Green product price premiums turn off cash-strapped consumers

Almost half of UK consumers are unwilling to pay the price premium associated with many green and ethical products, a situation that is likely to worsen as the credit crunch continues to affect consumer spending.

According to a major survey of 4,000 UK consumers from consultancy PricewaterhouseCoopers, demand for green and ethical products has grown significantly, with the proportion of shoppers buying Fairtrade products having risen from 20 per cent three years ago to 50 per cent now, and organic food purchasing having increased from 22 per cent to 43 per cent over the same period.

However, this £300bn sector still accounts for just four per cent of the UK retail market and the survey found that the high prices associated with fair-trade and organic products remained the main inhibitor to further growth.

The report undertook a comparison of 75 items at the UK's top six grocers and found that the average price premium for environmentally and ethically-friendly products stood at 45 per cent. Almost 50 per cent of those shoppers surveyed said they were unwilling or unable to pay this premium, with respondents claiming that on average they were not willing to pay a premium in excess of 20 per cent for greener alternatives.

They also claimed that the unavailability of many alternative green products was also impacting demand with 60 per cent of respondents claiming they buy fewer green or ethical products than they would like. The PwC investigation found that only 60 per cent of basic grocery product had sustainable alternatives, falling to 40 per cent for some sub categories, such as clothing and non-food items.

The findings are likely to be seen as a major blow to green and fair trade products, particularly at a time when retail analysts are predicting that the credit crunch and high interest rates will lead to curtailment of consumer spending.

However, Mark Hudson, UK retail and consumer leader for PwC, insisted that rather than back away from the sector retailers should instead redouble their efforts to provide green and ethical products. "This is about securing business for the future," he said. "Unlocking the demand – and the willingness to pay a premium – will require innovation, improved communication, bold strategic moves and greater clarity."

The report predicted that the price premium for sustainable products is likely to fall as the costs savings associated with reduce energy use, packaging and resource requirements filter through to the retail price. "This turns the perception of sustainable products on its head, and as consumer understanding of this develops, expectations will change," the report said. "Consumer goods companies and retailers will need to ensure their products take on these environmentally sustainable attributes or be superseded by others that do."

Erica Hauver, leader of PwC's sustainability and climate change practice, said that the combination of consumer demand, resource pressure and government regulation meant that retailers had no choice but to continue to increase their support for ethical and environmentally-friendly products. "The drive for sustainability is a game changing trend," he said. "Companies who do not invest and act at an early stage will have to play catch up."