EXPRESS: Sustainable Product Profit Potential and Availability

Abstract

Consumers have become more interested in purchasing products produced using more sustainable practices, with much of the recent growth in consumer-packaged goods (CPGs) within the United States from products with clearly labeled sustainability claims on their packaging. However, many categories have low levels of sustainable product market share, with substantial geographic variation. We assess the role of demographic variables on the availability of sustainable products, after controlling for their relative “profit potential” (determined by quantity, price, and price elasticity). To estimate profit potential, we estimate product and county-specific demand elasticities for seven CPG subcategories in the grocery and mass merchandiser formats. A meta-analysis of the estimates show that the relative profit potential of sustainable products increases with income and Democratic vote share. These variables predict greater sustainable product availability than would be expected from their higher profit potential. The fraction of the county that is white does not significantly impact profit potential but leads to higher sustainable product availability. Our findings provide evidence that managers likely use simple demographic heuristics to make product stocking decisions (supported by a separate survey of retailers) that do not necessarily reflect preferences for sustainable products and their profitability.