Wal-Mart’s 15 questions to suppliers on sustainability

Recently, Wal-Mart has sent a questionnaire to all their suppliers, including for food items, asking them to give answers to 15 questions about they actually do about sustainability.

I like this questionnaire, because it is simple, practical and straight to the point. Suppliers who have difficulties to figure out the answers definitely have quite some catching up to do, because this is not going away.

This is the first step to impose a change towards sustainable products, and we can expect that this document, although only the beginning, will soon become the standard for retailers, and therefore to industry. I believe that their approach will be much more effective than all the partisan talk that seems to create more division than help create a comprehensive plan for the general interest.

I recommend reading this article from GreenBiz, which explains quite well what the Wal-Mart questionnaire will concretely mean for suppliers.

Retailers take the lead in sustainability

Sustainability is a bit like quality: everyone talks about it but few give a clear definition when it comes to practical and concrete specifications. Just as importantly, leadership is badly needed to transform the talking into effective action.

The future is in our handsAs long as the lawmakers remain slow to bring up the change and the clarity to give clear directions, we will need the leadership of some of the most influential players in consumer markets to get things moving.

Even environmental organizations and sustainability bodies have some difficulties to agree with each other. For example Greenpeace does not seem to think that the guidelines from the Marine Stewardship Council offer solid enough guarantees that products brought to market according to these guidelines truly are sustainable. Clearly, this is an area in continuous evolution and the ideal concept is still in the making.

The consumer themselves are both still under informed as well as overwhelmed by all sorts of contradictory messages to know clearly which choices to make, therefore some decide of what to buy either based on philosophical or on financial reasons.

Similarly, many businesses are trying to find their green way as they can, but there again the lack of a strong regulatory frame and the uncertainty of the return on the green investment do not help them. The result is that, although the awareness about sustainability among businesses has grown substantially over the last few years, many companies have taken rather timid steps so far, limiting their actions to the least costly possible and the most PR and marketing-driven. They claim to go green, they communicate a lot about it, but the progress is slow.

Yet, some companies take more initiative, show leadership and push to make the whole supply chain evolve to sustainable production systems. A very active sector in this area is the retail. Retailers in the UK such as Tesco or Waitrose, in Canada with Loblaw’s and Overwaitea Food Group, and of course especially Wal-Mart in the USA have definitely made their choice. They clearly understand that the future cannot be anything but sustainable and they are demanding that their suppliers now come with products that meet the requirements of tomorrow. Last month Wal-Mart demanded from all their suppliers to “develop comprehensive programs to promote sustainability and transparency – or else contemplate a future without Wal-Mart as a customer” (read article).

Tesco is now indicating the carbon footprint of milk products on the labels (see article “Environmental performance on food labels”); Waitrose, Loblaw’s and Overwaitea are going for sustainable fish products, adopting for example the SeaChoice specifications as their guideline. Wal-Mart stores have already implemented a number of measures to reduce their carbon footprint by reducing the energy consumption, and they have already have made some of their suppliers introduce different product presentation. For example, they were the first to demand laundry detergent to be more concentrated and packed in smaller containers. This saved water, it saved energy used to transport useless water, and it saved plastic used for the jugs and for the pallets on which the product was transported. Today, concentrated laundry detergent in smaller jugs is the standard. Without Wal-Mart pushing for the change, we probably still would use the old product in the old packaging.

Copyright 2009 The Happy Future Group Consulting Ltd.

Ownership of food: the seeds of future conflicts

From an agriculture that mostly was producing locally for a local market with a straight forward production chain, the organization of food production has become more complex and structured over time. As we moved towards always more integration, traceability and globalized markets, the roles and bargaining positions of the different actors has changed.

bargaining power evolves

Facing the possibilities of more food riots in the future, if we are not in a position to make food affordable for all, we certainly can expect to see new power struggles emerge.

If we place ourselves in a scenario of food shortage, it is normal to assume that the power would be in the hands of whoever owns the food. But who is the owner, or better said who is actually in charge?

Is it the retailer? Is it the farmer? Is it the owner of the land on which the crops are grown? Is it the futures contract trader? Is it the seed supplier? Because without farmers, there is not much food in the stores; and without seeds, farmers cannot grow much food, and without food, no futures contracts to negotiate.

In the same way, who should decide where to the food would go? Does it belong to the country and the people who produce it, or does it belong to a corporation that prefers to sell it abroad? In a situation of shortage, this could lead to serious conflicts.
Corporations look primarily at markets and try to maximize their profit. That is their mandate.
Governments have a different look at things, as politicians want to have happy citizens, so that their position of power can continue. All they want is avoid social unrest.
Potentially, this can lead to new regulations and even to the possibility of nationalizations if companies and governments do not agree.

