Discussion with Ilya Movshovich, Wasteless

The Capgemini Research Institute spoke with Ilya Movshovich to understand the key trends and drivers of sustainability in the retail sector and the key considerations involved in building a business case for sustainability-related solutions.

How does your solution help in driving sustainability?

Our solution helps retailers with dynamic pricing based on machine learning. We focus on grocery retailers – supermarkets of all sizes and formats, from smaller stores to larger supermarkets. As products on the shelves get closer to their expiration date, our AI-powered dynamic pricing engine reduces the price of the product in real time to incentivize the customer to purchase the item while it is still fresh, before it reaches it’s expiration date. Basically, the AI algorithm optimizes markdowns for products and automatically adjusts prices in the aisles, on the shelves, as well as online. This helps the retailer reduce waste owing to product expiration. So far, by working on this premise with retailers, we have reduced waste by about 30% on average. At the same time, we have increased their revenue by 10% and, in some cases, by as much as 40%, depending upon the items that are selected and driven for dynamic pricing changes.

What are the key trends you see with respect to sustainability among your clients?

Supermarkets, especially in the wake of COVID-19, are paying more attention to tracking the origins of the produce they sell – the source, CO2 emissions involved and connection of the brand to the broader community and planet. Retailers are also keen to automate, especially around areas of food waste. We are not pointing to food waste just because it is our focus area. It is because retailers have been facing the issue of food waste, predominantly called a “shrink” for a long time now. The other trends that are gaining prominence among firms are consumer demand for plant-based offerings and organic produce and reducing waste in product packaging.

What do you see as the key drivers for organizations to adopt sustainability initiatives?

The top driver for retailers is consumer behavior. Consumers prefer sustainability because they have been hearing about it from their peer groups and the media, hence it is affecting their behavior and they are now more educated about sustainable behavior. For instance, driven by consumer interest, larger retailers are attributing more shelf space to smaller brands that are sustainability focused in their sourcing to packaging. Government regulations and policies are the second-most important driver for sustainability.

Apart from these two factors, I feel it is the peers and the competitive scenario that drive retailers to adopt sustainability initiatives. The retail industry is slowly accepting and adapting change led by bigger players such as Walmart and Amazon in this space. However, what we also see is that sometimes firms aim to replicate the initiatives and offerings of their bigger peers, such as Kroger or Walmart, and adopt initiatives from a marketing standpoint rather than driving real effectiveness. For instance, a lot of retailers that we know have set up innovation arms, which also focus on sustainability, driven by what their competition offers. One of the retailers stated that their requirement to have an innovation arm was mainly to enhance brand perception although they do not have a big budget to support it.

Could you explain the business case for your solution?

The business case depends upon the location. For instance in the US, if you are approaching a retailer on the east coast, the focus is going to be on the implementation of a solution to reduce food waste that helps generate more revenue, so there is going to be a revenue focus for sustainability implementation. If you’re talking to a retailer on the west coast, it is going to be less on the revenue side and more on the fact that sustainability is important for consumers and sustainability is what consumers look for when they shop. You are talking more about the emotional and thoughtful standpoint of the consumer side on the west coast and about the business side and revenue generation on the east coast. Likewise, in the case of European countries such as the Netherlands or France, sustainability has more to do with controlling emissions. So, there is no turnkey solution. Adoption and the extent of implementation of sustainability initiatives depends upon the level of importance, the extent of consumer awareness, and the sustainability policies in each region.

How can organizations help create the trust factor among consumers that the products they purchase are sustainable? Do consumers expect an incentive to purchase sustainable products?

The touchpoints where consumers connect with the brand are critical to establishing trust. Sustainability must be explained at the beginning of the purchase journey when consumers are choosing and selecting the product. It is important to educate consumers at the “shelf” level when they shop. Let’s take the case of product expiration. Consumers generally purchase items that are the furthest from the expiration date. Here, consumers either lack incentives or an understanding of the fact that the item they are leaving closer to the expiration date is going to be disposed of, probably increasing landfills. So, sustainability has to be explained at the point when consumers are selecting and purchasing the product. This also makes more sense when consumers visit retailers more often to purchase products for immediate consumption as opposed to bulk buying. Educating consumers becomes simpler in online purchases with messages such as “You have bought an item that hasn’t expired but is closer to the expiration date and thus you have reduced food waste,” which also helps enhance the connection with consumers.

From the perspective of incentives, in the current scenario, price positioning becomes more important, especially with the impact of COVID-19 on the economy and job market. It is critical for firms to arrive at a balance between sustainability objectives and price points, although sustainability is still important for consumers in terms of emotional connection and caring for the planet.

How is the typical governance and ownership of sustainability initiatives established in the retailers you have worked with?

The governance of sustainability initiatives depends on the size of the organization. Some larger retailers, such as Walmart, Kroger, and HEB, have sustainability departments with well-defined roles and responsibilities and we work directly with them. Smaller retailers don’t necessarily have a sustainability department. The responsibility for sustainability rests with the head of marketing, or executives of fresh departments, who directly liaise with the consumer. Likewise, from the perspective of budgets, from what we have seen, the budget for sustainability comes from different departments, including marketing, public relations, IT and finance, and is not funded solely by the sustainability department.

What would be your recommendation for organizations on scaling up sustainability initiatives?

Agility is a critical success factor. The internal processes of organizations must be fluid and defined in terms of how the sustainability initiatives are going to be implemented – the roles and responsibilities must be defined, governance structures should be established, and internal working mechanisms have to be set. Once the internal process guidelines are in place, organizations should roll out pilots faster. They must not be afraid of failure. There must be an organizational culture of not being afraid to try. The trial and error should be worked out at a budget that is appropriate for the initiatives. Once they find that the process works, there has to be an understanding in the organization to scale the whole process that has worked.