December 7, 2022
They will soon face similar challenges. Who will become the Tesla of grocery retail?
Tesla makes billions of dollars worth of profit from selling carbon credits while conventional car manufacturers pay billions of dollars to keep pace with CO2 regulations.
Climate change is a great opportunity for some and a burden for others. In our fast-paced world, regulations can happen overnight, and those who don’t prepare for climate action in time will be the ones who have to pay.
The automotive industry has been widely disrupted. After spending 17 years as an entrepreneur in the retail space and three years as an impact investor and sustainability expert, I believe the grocery retail sphere will experience a similar level of disruption. Very soon.
Emissions will make or break the success of a business Governments worldwide have introduced regulations for the automotive industry, intending to reduce emissions. In practice, this means that companies that produce and sell low-emitting, environmentally-friendly vehicles receive so-called carbon credits in return. A carbon credit represents the right to “emit greenhouse gasses equivalent to one ton of carbon dioxide.”
As a result, climate-friendly carmakers will own a lot of credit, while conventional corporations without clean energy sources or sustainable business models will lack the right to emit greenhouse gases because they’ve already emitted too much.
This system creates an exchange value for emissions. Companies are allowed to trade with their credits. Tesla, for example, understandably always has an excess of carbon credits. The company can sell its unnecessary credits to less environmentally unfriendly companies for a good price. Implementing the sales of carbon credits to the business model provides Tesla with billions of dollars of profit. And according to some predictions, this income is set to continue growing significantly.
In a nutshell, companies who pollute have to pay either way. A lot.
Therefore, the most logical approach for the automotive industry would be to heavily invest in sustainable energy sources, e-car production, and transparency to avoid unnecessary expenses in the future.
If such regulations are possible in one industry, it’s plausible to think similar regulations are just around the corner for other sectors.
Indeed, CO2 certificates in the EU permit the emission of a certain amount of greenhouse gases in the power sector, manufacturing, and aviation industry. If a company oversteps the limit, it must purchase allowances within the cap and trade system.
I believe the grocery industry will soon undergo a similar development.
In fact, the EU is already planning to introduce “mandatory sustainability labeling and disclosure of information to consumers on products along value chains” for grocery retailers.
It’s only a matter of time until more radical measurements will be introduced, such as the carbon credits or mandatory sustainability goals such as decreasing CO2 per kcal sold by grocery retailers year over year.
When that happens, some grocery retailers will be already ahead of the game as sustainable frontrunners, while others will lag behind. The frontrunners will have a competitive advantage as they will have already addressed the issue and have inspired their customers to switch to a healthier and less CO2 intense diet, thus reaping the financial benefits of starting ahead of the curve.
Social change precedes the regulatory changes As in the automotive industry, it is no longer seen as socially acceptable to be unsustainable for much of the younger generation.
Generation X, the millennials, gen Z, and the alpha generation have one thing in common: they are very concerned about climate change.
Consumption behaviors are changing, and it is becoming more and more important to spend money on sustainable and healthy food.
Overall, more than 60% of consumers consider sustainability a highly important purchase criterion. 1 in 3 consumers claim they have stopped purchasing unsustainable brands and products. Consumers have become open-minded when trying out plant-based alternatives: veganism is on its way to becoming mainstream.
The next generations won’t run errands with a fast-fashion handbag and won’t leave the store with a factory-farmed chicken in their trolley. They’ll consciously opt for sustainable alternatives, organic and local products.
The grocery retail industry is about to be widely disrupted.
To stay ahead of the game If a grocery retailer wants to remain competitive in the long run, it has to be sustainable.
Retailers won’t only have to secure a net-zero operation and climate-friendly sourcing. They’ll have to provide their customers with transparency regarding the environmental impact of the products they sell. They also need to become their customer's preferred partner that helps them achieve their goal of transitioning to a more sustainable and healthier lifestyle.
If they wish to be the Tesla of the retail sector, they’ll have to make sustainability and helping their customers to become more sustainable their number one priority.
Otherwise, they might find themselves spending millions of dollars on carbon credits each year.
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