To get back to the example of seeds and genetics, there is a growing responsibility resting of the shoulders of breeding and genetic engineering companies. Not so long ago, let’s say a bit more than a century, there was much more genetic diversity in agricultural crops and farm animals. This diversity has shrunk quite significantly and we face the potential risk of not having the right genes available if we were to face a natural situation that would eradicate plants or animals as a result of inability to resist and to adapt to the new conditions these organisms must deal with. The genetic pool used to be a collective asset, but it has moved more and more into a private asset. About this, too, one can wonder who is in charge and who has ownership, and what could the consequences be.

As long as we are not facing any severe supply unbalance, the current situation will probably linger as it is a bit further, with the players having the most power trying to grow their position and influence other deciders to their advantage, but this kind of consensual vagueness about who is the owner of food will sooner or later cause some major shake-up.

Copyright 2009 The Happy Future Group Consulting Ltd.

Environmental performance on food labels

Here is an article about British supermarket chain Tesco starting a project on labelling the carbon footprint of milk products.

carbon footprint of your food at a glance!This is quite an interesting development, as it would allow consumers to make their purchase decision based on the environmental impact of what they buy. It also would make retailers and producers more aware of their own business decision, be it for sourcing products or choosing their markets.

Of course, an other very important next step will have to be consumer education about carbon footprint numbers and how to read them, but this learning process was also necessary with nutritional information.

I see this as a very good initiative to identify and segregate sensible products from the not so sensible ones. Very likely, we will see more labelling about environmental information in the future, and not just for food products, but all consumer products.

The consumer must be the focus point of value chains

The shopping cart: your ultimate target!Regardless which link in the value chain you represent, it is essential to always consider the “big picture”. In this picture, a key element is the end of the chain: the consumer.

As the final user, the consumer will always drive the activities and the profitability of the whole value chain. Although the interaction is left over to the retail sector, the consumer’s quality requirements will trickle down along all the links of the chain. If I take the example of meat for instance, what the consumer wants will have implications all the way back to genetics, and breeding companies know how critical it is for their survival to be able to anticipate these needs, as choices have to be made several years in advance. If you are a breeder, your end product is the consumer product, not just the animal that you produce. If you are a feed company, you do not simply produce feed for the farmer, you are an important element in the acceptance (or rejection) of your direct customer’s product. Your feed becomes eventually the consumer’s choice.

Understanding the consumer is what makes successful value chains, and there is very little acceptable concession from that statement. Many companies fail because they do not listen or understand the consumer market. Pretending to do so, with help from new product development, sleek communication or fancy marketing concepts may help for a while, but it will not stand the test of the consumer. This is why commodities always sell at market price: they do not represent anything to the consumer; therefore, the only differentiation with your competitor’s commodity is the price.

Your product will flow towards the consumer market, and your information must originate from there as well. When building a value chain, always spend time understanding the final link, because it is the strongest and most powerful link!

Copyright 2009 The Happy Future Group Consulting Ltd.

Value chains are a great way to develop a niche

In the food production world, just like in other business sectors, there are been two major successful strategies.
One is to produce a non-differentiated commodity at the lowest cost possible. The number of units compensates what is lost in margin per unit.
The other is to produce a limited and controlled volume, and to market it to people who will pay a premium for it as they see an added value in the product.
So far, nothing too revolutionary here.
Generally, other strategies seem to have failed, either because the niche started to expand too much and was losing its specificity. The product becomes something of a better commodity, but not a specialty anymore. More players start to enter the niche and very quickly, the margin per unit drops and so does profitability. The deathblow generally comes when people start to try to counter this decreasing margin by cutting costs in the wrong places, quality being the most obvious.
The mass commodity producers, who try to create an artificial differentiation, by creating an illusion of specialty, cause another type of failure. This marketing tactics usually fails because the difference is mostly an illusion and the customers realize that quickly.

Value chains are very useful for smaller producers who want to market a good superior product.
Often, they are local producers with limited resources. They know how to produce well, but they miss the marketing arm or the industrial arm of the value chain that they are in.
On the other hand, also at the local level, there are other businesses that have the other links of the chain, but that have no production of their own.
When these players join forces and truly collaborate to offer to the right type of customers the type of product that is right for them, the value chain can become very successful. In a previous article, there is a presentation of the Angus Beef story, which also started in such a way.
In order to be successful, a value chain needs a number of basic elements.
The product must indeed differentiate itself by recognizable and superior physical characteristics. Over time the mystique will be created, but do not expect to sell hot air for very long.
The partners need to indeed be partners and play together. This is a critical part of such a joint venture. The worst thing that can happen is a lack of commitment, or worse one of the partners trying to force his own agenda before the common interest. The most successful partnerships come from a balance of power between the parties involved, and also by the necessity of interdependence, as they all should miss – and not be able to easily replace – the other parts of the puzzle.
Another key element is the will to pursue, as very often, and mostly in the early stages, the progress will meet many setbacks. This discipline needs to be applied and someone must fill this role, to constantly enforce the quality specifications and all agreements that are need and made to make the value chain succeed.

Copyright 2009 The Happy Future Group Consulting Ltd.