Sustainability has moved from being a buzzword in the food industry to a business imperative that cuts to the core of every organisation. But effective collaborations between retailers and suppliers can ease the financial and operational burden of this massive effort.
Elsevier Food International, Vol. 11, Number 2, May 2008
Len Lewis

In 1948, in the shadow of the opulent Chateau de Fontainebleau in France, founders of the International Union for Conservation first linked economic development with environmental awareness. Fast-forward 60 years and sustainable growth has become a business imperative and a key measure of corporate success.
Sustainability is not easily defined, according to industry observers, who view it as part of the vast corporate social responsibility umbrella and a concept that must run through the entire organisation. It demands major changes in the basic structure of the food industry in everything from agriculture to transportation and has given rise to phrases like ‘food miles’ and ‘ethical marketing’. Increasingly, it has become a way for consumers to judge where they want to shop and which products they will buy.
“If you’re going to become a zero-waste company like Wal-Mart, we’re not talking about peripheral changes. If you say it publicly you have to mean it and deliver against it,” said Jon Woolven, strategy and innovation director for IGD, noting that companies like Marks & Spencer, Tesco, ASDA, Migros, Monoprix and others have made sustainability a corporate mantra. “Manufacturers have concluded it’s important as well. But even if they haven’t, the fact that it is important to their (retail) customers has forced sustainability high on the agenda.”

Long-term plan
Profitable sustainability between all trading partners is the centrepiece of JAG (Jointly Agreed Growth), a plan for implementing long-term growth developed for ECR Europe by McKinsey & Co.
Noting that household savings rates are far higher in Europe than in the US or Japan – 10 to14 per cent compared with two per cent and four per cent, respectively, the report notes that even with growth in household consumption there is significant potential for further gains – as much as €70 billion – by driving demand. In other statistics, the report notes that the value of yearly consumption per inhabitant increased by 4.3 per cent annually in the EU to €12,700. This increase in spending for durable goods, as well as entertainment and personal care, speaks to improvements in living conditions.
In discussing the case for change, the report noted that the industry talks a lot about “delighting” the shopper but focused primarily on price as the driver for sales. In a breakdown of seven types of shoppers, it was found that 22 per cent of them made purchasing decisions based purely on price or were defined as “value hunters”. On the other end of the shopper spectrum, 36 per cent of shoppers have a natural aversion to discounting. The three shopper groups in the middle – value loyalists, uninvolved and demanding – accounted for 42 per cent of grocery spending.
Overall, the JAG framework recommends that the industry jointly develop a fact-based understanding of market trends and develop a business plan focused on growth, not of sharing the pie. As was noted at a recent ECR Conference: “It’s not the last penny that you leave on the table that determines whether or not the retail company is going to be successful. It is whether or not you work together to best satisfy the customer.
The solution is to move to what the framework cited as a “win-win collaborative mindset”. This includes focusing on fewer, better and faster innovations. Overall, innovation is about the service offered to consumers and the shopping environment. “Sometimes just a re-organisation of categories or display generates more growth than additional products.”
Overall, JAG calls for a joint plan to drive demand and generate growth in sales and profit by balancing short-term expectations with a longer-term strategy. It recommends a three-year timeframe with annual reviews of the business and a focus on joint principles and agreements between buyers and sellers for providing adequate resources, information sharing and people incentives.

Integrated growth
Many companies have already integrated the concept of sustainable growth into their day-to-day operations. One of the most extensive is from Düsseldorf, Germany-based Henkel, which has made a long-term commitment to sustainability in terms of product safety, the environment and social responsibility. As the company has stated: “We recognise the need to harmonise economic, ecological and social goals. Henkel is convinced that effective environmental protection and social progress are the foundation of lasting economic success.
“At the same time, only economically successful companies will be able to contribute to effective environmental protection and social progress. One single reconciliation of interest cannot achieve sustainable development or a sustainable society. Only continuous reassessment and an open dialogue will lead to long-term viable solutions for the company, society and the environment. […] By aligning our conduct and our business activities to the principles of sustainable development we can reinforce and expand our competitiveness in the global marketplace,” the company said.
In order to insure sustainability, Henkel has focused on a number of areas. For example, in product safety, it verifies during the research and development phase that there are no risks associated with the manufacture of their products. In raw materials, Henkel uses ingredients based on renewable raw materials and expects suppliers to conduct themselves in a way that conforms with the company’s corporate ethics.
Packaging is another part of the sustainability equation and while it must ensure that the product remains in top quality condition during storage and transport, packaging reduction and recycling is also emphasised.

