Keeping up with responsible consumerismPurvi Amin, Director, Global Consumer Group, Global Banking, HSBC Holdings plc

Large brands may look to buy sustainable or ethical businesses to meet growing demand

The long-held belief that people will pay for quality but not virtue turns out to be a myth. Consumers increasingly want to feel good not only about themselves but also about how their shopping decisions affect the world around them. With constant scares over food and product safety, they are willing to pay more for goods that they can trust to be healthy and impeccably sourced. Responsible consumerism is no longer a fad. It is firmly in the mainstream. For multinational companies, that means supplying natural, ethical, organic, green or sustainable products is not necessarily an optional extra. Launching such niche brands used to be a gamble. Today, the business risk comes from not being in the market. Companies that persist in thinking the trend will pass may miss out on a powerful engine of future growth.

Sales of goods under the responsible consumerism heading have continued to climb despite the financial crisis. In the US they notched up 9% annual growth in the past three years and accounted for 70% of the growth in retail sales, according to a study by the Boston Consulting Group. In the UK, sales of ‘ethical’ food and drink doubled between 2007 and 2012 to reach £7.7 billion, or 8.5% of all household food sales, a study by the Ethical Consumer Research Association shows. Even before recent scandals such as horsemeat in European hamburgers and contaminated baby formula in China, consumer consciousness had been steadily rising. For instance, personal-care products used to be routinely tested on animals. Today, the practice is beyond the pale. Similarly, shoppers do not want to wake up to find

that their new blouse was made in a far-away factory where textile workers perished because health and safety rules were flouted.

Crafting ways to crack the market

How should global companies meet this demand for responsible consumer goods? Signing and publicising conventions that promote, say, sustainable forestry and fishing is one route. Building brands that embody the values and virtues of responsible consumption is more difficult. Stretching an established brand into a new niche risks diluting its core strength – and in any case sceptical consumers may baulk at paying a premium for an environmentally-friendly laundry liquid made by an MNC. That’s why buying a successful brand and running it at arm’s length is often the preferred solution for an MNC. A prime example is the 2006 acquisition by French cosmetics giant L’Oreal of Body Shop, a British retailer of natural personal-care products. The decision to sell typically hinges on who is best placed to maximise the brand’s value: a smaller company may reach the point at which it feels it can grow no further without an MNC’s extensive distribution channels. Similarly, some responsible consumption trends may start out as a local phenomenon but need to be nurtured by industry leaders if they are to come to the attention of a wider, possibly global, market. The upshot is a rich vein of M&A opportunities.

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Telling a story

An ethical or sustainable business is more than a collection of good products. Think of it as a storybook. Through its packaging, advertising and marketing, a brand connects with the consumer through the ‘story’ it tells – whether it is a range of skin-care products based on plant extracts found only in a certain part of the world or a hotel chain that conveys the impression that it is run by one happy extended family. For an MNC to craft such a narrative is difficult, which is why acquisitions have an obvious attraction for a global company entering the responsible consumption market. The trick then is to keep nurturing the acquired brand’s emotional appeal, which is best done through a stand-alone marketing strategy that promotes its back story.

The personal-care sector remains fragmented in developed countries, suggesting rich potential for acquiring brands. The same applies to health care and food. In emerging economies too, a compelling range of responsible consumer goods will become more imperative than ever as living standards rise. There is every reason to suppose that the worldwide market for natural, sustainable and ethically sourced products will continue to expand. Witness the success of Fair Trade and other certification programmes. Global companies need to move early and seek out the acquisition opportunities that can help them to grab their share of the pie.