Consumer companies from restaurants to beverage makers are gradually turning to eco-friendly alternatives to single-use plastics — a shift that is starting to make sense from a financial perspective as well as an environmental one.

A host of technologies are making it possible to manufacture food and beverage containers using less water and drinking straws made from seaweed. Companies working with startups to scale up the items include Pernod Ricard SA and Marriott International Inc.

Companies' investments in environmentally friendly packaging are still modest at the moment, but investors are demanding them more than they were a few years ago, Wil Schoenmakers, global head of consumer products and retail at PA Consulting, told S&P Global Market Intelligence in an interview.

Previously, investments in sustainability were "a little bit niche," Schoenmakers said on the sidelines of the annual summit of the Consumer Goods Forum (CGF), which was held in Vancouver, British Columbia, June 11-14. "It's now mainstream, [investors are] expecting similar or better returns. They're holding companies and retailers accountable for your sustainable strategies and really using it as a measure for your worth as a company as well."

Consumers, too, are increasingly demanding sustainable alternatives and often choose which products to buy based on a company's stance on environmental issues, said Mark Lancelott, PA Consulting's director of business design.

Knowing the market

The amount of plastic in the environment, particularly the world's oceans, has swelled in recent decades, in part because of discarded packaging for food and consumer products. In response, laws banning single-use plastics have appeared in jurisdictions ranging from major U.S. cities to the EU. Companies whose products contribute to the waste have made commitments aimed at reducing plastic pollution: Swiss consumer giant Nestlé SA has said it will make all of the packaging it uses either recyclable or reusable by 2025, while Pernod Ricard's commitments include phasing out single-plastics in its packaging and promotional items.

French packaged foods producer Danone and U.S. fast-food giant McDonald's Corp. also wants to source all their packaging from sustainable sources by 2025 as part of a global initiative signed by Coca-Cola Co., Walmart Inc. and other consumer companies. Meanwhile, U.S.-based coffee chain Starbucks Corp. is trying to cut the use of 1 billion plastic straws per year across its global footprint through straws made of alternative materials and strawless drink lids.

Many companies have partnered with startups that have refined eco-friendly packaging options. In some cases, these alternative products are cheaper to produce than plastic ones.

Sweden-based Pulpac created a method to compress paper fiber to make plastic alternatives, including single-use pods. Source: Pulpac AB

Sweden-based Pulpac AB offers its technology to manufacturers to produce salad bowls, food trays and hangers. Its method uses paper pulp, a cheaper raw material than plastic. Pulpac manufactures packaging items, including single-use pods, that are 20% to 40% cheaper than their single-use plastic counterparts, the company claims. Pulpac's technology also molds the paper products without water — a contrast with traditional methods, which tends to be water-intensive.

Pulpac CEO Linus Larsson said his company has customers spanning the restaurant, grocery and retail industries, but he declined to name them, citing nondisclosure agreements.

"Sustainability has always been expensive and to make change happen, you need to make it cheap," Larsson said during a panel at the CGF's summit.

Another startup, New York-based LOLIWARE LLC produces straws made from seaweed. The company is set to deliver 2 billion straws by next year to its partners, which include Marriott and the U.S. arm of Pernod Ricard, Loliware CEO Chelsea Briganti said in an interview.

As plastic bans spread, consumer goods companies are increasingly looking to paper straws, which cost about 4 cents to 8 cents per straw. Loliware's straws currently cost more than that, but the company expects that its seaweed straws will fall in line with that price by the end of 2020, Briganti said.

From an environmental perspective, Loliware's straws are "better because we're not using trees and [they] last for 18 hours, not 40 minutes," Briganti said.

Loliware is also pursuing more partnerships in an effort to scale up the company. Briganti plans to announce deals with a fast-casual restaurant, coffee shop, packaging company and a cultural institution later this year before rolling out straws to global fast-food and coffee brands in 2020.

"I have so much demand, but right now, we're targeting a market that is OK paying a little bit more as we scale up," Briganti said.

Striking a balance

Pernod Ricard, which makes Absolut vodka and Chivas Regal Scotch whiskey, is aiming to replace single-use plastic straws the company sources for events such as concerts and festivals. It is also encouraging the bars and restaurants that serve the company's spirits to use alternatives to plastics, said John Tran, Pernod Ricard USA's director of sustainability and responsibility.

Companies generally recognize sustainability costs more, Tran said in an interview. But even with the extra cost, there is an opportunity for companies to realize growth as a result of their environmentally friendly investments. In part, Pernod Ricard is betting that using the straws could attract customers who are sensitive to brands' environmental effects, providing a boost to sales over time.

"It's kind of the sweet spot and balance between making sure we are authentic to our core beliefs. Then, at the end of the day we are a business, so making sure it's a sustainable business at the same time," he said.

Marriott did not respond to a request for comment.