned to the base enterprise.”

–Susan Arterian Chang writes on sustainable finance and investing from White Plains, New York, and is the publisher of The Impact Investor.

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