Consumer attitudes
Recent research in the US from The Nielsen Co., found that more than half of consumers would give up convenience packaging if it would benefit the environment. This would include packaging designed for easy use and storage at home or packaging designed for easy transport. However, the caveat is that consumers are not as willing to give up packaging designed to keep products clean and untouched or those that preserve products to make them last longer. Additionally, one in ten consumers is not prepared to give up any aspect of packaging for the benefit of the environment, the survey said.
In other findings, Nielsen found that 40 per cent of consumers will sometimes think to look for products with less packaging; nearly 80 per cent make a point of combining shopping trips to save on fuel and two-thirds turn down their thermostats to conserve fuel.
Meanwhile, the debate over fuel conservation and reduction of carbon emissions has boosted consumer interest in what has come to be known as ‘food miles’. In fact, concern about food miles has nearly doubled among UK consumers alone over the past five years, according to recent research by IGD.
At present, about 16 per cent of consumers say that the distance food travels is one of their top five concerns about food production, up from nine per cent in 2003. “The food miles debate has helped reignite interest in where food comes from and how it’s produced. But food miles don’t tell the whole story about the environmental impact of food and drink products,” said IGD chief executive Joanne Denney-Finch, noting that transportation only accounts for an average 13 per cent of carbon emissions in the food chain.
Consequently, the company is in the midst of working with the food industry as well as the British Standards Institute and the Carbon Trust in developing a method for measuring carbon emissions and leading sustainable distribution initiatives to reduce the environmental, economic and social impact of food distribution. “The challenge to the industry is to accurately measure total greenhouse emissions, including embedded carbon and factor in other environmental and social impacts such as the amount of energy and water used or animal welfare,” she said.

The broad view
Many companies are adopting this broader view of sustainability. In a presentation over a year ago to the Forum of the Future, Tesco chief executive Terry Leahy talked about a “revolution in green consumption” noting that the economy and carbon reduction were inexorably linked and laid out plans under which the chain would cut its energy use in half by 2010.
This firm belief in sustainable growth is manifesting itself in several ways. In addition to continuing its efforts in minimising waste and recycling, the company is committed to reducing the CO2 emitted per case of goods delivered by 50 per cent over the next five years. Under this programme it is reducing the number of products that are transported by air and even labelling those that are. In fact, the company plans to develop a system of carbon labels for virtually every product it sells. “Customers want us to develop ways to take complicated carbon calculations and present them simply,” Leahy told the forum.
On another front, Tesco is engaging employees to develop green travel plans by walking or car sharing.  The company has also set up a website – www.tescocarshare.com – where employees can register to share rides and even guarantees everyone a ride home from work.
“Tesco’s phrase is ‘turning sustainable consumption into mass consumption’,” said IGD’s Woolven. “But it has become a business imperative for many companies. Wal-Mart has taken a big lead internationally and made a commitment to become a zero waste company. Marks & Spencer, Carrefour, Migros, Monoprix have all committed to sustainability and to become carbon neutral,” he said.
However, addressing the carbon footprint is not a matter for one department but something that must run through an entire company, Woolven noted. “Some people have very targeted responsibilities. But if that were all you did, you’d be treating the issue like a special project. Look at Marks & Spencer. They call becoming carbon neutral ‘Plan A’ But there is no Plan B. This is not about tweaking how you operate. It has to be built into the objectives of an organisation as they go about their daily jobs,” he said.
When the entire topic of sustainable growth was new, people leapt to the assumption that it was all about food miles – the distance products travelled. “But it’s a mistake to focus too narrowly on one thing. Frankly all stages of the supply chain contribute,” he said. “Finite resources like fish stocks, social sustainability and the economic impact on developing economies have to be factored into the broader sustainability equation.

Collaborative efforts
Given all the business challenges that face retailers every day, worrying about the broader economic impact of sustainability is a lot to ask.  “That’s why collaboration is essential. Wal-Mart is introducing its packaging scorecard to help engage suppliers and, in the UK, the Carbon Trust is sponsoring chain mapping in which you walk the store with suppliers to improve the carbon footprint.” In France, Monoprix recently launched a plan to deliver products to all Parisian stores by a rail system and replaced 10,000 truck trips by using only 30 kilometres of available rail. This, alone, saved about 280,000 tonnes of carbon, noted Anne Bordier, project manager for international business analysis at IGD.
But, as noted earlier, there are many manufacturers that are taking the initiative in this area. In the UK, Nestlé has reduced its landfill of food and packaging by 95 per cent since 2005 and is diverting one million pounds of coffee grounds to fuel its factory boilers. Procter & Gamble has a number of initiatives including the development of a 30-degree centigrade washing detergent when an analysis found that heating water was a huge contributor to the carbon footprint in the home. Innocent Drinks, a UK company, was set up with environmental goals in mind. Despite an increase in international export, the company has managed to reduce its carbon footprint by 57 per cent over the past couple of years, according to Woolven, noting that the company used the three-step approach he calls “measure, motivate and mobilise.”
“First they analysed the company and worked out where the largest carbon contributors were. They then motivated their own people on environmental issues by conducting programmes on why it was important to reduce carbon. Then, they mobilised through a series of different projects, including changing their packaging, to use 100 per cent recycled plastic and reprocessing waste,” he said.
However, lowering the carbon footprint certainly does not mean a death knell for brisk international trade, said Woolven. “Local sourcing is part of the equation and companies like Carrefour and Tesco, which has set up regional buying offices, are addressing it. But it still makes sense to import certain products. But as carbon becomes more expensive for businesses, people will have to rethink some of their location and sourcing strategies,” he said.