Can we keep sustainable products affordable in the cost-of-living crisis?
Ingka Group’s chief sustainability officer Karen Pflug shares her learnings on making more sustainable products affordable – even with the challenges of rising energy costs and supply chain disruption.
Most consumer research concludes that a majority of shoppers are keen to opt for more sustainable products. But many of these surveys reveal a gap between intent and action, largely due to the perceived inconvenience and extra costs of ‘greener’ goods. This gap is broadening as the cost of necessities climbs ever-higher.
For example, Deloitte recorded a decrease in the percentage of people making a sustainable purchase at least once a month in excess of 8% in several markets between September 2021 and September 2022. Four in ten of those cutting back said they did so due to high costs.
But Ikea’s largest franchisee does not want there to be a trade-off, and is increasing its focus on coupling environmental sustainability with product affordability.
Ingka Group operates some 400 Ikea stores across the world. The company’s chief sustainability officer, Karen Pflug, says her team works “hand-in-hand” with not only its equivalent at Ikea, but with teams including product design and finance, to keep its products affordable as it works to become a net-positive business by 2030.
“Our guiding principle is to create a better life for the many people, and there’s an increasing recognition of how ‘better’ means both affordable and sustainable”, Pflug explains. “This is a very compelling vision… there isn’t anyone in the business who questions the ‘why’”.
Another Ikea/Ingka idiom that may be familiar is ‘live lagom’ – lagom being a Swedish term meaning using just the right amount of resources, with no excess.
Ikea’s whole business model centres on avoiding unnecessary material use. It is the world’s largest retailer for flat-pack furniture, known for efficient design.
But even Ikea, Pflug admits, has “not been immune” to rising material costs borne from energy price hikes, pandemic-related supply chain disruptions and material scarcity.
She says: “We know, with all the complex challenges hitting us today – whether that’s climate, or rising inequality, or resource scarcity – that they’re all interconnected.”
Meeting targets to scale the use of more renewable materials, plus more recycled content including wood and plastics, will go some way to mitigating these sort of risks in the future.
In the near-term, though, there can be costs associated with switching materials. Pflug explains: “Sometimes, there is a big investment required at the start. But this is where our size can help us to transform industries, leading the way so that everyone can benefit.”
When prices do have to go up in the near term, Ingka and Ikea both absorb some of the costs. But the companies would rather keep costs down in the first instance.
To that end, Ikea has made some design changes on some of its best-selling lines, swapping certain components for cheaper alternatives. Billy bookcases will now have paper foil instead of wood veneer, and aluminium instead of zinc for its metal fixings. This latter change came about because zinc prices more than doubled since Russia’s invasion of Ukraine. Pflug maintains that the new Billys do not compromise on sturdiness and longevity.
Beyond design and materials, Ikea and Ingka are also scaling up their second-hand sales models to both reduce product footprint and give people access to lower-cost furniture. Pflug reveals that the businesses have been enjoying double-digit growth in the popularity of its ‘circular hub’ offer, which sells gently used items and ex-display items. They are also preparing, she says, to launch a peer-to-peer furniture trading platform in the near future.
Energy security for the long-haul
Utilities have always been one of the most significant overheads for retailers, but this has been particularly true over the past 18 months. Some retailers have seen their electricity and gas bills more than doubling.
In response, many are scrambling to invest in energy efficiency and technologies that enable them to generate their own energy.
Ingka and Ikea have been doing so for several years, in what Pflug describes as a natural extension of founder Ingvar Kamprad’s philosophy of “making do with small means”. The companies are now working towards 100% renewable electricity use by 2025; fully renewable heating by 2030, and further energy efficiency enhancements.
Explaining how the company was able to set these goals, Pflug says: “It is, for us, about working with our expansion and real estate teams and finance team. It should not be seen as a cost to switch, but as an investment for the future. There’s a mindset shift needed, internally.
“The payback for renewables is getting faster and faster as we get to economies of scale. This helps with the argument.”
In short, if other companies want to learn from Ikea’s approach to energy decarbonisation and security, they may need to think beyond yearly or quarterly financials, towards long-term resilience. But even if they’re not able to, the energy price crisis now means that investing in efficiency and renewables makes better business sense than ever.
Pflug acknowledges that not every business will have Ikea or Ingka’s advantage in terms of mindset or scale. This is particularly true of SMEs, including those in Ingka and Ikea’s supply chains. Ikea, therefore, extended its programme supporting direct suppliers to adopt renewable energy earlier this year. The programme provides support for onsite solar, clean tariffs and power purchase agreements (PPAs).
“We do really see this as a partnership, which I think others could learn from,” Pflug says.
Another aspect of her company’s energy strategy that she would like others to adopt is pre-competitive advocacy for more efficient and cleaner energy systems at scale – whether directly or though platforms like the Climate Group. Only when systems are more resilient to fossil fuel price shocks will everyone benefit in the long run.
This special feature is part of edie’s 25th anniversary celebrations. edie launched in April 1998, making us older than Google. We have dedicated exclusive features and interviews to recapping on 25 years of seismic shifts for the sustainable business movement, and will continue to do so this summer.
We are also keeping a keen eye on the present and the future, exploring what it truly means to be a sustainability leader in the 2020s, and what will be needed from leadership in the years to come.
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