Circularity isn’t just about reducing climate impact - it has the potential to directly contribute to both the net zero and commercial ambitions of an organisation. However, switching from a linear business model (take, make, dispose) to a circular business model (reduce, reuse, recycle) is complex. It requires careful examination of the value chain to interrogate the best actions to take, that will deliver growth as well as carbon reduction.
As evolving regulatory and stakeholder pressure galvanises the direction of travel toward sustainable business models, the commercial opportunity for those who act first is becoming clearer. Organisations should be mindful of an additional crucial factor however - the evolution of consumer behaviour. Effective circularity requires engagement from the consumer, which is why introducing a model that is built around the customer is critical in creating a more robust foundation for growth.
The shift in consumer sentiment towards sustainability appears to be an ongoing trend, according to recent research. PwC’s Global Consumer Insights Survey reveals that overall, eight out of ten consumers say that they would pay above the average price for a more sustainable item choice. Millennials and Gen Z were the most open to spending more for the sake of sustainability, indicating that this shift in values will be embedded for some time as the cohort matures. However, there are some doubts about the extent to which these sustainability values are borne out in real world behaviours, where convenience and cost still largely take priority.
“Consumer sentiment may be shifting in favour of sustainability, but consumer behaviour is lagging behind. We need to make it easier for customers to do the right thing. Sustainability as a premium product line isn’t enough. Brands need to integrate all their products into circular systems, while also developing and embedding improved customer experiences.”
Tom Beagent
Sustainability Partner, PwC UK
The fashion industry is already demonstrating how consumer behaviour is powering circularity. The typical industry approach to decarbonising the value chain to date has been through the recycling route, where base textile material is reused in the manufacture of new textiles. However the rise of peer-to-peer resale platforms such as Depop, Vinted and Vestiaire Collective have demonstrated the appetite for quality used items. While this may have been driven in part by a consumer search for value due to a reduction in disposable income, as much as the growing emphasis on environmental values, it has proven to the industry that there is a market for brands to explore circular models.
PwC UK’s recent Circular Fashion report revealed 70% of the fashion industry’s emissions are produced upstream from raw material extraction and production. As such, product reuse is by far the more powerful lever for reducing the industry’s environmental footprint, delivering ten times the impact of recycling in carbon reduction. That means brands should look to circular models with a focus on repair and resale to reduce production altogether, although the economics of fashion resale can be challenging.
Jacqueline Windsor, Head of Retail at PwC UK says: “Resale channels that provide added value through services such as product authentication, product repair and curated ranges, command up to five times more value than similar items sold on alternative resale channels such as peer-to-peer platforms or charity stores. Many mainstream brands have started to establish resale propositions, but they have a long way to go before realising the full value potential of the secondary market. To do this, further development of value-added resale propositions is needed.”
Shifting the product mix away from ephemeral fast-fashion items needs to be part of the move to a sustainable system, as retaining the value for resale proves more difficult.
“The overproduction and overconsumption of fast-fashion items continues to pose a challenge for the environmental footprint of the fashion industry. To address this, a wider shift in the market is required, moving away from cheaper, microtrend items towards more timeless, investment pieces which retain their value.”
Jacqueline Windsor
Head of Retail at PwC UK
Where circularity can be introduced into high volume consumer waste streams, the potential benefit to both sustainability and commercial outcomes is more apparent. When PwC conducted research into how circularity could reduce single-use coffee cup consumption, it demonstrated that understanding purchasing habits and consumer behaviour can reveal untapped commercial opportunities.
For a returnable packaging container to be more sustainable than its single use equivalent, it needs to be returned and reused multiple times. This is because the materials, energy and associated emissions that go into making returnable packaging are generally higher than their single-use equivalent. This means returnable packaging must not only be durable, but critically the container must be returned to where it can be washed and reused.
David Drew, a circularity specialist at PwC UK, says: “Successful returnable packaging systems rely on habit. Where consumers buy the same products in the same formats regularly, they are better suited to a transition to returnable packaging. Unlike most other packaging choices, choosing returnable packaging will not meet its objectives without the collaboration of the consumer.”
Yet a careful strategic approach can align customer behaviour with circularity, when approached from the point where brand loyalty and personal values overlap. Our coffee cup research indicates that the top 10% of most regular customers visit their favourite coffee store frequently, with around 73% visiting again within five days (based on 2022 data). As high frequency coffee drinkers this cohort could account for up to 40% of the single use cups, so if they adopted the returnable coffee cup concept it could massively reduce the waste stream volume. Appropriate loyalty incentives and sustainability storytelling linked to circularity can galvanise loyalty further, which has clear commercial potential.
Drew continues: “Although retailers often have reservations about returnable packaging and systems for packaging recovery, due to the complexity they can bring to the retail environment, there is no doubt that the upside is footfall. If returnable packaging brings the customer back to the store, it can be a very useful form of customer retention and business growth.”
“Returnable packaging will not meet its objectives without the collaboration of the consumer. This means that understanding purchasing habits and consumer behaviour are critical when evaluating packaging choices.”
Meanwhile, in the car industry, the market may at last be ripe for car subscriptions - an alternative way to have a personal car without having to own it or commit to a multi-year lease.
Car subscriptions have existed for some years, but have as yet failed to secure significant volumes of demand or provide profitable growth for standalone platforms. Now, however, the seismic shift from internal combustion engines to electric vehicles is underway. The pace of this change is being pushed by government policy and regulations, with car manufacturers transforming their vehicle lineups to meet requirements.
However, our research shows that customers still have concerns about higher price tags, reliability issues, battery range and charging infrastructure, and residual values. This has created near perfect conditions for car subscriptions: our recent study suggests over 49% of eligible consumers would be likely to take up a vehicle subscription in the next five years. Most of these customers are seeking a combination of cost certainty, convenience, low commitment, and opportunities to save money when the car is not in use.
“As the demand for car subscriptions blossoms, it presents a real opportunity for the industry to develop circular business models that meet the customer needs and support sustainability commitments, not only by encouraging electric vehicle adoption, but also by increasing utilisation over the vehicle lifecycle.”
Akshara Chandhok
Director, Strategy&, PwC UK
Using these shifts in consumer expectations to design a business model that harnesses the rising tide behind sustainability and drives commercial outcomes is logical. Circularity has a powerful role to play in this picture, but it can be challenging to know where to start.
Many organisations still consider resources as inputs to be used once and overlook opportunities to reuse resources to generate new revenue or profit streams. Sectors that are already experiencing resource scarcity have begun to do this, as we see in the case of electric vehicle battery recycling. For many others, there will be products and materials that are currently disposed of that could be reused or recycled. Start by assessing where you’re losing value in the way you use your resources and use this to identify where to focus your efforts.
The approach you take will depend on a wide range of factors, from consumer behaviour to the resource options and products available. The trade-offs of different approaches need to be interrogated carefully, it’s not always as simple as replacing single-use plastics with more sustainable materials, as those organisations currently exploring sustainable packaging strategies have learned.
Ultimately, collaboration across industries and value chains is needed to embed circularity at a system-wide level, including to drive the wholesale shift in consumer behaviour that is needed to make it a success. Identify the partners, suppliers and influencers you need to build relationships and collaborate with, in order to make circularity work.
After the biggest drop in over two years, consumer sentiment has reached 2024’s lowest level. While economic indicators remain strong, with inflation stable, real wages increasing and more interest cuts likely, this hasn’t translated into optimism among consumers.
On Earth Day we heard from Lucinda Langton at Marks & Spencer and Donald McCalman - deposit return scheme expert - about the power of the circular economy.
