January 31, 2011

Wal-Mart Plays With Our Food

Every week, 140 million people — about the population of England and Germany combined — shop in a Wal-Mart store. Soon, all of these people will be eating healthier, and the environmental impact of their food will be lessened.

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That's because in recent months, the world's largest grocer (and company) has started to fundamentally change the food on its shelves. Wal-Mart's recent announcements continue a five-year campaign to green the supply chain, but they add in some interesting new twists as well. The entire agricultural sector, and everyone who, well, eats, will feel the ripples of these moves.

Some of Wal-Mart's initiatives increase profitability while hitting sustainability goals; for others, the societal benefits are real, but the business benefits are not as clear, at least on the surface.

Three initiatives in particular demonstrate a strategic focus on food sustainability.

(1) In October, Wal-Mart announced that it would double the amount of locally-sourced produce on its shelves. There's some legitimate debate about whether shortening distances alone really reduces the environmental footprint (a fascinating new study says that cutting back on meat is far more effective in lowering impact than buying local). But Wal-Mart says the initiative will reduce spoilage and increase shelf-life. Those changes, by reducing the total amount of food needed, will certainly reduce overall environmental impacts throughout the value chain.

As is the case with most of Wal-Mart's sustainability initiatives, this one fits the company's mission and strategy perfectly. It will reduce environmental impacts, but also reduce logistics and supply chain costs (in part because what's noticeably absent from this announcement is anything about increasing sales of organic food, which usually costs more). Wal-Mart can pass on these operating savings to customers, so it all fits nicely within the company's normal business model.

But some more recent announcements are not as clear-cut on the business side.

(2) Last week, Wal-Mart said it will both lower the prices of fruit and vegetables (saving customers $1 billion) and reduce the amount of saturated fat, sugar, and salt in its private label products. On the latter point, Wal-Mart was not the first to the table, with companies such as Kraft and Pepsi setting similar goals last year.

It's more of a stretch to fit this announcement neatly into a sustainable/profitable business framework. The sustainability benefits are real — on the green side, reducing ingredients like sugar should have sizable ripple effects up the supply chain in saved energy and water. The business benefits are in there also, but are fuzzier.

Improving health of course fits a social goal, but it also demonstrates caring for your customers, which can drive loyalty, sales, and brand value. It's also not purely cheeky to suggest that keeping your customers alive longer, and healthier, will help your bottom line.

(3) The third recent announcement falls much more clearly in the pure corporate social responsibility world. In a fascinating display of smart philanthropy, Wal-Mart is helping the hungry by helping food banks lower their energy bills. The company donated $2 million to 16 food banks to, in the company's words, "upgrade their lighting, refrigeration or heating and air conditioning with equipment that performs better, uses less energy and costs less to operate."

Wal-Mart estimates annual energy savings of $625,000, which will buy 300,000 more meals every year from now on. The $2 million donation is in reality dwarfed by Wal-Mart's own $2 billion of cash and in-kind donations to reduce hunger. But I hope that this extremely clever model of philanthropy — where you give a gift that keeps on giving — will take hold even more. Lowering the footprint and operating costs for non-profits is pure win-win.

In short, as is always the case, sustainability initiatives do not fit neatly into one box within a company. Are they for social good or to make money? The answer is, invariably, yes. Again, pressing its supply chain to do more, faster, is what Wal-Mart has always done, but in recent years the pressure has been focused on sustainability. All these food initiatives expand on that approach, but also show Wal-Mart "walking the walk" and finding opportunities for smart philanthropy to round out the story. It's a robust strategy for covering many angles on the sustainable food movement.

The benefits to all possible bottom lines are substantial. If Wal-Mart and the other companies in its supply chain succeed in reducing fat, sugar, and salt in food; improving access to food for the poor; and sourcing it locally and using less energy to do so, both the planet and its inhabitants will be healthier.

(This post first appeared at Harvard Business Online.)

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Comments

On May 17, 2011 4:53 PM, Independent Insurance Agent in Cincinnati said:

Hats off to Wal-Mart! I am sure that after the marketing debacle of using inferior materials, from Third World countries, that are dangerous to the health of consumers, this move will assist their damaged image. I feel however, that outreach to enough major companies of the world to accomplish Global Greening on a far greater scale is absolutely not going to happen in this lifetime. And since the bottom line for most companies is the most important thing I feel that this must be regulated from a higher source of authority if major progress is to be quickly made. Good idea Wal-Mart but to make a GREEN DENT will take a lot more than you.

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