Time for local retailers to ‘own’ sustainability?

With DRS fast approaching, SLR convened a meeting of some of the leading lights in the industry to discuss how the challenges of the new scheme could open a door for local retailers to take ownership of sustainability in Scotland.

By Antony Begley

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DRS: so many questions, so little time. With the biggest change to occur in local retailing in Scotland for a generation on the horizon, SLR thought it was time to gather some of the sharpest brains in the sector to discuss not only the forthcoming Deposit Return Scheme but also the wider issue of sustainability in general.

To help us create a very special roundtable at Cameron House last month, we enlisted the help of Scottish soft drinks giant Barr Soft Drinks and DRS specialists Tomra to help provide their unique insight and to answer the trickier questions that were bound to come from the panel of top retailers that joined the session.

Sustainability is invisible

SLR’s provocative contention and the starting point for the days discussions was the fact that, from a customer’s point of view, local retailers just aren’t engaging with sustainability. Since local retailers must recycle food waste, plastic packaging and cardboard by law – and are therefore already making huge sustainability gains – why is it that you never see any in-store POS highlighting these facts? Why, when you visit the social media pages of local retailers do you almost never see sustainability related posts?

This is in stark contrast to the other members of the supply chain. Producers are falling over themselves to make sustainability improvements to their product and packaging – and never miss an opportunity to shout about it. Very few supplier press releases we receive at SLR Towers these days will fail to mention sustainability. Similarly, the wholesale channel is making great strides forward and is keen to talk about it. Yet retailers, the final and arguably most important link in that chain, almost entirely fail to communicate to shoppers, despite the fact that they are the only members in the entire supply chain actually able to talk directly to shoppers on a daily basis.

It’s a provocative point to make, but it’s also demonstrably true – as a straw poll at the roundtable demonstrated. All the retailers around the table admitted that they don’t communicate sustainability credentials to their shoppers.

The contention then, is that local retailers should use DRS as a catalyst to take a fresh approach to sustainability and commit the sector to ‘owning’ sustainability in communities across Scotland before the supermarkets do. And to be clear: this is entirely a communications issue. Retailers are already doing more than their bit for the environment. Recycling? Tick. LED lights? Tick. Low energy chillers? Tick.

All that’s missing is telling shoppers that we’re already doing all these things. As open goals go, this one is unmissable. And if local retailers can move towards ‘owning’ sustainability, they can gain a competitive advantage, particularly over supermarkets which face enormous challenges in convincing shoppers that they put the planet and communities before profits.

Grasp the thistle

Barr Soft Drink Commercial Director Jonathan Kemp was quick to urge the retailers in the room to “grasp the DRS thistle.”

He said: “There’s no doubt DRS is a bit of a thistle, but it’s one worth grasping because it’s an opportunity for everyone to gain a competitive advantage.”

Kemp explained how usage and attitude studies have revealed consistently that the environment and sustainability are big factors with consumers, particularly Gen Z consumers in their early 20s.

“Some of them will only buy brands if they believe those brands are they’re doing the right thing,” he commented. And while he wholeheartedly endorsed the idea of retailers getting more proactive in communicating with consumers on sustainability issues, he emphatically warned against ‘greenwashing’.

“It’s so easy for brands and retailers to be accused of greenwashing,” he said. “So you have to be very careful that any claims you are making are absolutely true and honest.”

Ultimately, he concluded, helping educate shoppers is the right thing to do – and talking about sustainability needn’t be dry and dull. If you’ve seen any of Irn-Bru’s recent virgin plastic ads featuring straplines like “I lost my virginity in a factory in Cumbernauld”, you’ll get the drift.

Kemp also suggested that DRS could end up going “the same way as the sugar levy”.

“Sugar was a huge issue at the time with enormous consumer pressure,” he said. “Since the levy came in, however, when was the last time you heard a complaint about sugar in soft drinks? They all disappeared in 2018 when the issue was very much dealt with.”

Tomra’s Ewan Dryburgh then took the chance to clarify the current state of play around DRS and dispel a few myths, highlighting how Scotland’s DRS will be “retailer-led”, which is not true of many other countries around the world which have DRS systems in place. In other words, the responsibility lies with retailers.

The target capture rate for the scheme is 90%, a huge increase in the “30% or so” that Dryburgh says Scotland currently achieves with kerbside recycling. Retailers will be obliged to return the 20p deposit in cash, if requested, so they cannot offer vouchers redeemable only in their store.

