I recently blogged about a bold ESG experiment by German food retailer Penny, who selected a handful of basic grocery items for “wahren Kosten” (“real” or “true” pricing) for one week earlier this month. These “real costs” include impacts such as climate change, obesity, child labor and plastic pollution that don’t have actual costs at the company or product level – things economists call externalities. According to the German publication taggeshau (in German):
“The consequence was a sometimes drastic increase in the price of mozzarella or yoghurt and a vegan schnitzel. As a result, slices of cheese rose in price by up to 88 percent, while the cost of wieners almost doubled… Even if it was only nine selected foods, Penny expects a single-digit million loss in the course of the evaluation of the total of six shopping days – due to the reluctance of consumers to buy these products.”
Although the detailed results and analysis are not expected until the beginning of next year at the earliest, some initial findings have been published:
- Product labels explaining the “wahren Kosten” increased consumer willingness to pay the higher prices, but demand was still lower than when products were priced normally. This article on the experiment (also in German) concluded that the “label would not be worthwhile from an economic point of view because the profit contribution falls by 15% compared to the previous profit contribution without a label [and at regular price].”
- There is a clear split in buying behavior based on consumer income and sentiment: those more willing to buy the “wahren Kosten” products “are better off and can ‘afford’ their ‘world views.'” Others were unwilling or unable to pay the higher costs:
“‘I could afford it, but I don’t see why I should pay this much. I’ve always been price-conscious in my shopping,’ said one pensioner… [Another shopper] finds the prices appalling and at the same time she says she constantly has a guilty conscience. She too does not buy the expensive products.”
There are a number of academic studies on consumer attitudes and predictions of buying behavior for higher priced, sustainable/green products, but relatively few real-world results especially in current times. Companies looking at price premiums/improved margins based on “greeniums” may want to carefully consider Penny’s experience.