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January 31, 2008

Demand Drives GMA Sustainability Initiative

John Davies, Lora Cecere
AMR Research Inc.

Sustainability initiatives are taking on greater urgency for consumer products companies as consumers, retailers, non-governmental organizations (NGOs), and their own employees push for an increased focus on environmental and social issues. We recently attended the Grocery Manufacturers Association (GMA) first annual Environmental Sustainability summit to find out what a difference a year makes.

Back in the summer of 2006 Audra Karalius, vice president for environment and safety at the Sara Lee Corporation along with a small group of other consumer products executives came up with the idea of a platform for companies to discuss and benchmark sustainability initiatives. While most companies had some form of program in place, this team wanted to create something that would “go beyond compliance.” In early 2007, the GMA collaborated with Deloitte Consulting LLP to understand the key drivers and trends for their industry.

The GMA is a trade group representing the $2.1 trillion food, beverage and consumer packaged goods (CPG) industry. In welcoming a packed ballroom of attendees to the conference, GMA President and CEO Cal Dooley conceded that when the event was being planned they expected around 200 attendees. With over 600 in attendance and more turned away due to space limitations, Cal noted that the summit was just one tool and that sustainability was now one of the top four initiatives for the organization.

From demand signals to open-source initiatives

Gene Kahn, vice president and global sustainability officer for General Mills, kicked off a panel comprised of senior representatives from Wal-Mart, Safeway, and SYSCO by imploring that “if all we do is focus on our individual sector opportunities, we can’t solve the problems we face.” Matt Kistler, senior vice president of sustainability for Wal-Mart Stores, noted that Wal-Mart shouldn’t be considered a green company and that its sustainability journey only began two years ago. He was joined by Safeway’s Joseph Pettus (not shy at all in laying claim to the title of greenest grocer in the United States) and SYSCO’s Larry Pulliam, who leads global sourcing and supply chain for the $36 billion foodservice company.

Obviously, one of the biggest effects these companies have on consumer goods manufacturers’ sustainability initiatives is their sheer scale of operations and their purchasing influence. No one should doubt that they are exercising this influence as they commit to selling greener products and reducing costs across their extended supply chain. But these companies are also doing something that has received much less focus-they are sharing the details of their programs for others to evaluate and adopt. This is usually only seen when companies attempt to influence an industry standard, but that’s not the case here.

Wal-Mart has publicly stated its goal to reduce packaging by 5% by 2013. Historically, gaining insight into the world’s largest retailer’s initiatives and metrics would require something similar to national security clearance. However, in this case the company is making its packaging scorecard available to any interested party. To help suppliers and packaging vendors come up with new ideas, it is also hosting a packaging expo to help the industry share best practices. The results of changes in something as seemingly simple as packaging can be astonishing. General Mills found this out when it reduced the thickness of metal used on the easy-open ends of Progresso soup cans. Its efforts will save them 358 tons of steel per year.

SYSCO’s Pulliam described their integrated pest management (IPM) program, which promotes the protection of environmentally sensitive growing areas, soil and water conservation, and the prudent management of crop pests and herbicide use. The IPM program’s goal is to use pesticides only to the extent necessary and, when necessary, to use only those that are environmentally friendly. Using IPM practices, participating suppliers reported the avoidance of more than 300,000 pounds of active ingredient pesticides during the year. Much like Wal-Mart’s packaging scorecard, SYSCO has made the details for this program available to anyone upon request. The openness and transparency that companies are bringing to their sustainability efforts is unique, but even more exceptional is their willingness to openly extend their leadership efforts across their entire value chain.

Making consumers environmentally sustainable

While there are small indicators that consumers are becoming more aware of environmental and sustainability issues, their spending hasn’t kept up with their rhetoric. One of the more interesting presentations at the conference came from Dr. Len Sauers, vice president for sustainability at Procter & Gamble (P&G). Dr. Sauers described a new category of product being developed by the company called sustainable innovation products (SIP). To be considered, the product must demonstrate a meaningful reduction in the environmental footprint per use (greater than 10%) compared to a previous or alternative product. In addition, there can be no trade-offs for the consumer. This means that a SIP can’t cost more and can’t compromise product performance. The company has established a goal of developing and marketing over $20 billion in cumulative sales of sustainable innovation products.

While many consumer studies have shown that purchasing choices are based on economics (e.g., lower prices), Dr. Sauers cited a recent survey where 50% to 70% of respondents will buy an environmentally friendly product if all other parameters are met (such as cost and performance). P&G believes it can capture a large portion of this market through its SIP program. It also believes that the impact will be substantial.

For a laundry detergent such as Coldwater All, the product has met the same performance criteria as hot water detergent with no trade-offs. If every household in the United States switched to cold water for their laundry, there would be a reduction of 3% of total household energy consumption. From an environmental perspective, this translates into 34 million tons of CO2 not released into the atmosphere. But if a consumer doesn’t care about the environment, then they’ll at least be happy with the $63 per year savings on their utility bill, essentially making the detergent free.

Get to know your favorite NGO

In addition to understanding how sustainability will affect the consumer product supply chain as well as the purchasing choices of a more educated consumer, the conference sessions also highlighted a new set of partners for consumer products companies to consider. These new potential partners are NGOs.

Throughout the conference, several of the panels included representatives from NGOs whose common theme was the need for a scientific approach to the issues where the industry can have the greatest impact. Representatives from leading NGOs stressed that success will come from implementing programs that have clear goals and metrics. This type of approach should help ensure a greater number of partnerships as a result of working toward a common goal.

In his keynote speech, Peter Seligmann, the founder and CEO of Conservation International, recounted how it was only after many diving trips and ecological excursions with Rob Walton (scion of Wal-Mart’s Sam Walton) that he managed to get an introduction to Lee Scott, the retailer’s CEO. His message to Mr. Scott is the same one he provided for all of the other attendees at the conference as they consider their sustainability initiatives, “it’s an opportunity for you to lead.” Are you taking that opportunity to lead?

John Davies is Vice President of Green Research at AMR Research, Inc. Send an email to John at jdavies@amrresearch.com.

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