How Businesses Manage the Additional Cost of Sustainable Packaging

Consumer taste is always evolving, and it's essential for business owners to keep up-to-date on preferences—or risk being left behind. With more competition than ever, retailers must rise to the expectations of their market, even as preferences quickly evolve.

Recently, consumers have become increasingly focused on a brand's commitment to sustainability. They are interested in seeing brands take environmentally-conscious stances with their values as well as their products. This is leading to increasing demand for sustainable and eco-friendly packaging.

It may make sense for your business to switch to more environmentally friendly packaging to help meet consumer preferences—but if these alternatives are more expensive, how do you manage the cost to keep up?

Changing Consumer Tastes

One major force driving the desire for more socially and environmentally conscious brands are the consumers themselves—particularly, younger markets now rising to prominence in the U.S. economy.

Together, millennials and Gen Z make up around $350 billion of spending power in the U.S., with Gen Z accounting for 40% of global consumers this year. These consumers have vocally expressed the desire to spend with brands and products that align with their values—chief among them climate change and environmental sustainability. As a result, customers have begun to favor—and sometimes outright demand—brands with a commitment to sustainability.

Outdoor clothing and gear retailer Patagonia proves a great case study in the relationship between consumer desire and sustainability. The brand has always had a strong commitment to bettering the environment, but their efforts have recently amped up in the last few years, with realigning their entire mission to "save the planet." Consumers have rewarded them with increased sales every year; as one report puts it, "Patagonia grows every time it amplifies its social mission."

Putting Their Money Where Their Mouths Are

Patagonia is an extreme example of how a brand can make a commitment to the planet; the vast majority of companies, though, can't afford or even consider recurring multimillion-dollar donations to affirm their sustainability priority. However, they can make an impact on a smaller scale, particularly with packaging.

Packaging may seem like a small part of the puzzle, but it's become a priority for many shoppers—some of whom don't simply expect it, they have begun to outright demand it. Options for sustainable upgrades include:

• Biodegradables, derived from starch, cellulose, soy, and more
• PET (or Polyethylene terephthalate) plastic, or post-consumer plastic, derived from one of the most common recyclables
• Cardboard alternatives, such as materials using mushrooms, seaweed, and more

Costs for these upgrades, however, may be higher. The premium will vary depending on the type of material, size, and quantities ordered. One example is a common 8-ounce plastic jar that prices at $0.61 per unit versus a comparable jar with PET plastic, which costs $0.75 per unit.

That's a big difference that can cut into margins, especially if you're not buying in significant bulk. But the good news is that with the rise of these demands for conscious alternatives, consumers have become more willing to pay for sustainable initiatives, including packaging. One study showed that, globally in 2018, 57% of consumers say they'd be willing to pay more for eco-friendly packaging, up from 49% in 2011. And it's not just talk—they've voted with their dollars.

Managing Your Margins and Making a Change

Changing your packaging to become more sustainable can be a winning strategy for business, but you'll first need to figure out the balance of how to sustain your own business while being sustainable at-large.

One major consideration to take into account as you look into transitioning is your margins. Understand how much it costs you now to package a product versus how much you make on it, and figure out how much switching to another package will change this calculus. You'll also want to consider whether or not changing your packaging will have a ripple effect to other parts of your operations and supply chain.

If you find that your costs will increase, you may be able to take advantage of some of these strategies to manage cost:

• Standardize other parts of your operations (i.e. the number of sizes of boxes you use) to both cut costs and be able to buy in larger quantities to reduce price.
• Conduct market research or hold focus groups to find out what percentage of your customers would be willing to pay more, and how much. Factor this into the calculation of your margin, especially if they say they are not willing to pay a premium.
• Look for eco-friendly initiative benefits in your state and/or grants to potentially offset costs.
• Create a more sustainable shipping system that's less expensive on your end and is viewed as an eco-friendly benefit to the consumer.

No matter the choice you end up making, it's worth it to run the numbers and look into the exact packaging you're considering swapping out. Some businesses have found that upgrading to a more sustainable solution has actually enabled them to use less packaging overall, thus making things both more eco-friendly and more cost-efficient.

Finally, remember: there are costs, but there are offsets, too. Among the benefits, a commitment to sustainability can be part of your marketing and consumer loyalty campaigns. Making a decision to transition to eco-friendly packaging is a two-fold process: You'll have to do the numbers as well as review your commitment to being a global citizen to find out if it's the right choice to make.