Stakeholder Trends and Insights

A Tale of Two Crises

We had a very interesting finding from our Eco Pulse 2015 study that took us by surprise: the percentage of people who said they had stopped buying a product based on the environmental reputation of a manufacturer increased dramatically from 11% to 33%. That’s pretty significant, especially when you consider this same question has been asked for nearly a decade and the percentage has always been around 12%, give or take a few percentage points.

By Jim Lyza | Published 8 years ago | About a 4 minute read

This change showed up in our data right around the time two big “sustainability scandals” hit the news: Chipotle and Volkswagen. Now that some time has passed, we wanted to know about the lasting effects on these two companies.

Full disclosure: I like Chipotle and eat there occasionally. I’ve written about Chipotle before, as have a few of my colleagues. I like to follow Chipotle since they have been very vocal about their sustainability efforts. On the other hand, I don’t own a Volkswagen and can’t recall ever driving one.

Chipotle is actually dealing with a number of crises: pork protocol, the “Chubby Chipotle” ad campaign from a lobbying group, and last but not least, the E. coli outbreak. By any firm’s standards, this is an unbelievable run of bad luck. Not surprisingly, the first quarter results show sales down 30% and a stock price down 36% over the last six months.

Volkswagen, on the other hand, was caught “cheating” on emissions tests with software that could reduce emissions only during testing. That affected 11 million vehicles, of which 600,000 were located here in the U.S. In essence, Volkswagen lied to consumers, government officials, etc. And Volkswagen suffered: sales were down 25% in November, following a stop-sell order on models under investigation (interestingly, however, sales figures showed a slight increase for Volkswagen in October, the first full month after the scandal broke). Sales declines continued – the questioned models accounted for 20% of sales pre-scandal. But as of last month, executives and investors seem to believe the worst is over, noting recent increases in the stock price, and slowing sales deficits.

Compare that to Chipotle, where some analysts believe a sales recovery won’t take place until 2018. It is still bad for Volkswagen, but it doesn’t seem to be in the same league as Chipotle. Why the difference?

Obviously we are talking about two different types of products: a fast food commodity with a meal value generally around $10 vs. a durable good priced in the tens of thousands of dollars. Certainly frequency of purchase and price influence sales, and can probably explain some of the difference.

But beyond that, the two products affect us differently on a personal level. Food, along with products like cosmetics or skin care lotions, remains very personal for a lot more of us, and can have a much greater direct consequence. If you’ve ever suffered from food poisoning, you’ll remember that pain for some time and avoid eating/shopping wherever it was that made you sick. And that will make you think the food isn’t as healthy/sustainable as you once thought.

Conversely, people often rationalize their impact on the environment with their home or cars as insignificant in the big picture: “Oh, a few extra molecules of nitrogen oxide isn’t going to affect the world or me all that much. Millions of cars do it each day, what’s the difference if I put a few more in the air?” So the Volkswagen scandal is far less personally punitive than Chipotle’s.

And Chipotle is far more vocal about their sustainable efforts. If you build your brand on sustainability, you better take care not to damage that reputation. Volkswagen isn’t known as much for sustainability, so their brand may end up taking a smaller hit overall than Chipotle.

Fair or not, it doesn’t matter. Consumers are taking greater notice of corporate lapses in sustainability, and punishing companies as they see fit. How consumers might react to a sustainability scandal at your business will depend on how personal your product is to them, and how much you’ve invested in a sustainability position.

This article was originally published on May 25, 2016 on the Shelton Group website.