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October 26, 2017

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Phil's Corner: How Health and Sustainability are Transforming CPG and Why You Should Care

June 29, 2016

In this blog, I have been exploring five dynamics that I believe are shaping our world and creating new “rules of the road” for businesses and other organizations:

  1. How “higher purpose” has become table stakes for a successful enterprise

  2. The marriage of global and local in all that is good

  3. The central role the environment, health and wellness play in everyday life and in our future

  4. The role of technology in driving accelerated opportunity and human evolution

  5. The emergence of a new breed of humans (aka consumers)

My last entry began a discussion of the “environment, health and wellness” dynamic, including my own personal wellness/sustainability journey. I’d also like to thank five of my colleagues for their subsequent piece on their personal journeys. So far, these discussions have largely centered on the personal, but today I’ll broaden the perspective because the scale of this transformation and its impact are tremendous.

 

Whether as individuals, communities, or corporations, there is an almost tangible conviction threading through all levels of society: We need to do better. Be Better. Live healthier lives – for ourselves, our communities, and planet we inhabit. People are increasingly prioritizing the role of health and sustainability in a way that is dramatically reshaping our lives and the products and services we purchase. Self-interest, collective-interest, and ultimately economic advantage are coming together to create a new economy, and companies seeking to prosper need to move quickly to actively “play” or be left behind.

 

The LOHAS (Lifestyles of Health and Sustainability) Group focuses on tracking the emergence of that group of consumers whose purchase decisions are driven largely by environmental and health/wellness considerations. Their website has some impressive measures of the impact this market segment is having on our economy:

  • LOHAS represents an estimated $290 billion U.S. marketplace, not including the health care industry, for goods and services focused on health, the environment, sustainable living, and social justice.

  • This category includes 41 million people in the U.S. That’s 1 in 4 American adults.

  •  LOHAS market sectors have reached truly mass scale: Personal Health ($117 billion), Green Building ($100 billion), Eco-Tourism ($42 billion), Natural Lifestyles ($10 billion), Alternative Transportation ($20 billion), and Alternative Energy ($1 billion).

As impressive as these revenue numbers are, they are already outdated. Renewable energy, for example, represented over 13.44% of U.S. electrical generating capacity in 2015 (according to the U.S. Energy Information Administration), equivalent to nearly $50 billion in revenue for U.S. utilities. Given the double-digit growth rates in these and related sectors, tracking current revenue numbers is difficult indeed.

 

But, products and services formally identified as “healthy and/or sustainable” are only a small part of the picture. The much bigger impact can be felt in product and service sectors that are not primarily driven by health and sustainability. When CVS stopped selling cigarettes in its nearly 10,000 stores, people took notice – and accordingly to CVS’ research, cigarette sales declined by an incremental 1% in states where CVS had a significant market share, and nicotine patch sales rose by 4%. When McDonald’s, who buys an estimated 4% of eggs sold in the U.S., announced a switch to cage-free eggs (which prior to that date in 2015 was only 10% of U.S. eggs), that started to change the game. When Wal-Mart forces its suppliers to reduce packaging and, therefore, carbon footprint and landfill waste – that has true scale impact.

 

We may think that fast food is just that – tasty food you can get quickly with no hassle (with no concern for personal or planetary health) – PERIOD. But the impact of LOHAS sensibilities on the general American (and global) populace has made health and environmental considerations a key factor, or at least a potential purchase “veto” to avoid, in virtually all consumer and many industrial product and service sectors. Even when a particular sector’s customers aren’t the driving force in creating awareness and interest in health and environmental benefits, public outcry against unhealthy or environmentally damaging products may force a change. And when the largest players in the biggest sectors start to make changes – even if incremental (such as the move to cage-free eggs), we know we are in a transforming world.

 

For those who have visited the Natural Products Expo in Anaheim each year in March, it is clear that the power of environmental and health concerns in driving consumer behavior and fueling business opportunity is not about to abate. In 2016, the show hosted 77,000 attendees, about 6.9% growth on top of repeated, rapid year-on-year growth the past several years. Watching large consumer products companies pace the booths, looking for the next new advance in natural foods, or environmentally-friendly cleaning products, or the next of several companies to acquire to fuel their own growth is a sight to behold. General Mills and, most recently, Kellogg’s have joined the ranks of companies forming in-house venture capital arms geared toward identifying the next big innovation in the natural/organic/healthy/sustainable world of consumer products. These efforts are beginning to reach critical mass, with emerging companies in this LOHAS arena often selling to “Big CPG” companies at multiples in the range of 2-4 times sales.

 

What does this all mean? To me, it means we are in a rapidly-changing world, where values and consciousness are changing, and where people are increasingly prioritizing healthy, environmentally-friendly benefits. To some more enlightened consumers, these benefits are a means of self-actualizing. But, for most of the rest of us, we are often driven by a baser motive. We have begun to recognize that environmentally-friendly products also happen to be safer for our families. Or, in Wal-Mart’s case, reducing packaging means lowering freight and handling costs, and being able to offer low prices to one’s customers while driving more profit to the bottom line. In terms of Maslow’s hierarchy, environmentally friendly and “wellness lifestyle” brands and companies begin to have mass impact when they touch not just our higher selves but when they deliver against our more foundational needs such as basic safety, health, and economic benefit (read: save money).

 

Perhaps we are reaching a threshold where we, as a society, are seeing self-interest in doing things for the common interest. With the emergence of new demagogues in the political arena, disruptive events like Brexit, and the terror of mass shootings, it may not seem like we are “all in this together.” But, maybe, just maybe, the scary events that risk pulling us apart also make us realize that we are all doomed if we don’t find a way to work together for the common good. Related directly to health and sustainability, recent events – like the Flint water crisis, and issuance of the first grant for U.S. climate change victims given to the soon-to-be-relocated residents of Isle de Jean Charles, Louisiana – have begun to personalize and make tangible the real health, economic, and quality-of-life impact of poor stewardship of our land, air and water. These dynamics further fuel consumer interest in products that prioritize health and sustainability considerations, as these are no longer abstract ways to “self-actualize” but, instead, are becoming increasingly part of our collective and individual self-interest.

 

Products and services that serve society as well as our own self-interest may be just one small manifestation of these broader, often scary, dynamics shaping our world. What is clear is that any brand, and any business, that wants to prosper in this world needs to take note of the health and sustainability dynamic. At Great Lakes GrowthWorks, we have spent years studying the LOHAS world, predicting where it is heading next, and helping companies navigate the space to find the right innovation at the right time that serves the right group of consumers. In addition to working with large companies to be part of this burgeoning market, we also dedicate a significant part of our practice to helping emerging companies in the “craft” (i.e. natural, holistic, organic, locally-inspired, artisan-quality, healthy, sustainable, etc.) consumer space that creating a truly new economy to grow, prosper, and realize their dreams to make a difference.

 

Let me leave you this: don’t wait for this market to emerge – it is here, and before you blink, the bar will be raised and a new generation of products and services to address this market will have launched. To understand this market is to understand the journey one takes – and that we have taken as a society – to make our lives and the lives of our fellow citizens healthier, more sustainable, and more fulfilling. Each of us is on our own journey, influenced by our individual DNA, life experiences, and societal impacts. What is becoming clear is that our individual journeys are aggregating into a scale, transformative change in the way we think, act, and make purchases. The economy these journeys and changes help create will most certainly look very different from the one we are part of today.

 

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