Sustainability for Fast Moving Consumer Goods (FMCG) at the BoP - The Waste Management Problem
by Fernando Casado, Magdalena Geissler, Johanna Klein and Isadora Loreto (GlobalCAD)
For Fast Moving Consumer Goods (FMCG) companies, the Base of the Pyramid (BoP) is an often untapped consumer segment with immense potential: the BoP spends more than 50 per cent of their total income, $2.3 trillion to be precise, on food and drinks. At the same time, FMCG companies have the possibility to create a positive impact on these communities by recognising their innovation potential as suppliers, producers, product designers, distributors, and retailers. Although the BoP represents an opportunity for FMCG companies to achieve both economic and social goals, tapping into this market potential can also create a number of important challenges, including waste and sustainable consumption issues.
Low income communities & their potential as consumers
Regions with highest consumer spending are East Asia and South Asia, followed by Sub-Saharan Africa. According to the latest studies[1], the growth rate for consumer spending in developing countries is expected to grow three times faster than in developed countries and the majority is expected to be consumed by low- to middle-income classes.
One of the reasons for the increased consumer spending is the trend of urbanisation as living in cities provides fewer opportunities for self-production of food and increased access to packaged good. In fact, the top 300 cities in emerging markets will contribute to one-third of the total growth in consumer spending[2]. 37 per cent of the BoP is currently living in cities and the urbanisation rate for the BoP is significantly higher than for the middle-income class[3].
However, opportunities never come without challenges and FMCG companies face major dilemmas if they want to develop their business while, at the same time, contributing to sustainable development. One major problem is waste management.
The waste management problem
While selling packaged goods to low-income consumers, the packaging waste that is left behind, especially sachets is turning into a major waste problem. While bigger packages, such as PET bottles, are normally part of a formal or informal waste management system, sachets are normally not being reused. Although there are initiatives under way, most packaging waste ends up in landfills or the countryside. While waste management is the concern and responsibility of public institutions, causing a new challenge through the access to new markets with packaged products, have an important role to play.
Some of the major challenges that need to be addressed include the reduced availability of formal waste management structures as well as the consumption habits of the population, but also the missing alternatives to plastic and biodegradable packaging. At the same time, companies cannot work alone on the development of waste management solutions, but through partnerships with local authorities and integrated into the formal structures available in a certain space.
Developing an integrated waste management strategy as a solution
A number of companies are experimenting a variety of solutions that include developing sustainable packaging, providing value for existing packages, for example through waste to energy, and supporting existing recycling and collection models. Examples include the development of biodegradable packaging or the use of recycled materials. Although such solutions are theoretically possible, they are quite hard to implement, as the costs of alternative materials are generally high, especially for low-income markets.
Another option is the promotion of refill models, as for example done in Kenya with milk vending machines, where consumers can bring their own containers and therefore no additional packaging is required.
If alternatives for sachets or other packaging materials are not available, companies can try to improve the recycling or collection of existing packaging. However, especially sachets are difficult to recycle, as they are multi-layered. In this sense, Unilever is currently experimenting with pyrolysis that can turn sachets into fuel oil and recover up to 60 per cent of its embedded energy. For other packaging waste, especially for bottles (shampoos as well as drinks), informal waste collection systems exist. Supporting and strengthening this market can improve the living and working conditions of waste handlers, while, at the same time, improve recycling rates and decrease the environmental impact from packaging waste. In Egypt, P&G provides financial support to the Mokattam Recycling School, which pays recyclers for each collected bottle. Through this project, P&G not only increases recycling capacities, but also reduces the risk of counterfeit products that make use of original P&G packaging.
While these are all interesting initiatives, they are, however, small contributions to this important challenge and few organizations have so far managed to scale their efforts in the area of supporting waste management. Companies must effectively integrate waste management into their overall strategy, clearly taking the waste hierarchy into account and focusing primarily on the reduction of waste through sustainable production and innovative packaging methods, as well as by finding the right entry points to support the local ecosystem.
Doing business in the FMCG sector at the BoP is more than just tapping into the potential of the market but asks FMCG companies for taking responsibility for the products they sell and the (long-term) impact those products have on the BoP community.
This blog is a part of the March 2017 series on how businesses in the FMCG sector are including the BoP in their value chain. Read more here.
[1] McKinsey (2011). Global Growth Compass, Consumer Packaged Goods (page 1). https://www.mckinseyonmarketingandsales.com/sites/default/files/pdf/Fin… in%20emerging%20markets.pdf
[2] McKinsey (2011). Global Growth Compass, Consumer Packaged Goods (page 3). https://www. mckinseyonmarketingandsales.com/sites/default/files/pdf/Finding%20profits%20and%20growth%20 in%20emerging%20markets.pdf
[3] UN Habitat. Bottom of the Pyramid Approaches for Urban Sustainability (page 2). http:// mirror.unhabitat.org/downloads/docs/WG_A _Background_BOP_for_urban_sustainability_draft0.pdf