Legal challenge

Having clarified the position on DRS, Bellshill retailer Abdul Majid MBE took the opportunity to explain the thinking behind his recent legal challenge which saw him raise judicial review proceedings in the Court of Session against Circularity Scotland Limited (CSL), the Scheme administrator. He is challenging “the legality of the retailer handling fees that CSL is seeking to impose on retailers”.

Abdul has hit the headlines of late and has come in for some flak from some corners, so this was a welcome opportunity to discuss his thinking.

“First and foremost, I am absolutely committed to helping deliver a world-class DRS for Scotland,” he said. “That has never been in question – but that DRS has to be fit for purpose. Retailers have been instructed that they are to deliver the DRS but my huge concern is that the proposed retailer handling fees will not cover my costs, or those of other retailers in Scotland. This could be seriously detrimental to my business and to many other businesses both in the short and long term. This could threaten the viability of my stores which provides key services and groceries to our community in Bellshill.”

The heart of the matter here is essentially that CSL has not revealed how it arrived at the proposed handling fees. The logic behind taking that route is obvious: if they did reveal how they did their sums, it would have been an open invitation to all and sundry to publicly tear the calculations apart. The only other option – the one that was taken – was to commission an independent body to calculate the handling fees, thereby distancing themselves slightly from the issue.

“My argument is that the Bill says the Scheme must be cost neutral to retailers,” said Abdul. “And CSL doesn’t appear to have considered a number of factors like the cost of doing whatever retailers need to do to be able to incorporate a Reverse Vending Machine (RVM) into their store. And these costs will vary store by store.”

Abdul also highlighted how opting out of the Scheme is not a valid option either: “We’ve been told that if you don’t like it you can opt out, but retailers are risking the viability of their business if they opt out. I have absolutely nothing against DRS but livelihoods are on the line here and if CSL gets the handling fee figure badly wrong there’s potential for retailers to be wiped out.”

What if?

Stephen Jackson of One O One Convenience Retail then pondered what would happen if Abdul wins his case. “What if the judge asks what the solution is?” he asked Abdul. Abdul’s hope is that some form of grant or interest-free loan is made available to buy the RVMs and help mitigate the capital outlay.

Stephen also said his business had many concerns over DRS and said that the legal challenge is right if the Scheme isn’t going to be cost neutral as repeatedly promised.

“We too are worried that CSL hasn’t factored in all the costs that we know we will incur in implanting DRS,” he said. “The removal of selling space for an RVM represents a cost, pest control will be a cost, cleaning the storage bins will be cost and there will be the obvious cost of paying all the deposits upfront when retailers buy from their wholesaler or supplier.

“And even if retailers do choose to do manual handling, they can’t even prepare for that because we don’t know the cost of the bags yet!”

Many of the group also agreed that drinks containers will become a risk because they will have moved from being rubbish to being assets with a substantial value – 20p for every one. Well worth stealing, in other words.

“You can see storage space becoming more valuable than selling space,” said Stephen.

Karina Matuszek of CJ Lang shared that Spar’s modelling predicts that DRS won’t be cost-neutral to the business because the majority of its stores are under 2,000sq ft.

Scotmid’s Kevin Lowe added that, from his experiences sitting on the Scottish Retail Consortium DRS forum, the numbers don’t even work for the big retailers either.

Multipack problems

Once DRS is in place, however, retailers are likely to see a shift in buying patterns, according to AG Barr’s Kemp. “Our learnings from Australia showed an initial significant move into larger containers, and we predict a move away from large 24-packs, for instance, into larger bottles – which is a real opportunity for local retailers.”

With a flat 20p deposit regardless of container size or price point, that prediction makes intuitive sense. A 24 pack of anything is going to increase in price overnight to the customer by £4.80. This is another opportunity for local retailers who can offer chilled 4 or 6-packs. DRS may also accelerate the ‘little and often’ shopping model that is already in evidence.

Interestingly, Kemp also predicted a shift from cans into PET bottles. “If you take the example of schoolkids or office workers. They won’t want to carry an empty, sticky can around in their schoolbag or briefcase all day, so they may shift into re-closeable plastic bottles, which is odd as it would be driving shoppers into plastic rather than out of it as DRS is meant to be doing.”

Let’s own it

Scottish Local Retailer of the Year Shamly Sud returned to the discussion point around consumer communications, admitting that while her business had made massive strides in improving its environmental credentials, they hadn’t communicated that fact to shoppers.

“We’ve got heat exchangers and smart fridges and solar panels and rainwater capture technology and so on – but we haven’t told our customers about any of that, and we really should have,” she said.

