Sustainable practices in retail
Regulatory pressure, consumer behaviour and market dynamics are key factors in driving sustainability
Sustainability has become a defining feature of the modern retail landscape, reshaping industries worldwide.
Retailers, governments and consumers each play a crucial role in driving this shift, and, through the interplay between consumer behaviour, government regulations and private sector initiatives, are presented with both opportunities and challenges.
According to Ernst & Young , 55% of consumers think they should encourage companies to create sustainable products, while 72% feel companies and organisations should drive better social and environmental outcomes.
“What we have seen is a major shift in how sustainability is viewed,” said Philip Coverdale, retail expert at GlobalData. “Once considered a ‘nice-to-have’ checkbox, it has now become a central decision-making factor for consumers, especially among younger generations in Europe.”
The retail sector in the Middle East is no exception in responding to this growing trend.
A Middle East sustainability report by PwC states that the proportion of companies in the region with a formal environmental, social and governance (ESG) strategy is steadily increasing, with nearly two-thirds (64%) having a plan in place.
In November, Mashreq and MEED jointly hosted a roundtable with business leaders to discuss this shift in the retail market sector and explore related topics such as efficiency, costs and market adoption.
Collaborative effort
Organisations in the Middle East increasingly prioritise and invest in sustainable practices, with 85% reporting a rise in investments, up from 75% last year.
In 2023, an alliance of retail conglomerates Chalhoub Group, Aldar Properties, Emaar Malls, Majid Al-Futtaim and LVMH formed a partnership titled Unity For Change, dedicated to promoting sustainability in the region. The partnership is focused on energy efficiency, clean energy, eco-design, and water and waste management.
However, while retailers are taking action on the issue, consumers are not rapidly embracing the change.
“There is a gap between what we are offering and how consumers are prioritising sustainability in their purchasing decisions,” said Katia Fakih, chief financial officer of Yolk Brands.
Cost factors
A 2023 study by Euromonitor International found that while sustainability is growing in importance, particularly among affluent and younger consumers in the UAE, Saudi Arabia and Qatar, most shoppers are still driven by price and convenience.
This trend mirrors global consumer behaviour, where ethical consumption often competes with price sensitivity. According to KPMG, 60% of consumers in the UAE said they were aware of sustainability issues, but only 25% were willing to pay more for sustainable products.
It is clear that the cost of sustainable products presents a significant barrier to wider adoption.
“Consumers are not ready to pay for sustainability,” said Hasib Khan, founder of Udrive. “They are ready to pay for convenience and experience, but not necessarily for sustainability.”
This price sensitivity can be attributed to the financial burden that sustainable options often carry. From higher production costs to expensive supply chains, sustainability can increase the price of goods.
A survey by PwC in the Middle East found that among the companies looking to decarbonise, the biggest challenge is inadequate returns on climate-friendly investments.
“Sustainability is expensive in this region, and younger consumers, particularly Generation Z, do not yet have the purchasing power to prioritise it,” said Imaad Khan, vice president and senior cash management sales manager for Global Transaction Banking at Mashreq.
Retailers are facing a dilemma: balancing their commitment to sustainability with the need to remain competitive in the marketplace.
“Electric vehicles are a clear example of how high upfront costs can hinder adoption,” said Khan. “Consumers are generally willing to invest in sustainable options like eco-friendly packaging or energy-efficient products, but they are reluctant to pay a premium unless it significantly enhances their overall experience.”
This cost challenge is one that retailers and governments will need to address through innovation and financial incentives.
Encouraging consumers
Education and regulation are key to promoting sustainable customer behaviour.
The generational divide is one factor resulting in the slow adoption of sustainable behaviours globally.
In markets such as Europe, younger consumers have integrated sustainability into their daily choices, while this shift is less pronounced in the Middle East.
“I have seen children as young as five refuse to purchase items in plastic packaging in the UK,” said Prashant Talwar, director of retail and grocery at Deliveroo.
Without this foundational understanding, consumers in the Middle East remain less likely to prioritise sustainability when making purchasing decisions.
“In Italy, consumers face penalties for improper waste disposal, while in places like Singapore and Europe, carbon footprints are tracked and can be offset,” said Giulio Dal Dosso, regional director of finance at Hugo Boss. “However, in the Middle East, such measures are still lacking.”
Incentivising consumers to go green has helped accelerate adoption. Offering incentives such as tax breaks or subsidies to both retailers and consumers who invest in sustainable products could help reduce the financial burden.
Creating reward programmes for consumers who engage in sustainable behaviours, such as recycling or reducing their carbon footprint, could, meanwhile, motivate individuals to embrace these practices.
“In Europe, sustainability efforts often come with rewards, like discounts or vouchers, which encourage participation,” said Mansoor Khaja, vice-president at Dubai Duty Free. “However, without similar laws or incentives, consumers tend to act independently, and behaviour is inconsistent.”
By mandating sustainability through laws, governments can force the market to adapt. Countries such as Kuwait and Saudi Arabia are implementing plastic bag bans or charging fees for their use. The UAE also introduced a ban on single-use plastic bags from 2022, with retailers obliged to charge consumers for bags in an effort to reduce waste.
As consumer demand for sustainable products grows, costs will likely decrease as the market matures. In the meantime, retailers must balance offering sustainable goods at prices that make sense for both consumers and themselves.
