With the US economy in turmoil, Wal-Mart, the nation’s leading retailer boasting more than 144 million customers per week, is taking on a new leadership role. In a country where about one person in three is considered obese and 47 million people are without healthcare, the company is taking a unique stand in educating both its consumers and suppliers.
by Rahilla Zafar at Insead
Five years ago, it would have been unheard of for the company’s top executives to be talking about reducing the firm’s carbon footprint, cutting transportation costs, reducing excess packaging, creating more transparent supply chains and starting initiatives to provide credit to millions of low income Americans who normally would not have access to any.
More and more companies are finding that their efforts to reduce their carbon emissions and become more environmentally friendly have led to increased profits.
At the 2008 Net Impact North American conference held this month at Wharton Business School, Matt Kistler, Senior Vice President of Sustainability at Wal-Mart, spoke about his company’s role in shifting consumer culture.
The story began 10 years ago, while Kistler was managing coffee sales at Kraft Foods. A group of Yale University students had begun requesting that their campus food service serve only 'socially-conscious' coffee.
Kistler admits that his intention at the time was to add a product to the portfolio that consumers wanted and not necessarily do something for the planet but in the process of doing that, he discovered much more.
“I got thrust into working with different NGOs (non-governmental organisations) and people like Paul Rice, the founder of Transfair USA, enlightened me,” says Kistler.
In 2004, after joining Wal-Mart, he raised the question if the company should be thinking about sustainability in packaging. His insights led to company executives deciding to hold the retail giant’s first ever meeting on sustainability.
“Our goal is to take care of the customer and such initiatives help people both save money and live better,” he says.
It was not long ago that the green movement was perceived as being an alternative lifestyle rather than something mainstream. Now, many Americans are beginning to recognise that what they thought to be the norms of everyday life are unsustainable.
Kistler says that at Wal-Mart, it was not just about the company making changes like working on supply chains for responsible sourcing and using more fuel-efficient vehicles, it was also about ensuring that their two million employees understand that there are ways to live better.
“We started a personal sustainability project to get associates engaged. It is a voluntary program first launched in the United States which has prompted thousands of pounds of weight loss, more employees biking to work and the company saving hundreds of thousands of kilowatts in energy,” says Kistler.
The change also brought to the attention of employees things they normally would not have given a second thought about. For example, one employee noticed that a vending machine had an unnecessary light bulb in it. After suggesting to management that the bulb was wasting energy, the company removed the bulbs from all stores nationwide, saving the company one million dollars a year.
Kistler says the company can go further in guiding customers in what they should buy, but the question remains: how far can it go?
“The chairman of Patagonia, an organic clothing retailer, says we should work with suppliers to change some of our product ingredients. For example, high fructose corn syrup is part of the ingredients of some of the products we sell. Wal-Mart could ask these companies to shift to cane sugar, which many believe to be a healthier alternative,” says Kistler, who admits the company is not quite there yet to make such a push.
However Wal-Mart has worked with suppliers to eliminate red and green lighting on devices such as televisions.
“It is staggering the number of power plants that would be erased from the grid from just a small decision like that. Thinking like that is simple and our company plays a unique role in making those changes happen,” he explains.
The biggest roadblock for companies is making many of these changes in the current economic situation.
“We are willing to pay more for products coming from companies who show that their price increase is related to making investments to become more fuel efficient and taking better care of their workers. But do not bring us higher costs that are not justifiable,” says Kistler.
“We are going to make some mistakes. This is a new area, there are no books written telling us what to do. It is okay to take a prudent risk as long as the mistakes are not long lasting,” he adds.
For John Brock, CEO of Coca-Cola Enterprises, sustainability has taken centre stage at the company.
“When Wal-Mart, our largest customer, says we are going to have a sustainability conference and want all CEOs to come, we show up. The commitment of companies such as Wal-Mart and (UK retailer) Tesco has been remarkable; institutionally this is no longer niche, it is mainstream” says Brock.
Brock adds that the game has changed tremendously.
“We are working with NGOs as partners, when five years ago none of us would have been caught in the same room together. We are all committed to the same end result. There are some disagreements over how we get there, but sustainability has become the core of everything we do.”
One of the company’s long-term goals is to sell a litre of beverage without a single drop of water going to waste. Today, it takes 1.77 litres of water to make one litre of Coca-Cola. When government officials in Georgia, where the company is headquartered in the US, asked the beverages firm to reduce water usage by 10 per cent, the company was able to cut it by 30 per cent.
But in the current economic downturn, many believe that while consumers are becoming increasingly aware, they are not willing to pay more for change.
“Americans are keenly interested, but will not sacrifice formula and an increase in price. It is our responsibility to figure out how to deliver,” says Brock.
Many believe much will now depend on the leadership provided by the new administration.
According to Paul Herman, founder of HIP Investor, a San Francisco-based company which advises investors and corporations on how to be more sustainable and profitable, the United States could be the world’s leader in producing the technology for alternative energy.
“That is something possible in one presidential term. Today for solar energy, it is a competition between China, the United States and Germany. If there was a government incentive to invest in it, large corporations like General Electric would. China has invested 586 billion dollars into its infrastructure, which will likely include investments in clean energy,” says Herman.
The best role for the United States government would be to set the efficiency metrics and rewards for outcome, but not prescribe what process or technologies companies should use, Herman says.
“For example, when the government subsidised the price of ethanol, it put pressure on corn prices. A better approach would be when the government set fuel efficiency standards, which they have not updated,” explains Herman, who believes the top companies in the US could be doing much more.
“Of the S&P 100, a third are reporting sustainability data and actively integrating that within their management systems. Only ten of the 100 are actively educating Wall Street and just a few are having proactive conversations with shareholders on this topic,” says Herman.
Cross-sector discussions also remain limited and it is yet to be seen if a government push will be enough to bridge the divide, or if it will take another crisis to get companies to shift from self-interest towards a common interest.