Scotmid’s Kevin Lowe questioned whether customers really wanted to know that Scotmid has digital SELs in every store. It’s a fair question but what could be the harm in telling them? It will surely be viewed positively by at least some shoppers.

Renfrew Spar retailer Saleem Sadiq stated that he believe customers “are only interested in price” and that it “will all come down to the price at the tillpoint”.

Laying groundwork

One of the most obvious challenges and a clear and present danger is that, come 16 August next year, customers remain oblivious to DRS. Consumer knowledge of DRS at this point is “shockingly low”, according to AG Barr’s Kemp.

“There are some radio ads running at the moment,” he said, and believes that producers and brand owners will ultimately do a good job of amplifying the message the closer we get to D-day – “because it’s in our own interests”.

But the fact remains that CSL has a job of work to do in the time that remains if they are to avoid the all too common situation where it’s left to local retailers and their teams to explain DRS to disgruntled shoppers wanting know why the price of their case of beer has shot up by £4.80 overnight.

The lesson, then, is to do what you can to start talking to your shoppers in good time about DRS and what it will mean for them.

Javid Ghafur of Londis Breadiland explained that is already planning to have an RVM installed in his store in February to get ahead of the game and find out how it works before the system actually goes live.

“We plan to fund four gardening projects in our local area with a 5p deposit from the machine, which we will fund ourselves until August,” he said.

A bold and potentially expensive move but there is a strong logic there. Not only will Javid truly begin to ‘own’ sustainability in his community, he will also have created shopping patterns and loyalty. If his shoppers get used to bringing their containers back to his store, they’re less likely to go elsewhere in August when the Scheme actually goes live.

Leaving it until the very last minute to comply with DRS means standing on the start line with every other retailer in your area waiting for the gun to go off. Why not start a month or two early and give yourself the chance to create a little loyalty and establish some buying patterns that might then serve you well after 16 August.

RVMs

The conversation then turned to reverse vending machines (RVMs) with Saleem Sadiq stating that “RVM manufacturers aren’t transparent enough on pricing because I need to know how long it will take me to pay the machine off”, a query rebutted by Tomra’s Dryburgh as what looks like a simple question actually turns out to be quite complex. What size and type of machine do you want, what type of service package do you want included? The list goes on.

But Saleem’s question is one that many retailers will be asking themselves over coming months.

And choosing an RVM is massively complicated by the fact that Biffa, the company responsible for all uplifts from all 37,000 return points in Scotland, can’t at this stage confirm the uplift schedule for each individual point, for fairly obvious reasons. Will it be every two days? Every week? Every two weeks?

The answer to that question will have a critical bearing on the type of machine each store will need. And what happens if retailers choose one machine and subsequently find they need a bigger (or smaller one)? Will the RVM suppliers happily provide a new one and take the old one away a month or two into the contract?

Scheme articles

Part of the discussion centred around so-called ‘scheme articles’, the containers in scope of the regulations.

Kemp confirmed that AG Barr produce Scottish-specific SKUs featuring the deposit information on-pack. “We will absolutely help consumers understand what bottles do and don’t have deposits on it,” he said.

He also explained that manufacturers effectively have three choices: register existing SKU as scheme articles (opening up the risk of fraud); create Scotland-only SKUs (creating potential confusion between deposit and non-deposit SKUs at transition time); or simply delisting some products in Scotland.

Price-marked packs will also become a challenge. AG Barr plans to move to new PMPs with the deposit clearly highlighted, but there is some obvious scope for customer confusion depending upon how each producer chooses to implement PMPs under DRS.

Conclusion

As the three-hour conversation began to wind up, it became clear that while every retailer around the room would opt for an RVM solution over manual handling, most if not all will also run a manual handling system in parallel, just in case the machine breaks down or an unforeseen problem occurs.

Kevin Lowe said that was certainly Scotmid’s plan and also threw in the quirky and related fact that Mateus Rosé bottles don’t actually fit into an RVM.

The hope, however, after all of this long debate is that DRS ultimately becomes something of a dull non-event. The initial flurry of interest will quickly die away and both retailers and consumers will just get used to it and get on with it.

“In the Scandinavian countries, they see recycling as money and they get into the routine of using the same return point,” concluded Abdul Majid. “In Scotland, we’re all small stores in the heart of our communities that people pass by on their way to wherever they’re going. It makes sense for them to come into our stores, getting rid of the bottles and then continue. The potential is huge.”