In the six years since I published my initial research predicting a disruptive and distinctively green economic shift that I labeled the green economic revolution, the global sale of sustainable goods and services is measured in the trillions of dollars. The question is no longer whether a sustainable economy is developing. In 2014, the question is: Which companies will be the revenue growth winners?
20th century’s Commodity Economy hits revenue growth wall
The 20th century commodity economy, built upon commoditizing products and people, has hit a revenue growth wall. The information age has now raised consumer awareness to levels in which they expect products to cost less and mean more. Customers expect “everyday low prices.” Armed with unprecedented awareness through information age technologies, they also expect products to be healthy and responsibly sourced. The commodity economy’s business best practice of slashing prices to ever-lower levels by avoiding or undervaluing externality costs like human obesity and climate change is losing customers and revenues to sustainable best practices that deliver both value and values.
There are three macro-economic “bricks” in the wall of revenue growth for unsustainable companies. The first is the unintended consequence of the 20th century’s business focus upon reducing the number and wages of employees. Ninety percent of U.S. consumers have not seen real wage growth over the last fifteen years. Because approximately 80 percent of the U.S. economy is consumer-driven, this lack of consumer income growth is starving our economy’s ability to grow.
The second driver is that consumers are now experiencing real financial pain tied to externalities – costs not reflected in “everyday low prices” and “dollar menu” items. Obesity and diabetes, and their increased health care costs, are a national crisis tied directly to promotional pricing of fast foods laced with sugar, sugar substitutes, fats and chemicals. Climate change tied to burning “lower cost” fossil fuels is now impacting consumer purchasing power.
For example, California is an agricultural super center supplying food to the U.S. and the world. This scale of agriculture accounts for 70 to 80 percent of California’s water use. Today’s unprecedented California drought, that weather models link to climate change, holds the potential of raising food prices for all Americans by this summer. The externality cost legacy of the 20th century commodity economy will be a significant cost burden through at least the first half of the 21st century — retarding economic growth.
The third driver is that the commodity age is no longer delivering lower prices. For example, “drill baby drill” has generated historically high volumes of oil but it has not meaningfully reduced pump price pain. With their incomes stagnant, the more consumers must spend at the pump results in less money to buy other goods and services.
The business bottom line is that unsustainable business practices have hit a revenue wall. Businesses built upon a commodity economy will face eroding profit margins and stagnant revenue growth.
The growing sustainable economy
What is selling are price-competitive “in me, on me and around me” solutions. Led by the millennial generation and moms, consumers are buying solutions that save money, improve human health and are sourced responsibly.
The emergence of a sustainable economy is a perfect storm of technology-enabled awareness and consumer pain. “We are all naked” was the astute observation of a Walmart executive reacting to the reality that every business practice is revealed via YouTube and social media. This executive also identified “get buff” as the 21st century business path to success. “Get buff” means that a business cannot rely on price competitiveness to win customers. A buff company is price competitive, but it also provides a solution to the consumer’s societal and environmental concerns.
This trend is being validated by evidence of the revenue winners and losers so far in 21st century. Digital, especially mobile, is the most obvious revenue winner. It is a huge solution for consumers and businesses searching for ways to do more with less (a core sustainable practice). Digital posts on sites like Care2 or TriplePundit are showing consumers that there are huge differences between products in terms of human health costs and benefits. While the digital space is the big 21st century revenue winner, advertising is the 21st century’s business loser. Consumers, led by the millennial generation, are streaming past advertising. Consumers look to one another through digital (and increasingly mobile) posts on product experiences in deciding what to buy and from whom.
Rooftop solar is emerging as another 21st century revenue winner. Solar has doubled its customer based in just two years. Electric utilities appear poised to be a huge 21st century business loser from consumers adopting solar, LED lights and Nest thermostats as solutions to continued utility rate increases and climate-changing emissions. It is only a question of when a cost-effective combination of rooftop solar and on-site battery technologies enable customers to reduce their costs and emissions by living and working in Zero Net Energy buildings.
The 21st century will be defined by healthier diets. Companies like Chipotle, which brands itself based upon its sustainable sourcing of food, and Panera Bread, which brands itself on its healthier menu, are winning customers and revenue growth. Farmers markets selling local and fresh food are revenue winners. Fast food chains like McDonald’s have hit the revenue wall in the 21st century. Their mixed messaging, conflicted menu offerings of “healthy” and “unhealthy” food items, plus their industrial-food roots, are not engaging the crucial consumer market segments of millennials and moms.
The economic war between unsustainable and sustainable companies
Conflicted is the best way to describe my forecast for the 2014 economy. This conflict comes from the political friction and price competition between entrenched unsustainable businesses and the attempts by more sustainable businesses to win customers. The manifestation of this economic conflict will be heightened volatility in stock prices as the battle for customers seesaws between competing businesses. Volatility will also come from government policies that attempt to fuel economic growth without addressing core sustainability issues.
Conflict will also be manifested within businesses. Chief financial officers, under pressure to achieve 90-day financial results, will continue to focus on the commodity age success strategy of maintaining stock values through cost-cutting — achieved by reducing labor and operating costs without a focus upon societal or environmental impacts. Pushing back against the CFO will be marketing departments that see revenue growth opportunities from reshaping products that align with the consumer’s search for “in me, on me and around me” solutions. Push-back will also come from operations that seek to implement lean manufacturing and green supply chain best practices that reduce costs by reducing waste streams and emissions.
Our economy will continued to be conflicted due to the commodity age’s legacy income disparity. The scale of our current income disparity was last seen at the start of the 1930s Great Recession. A sustainable economy enables a broader distribution of income. This broader distribution of income, most especially when debt financing is also available to a broader number of people, enables sustained consumer spending. This is critically important to the U.S. economy — where 80 percent of its economic activity is consumer driven.
Earth in 2017
The green economic revolution will reach an epoch in 2017, when the millennial generation displaces the boomer generation as the largest economic group in America. Sustainably solving problems is emerging as the path toward revenue growth — driven by the millennial generation’s pursuit of lives that are “cool with a purpose.” While 2014 will be another year of conflict between entrenched unsustainable business practices and emerging sustainable business practices, there is no longer any question on how this economic revolution will end. The only remaining question is whether or not your business will be a revenue winner by aligning with the consumers’ quest for price competitive “in me, on me and around me” solutions.
Image credit: “The Secret Green Sauce” by Bill Roth
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017