Case 1: Wal-Mart’s Sustainability Strategy
Q. Given the fact that Wal-Mart’s Customer’s are unwilling to pay a premium for environmentally friendly products, how is the company deriving business value from its sustainability strategy or if not, how can it ensure that it does? Ans: Wal-Mart’s sustainability strategy has further improved its already efficient supply chain, resulting in tangible benefits to the society and the environment. In the very first year of its implementation, the strategy generated more than $1B in profits. The main business values derived from this strategy are as follows: * Improvement in fuel efficiency for its logistics network: Wal-Mart reduced the fuel usage of its 7000 trucks by 8 percent by putting auxiliary power units in the rigs to stop idling engines during loading or breaks. This initiative resulted in annual saving of $ 25M and reduced CO2 emissions by 100,000 metric tons. Building on this success, logistics network set an ambitious goal to achieve 25 percent improvement in fuel efficiency by 2007.
This would save the company $75M annually and reduce CO2 emissions by 400,000 tons on yearly basis. * Consolidation in value chain: seafood network expects to reduce supplier costs through standardised packaging, reduced paper work and improved transportation efficiencies. These changes are estimated to result in $14M in increased revenue and an additional $4.3 million in profits annually. In addition, textile network considers eliminating organic cotton suppliers from its value chain and negotiating directly with farmers to drive cost down and pass on the benefit to customers. * Waste reduction and Waste minimisation: Wal-Mart used to spend nearly $16M annually to dispose plastic waste. However, sustainable initiatives helped it to reduce the plastic waste by 72 million pounds per year. This is equivalent to $28M saving a year to the company. * Reduction in energy consumption: Wal-Mart provided more that 500 of its stores with low and medium temperature refrigerated display cases and installed occupancy sensors and LED dimming capabilities. This initiative helped the company realise 66 percent reduction in energy consumption, saved more than $2.6M annually in energy costs and reduced CO2 emissions by 35 million pounds.
* Reduction in packaging cost and package size: Wal-Mart saved 800,000 gallons of gasoline and prevented over 11 million pounds of CO2 gas emissions when it replaced produce packaging on just four products with corn-based packaging. By reducing the package size little bit of its Kid Connection product line, the firm reduced the number of required containers by 497 and generated a freight savings of more than $2.4 million a year. This is equivalent to protecting more than 3800 trees and saving 1000 barrels of oil annually. * Goodwill: sustainability strategy changed the people’s perception about Wal-Mart. Earlier its reputation and image among consumers and environmentalists were declining. According to a study conducted by McKinsey, between 2 and 8 percent of consumers stopped shopping at Wal-Mart because of its environmental-unfriendly practices. It emitted more than 19.1 million metric tons of carbon dioxide annually – an amount equivalent to the pollution created by roughly 2.8 million households. Within one year itself, the strategy reinforced Wal-Mart’s commitment to society and environment by showing measurable and tangible benefits.
For example, it encouraged its suppliers to follow more sustainable fishing practices and to have their fisheries MSC certified. Q. Two initiatives described in the case benefit society and the environment but apparently decrease Wal-Mart’s profits. What are they? How could you justify them if you were the internal champion? Ans: Two initiatives beneficial to the society and the environment but unprofitable to Wal-Mart are as follows: Promote Compact Fluorescent Light (CFL) Bulbs: In an effort to drive the sustainable development by improving energy efficiency, Wal-Mart in 2006 set an ambitious goal to sell 100 million CFLs per year by 2008 from its current CFL sale of 40 million. This initiative would bring about huge positive social and environmental benefits in several ways. * Huge savings in electricity costs: if this initiative is achieved, it will save Americans almost $3 billion in electricity costs. In other words, a CFL bulb would save approximately $30 in energy cost during its life time – a huge incentive to prefer it over incandescent bulb.
* Significant reduction in carbon emissions: This initiative promises to bring dramatic reduction in carbon emission because lighting accounts for approximately 8 percent of total US CO2 output and each CFL uses 75 percent less energy compared to incandescent bulb. * Reduction in mercury release: CFL contains mercury that can leak to the environment and pose health hazards. However, the highest source of mercury in our air comes from burning fossil fuels such as coal – primary source of producing electricity in US. Since a CFL bulb uses 75 percent less energy and lasts 6 times longer, the amount of mercury released to the environment to light an incandescent bulb will be much higher than that to light a CFL. I agree that this initiative is very likely to cannibalise Wal-Mart’s own lighting business, reducing lighting aisle to 20 feet from 60 feet over next several years.
The reason is that customers would buy CFLs less frequently because it has 6 times longer life than incandescent bulb. Since, benefits to the society and the environment are very prominent and it is not selling CFLs on loss, Wal-Mart should continue this initiative. Support e-Waste Recycling: the electronics network undertook several unsuccessful initiatives to encourage people to adopt e-waste recycling approaches. For example, Wal-Mart’s ‘Box Program’, initiated in partnership with US Postal Service, HP and Noranda Recycling, offered its customers postage paid boxes to package and ship their used electronics for recycling.
Even in affluent localities, customers didn’t respond to this initiative positively. Even when the company marketed a green laptop, customers were generally unresponsive. This initiative, if successful, would provide the following societal and environmental benefits: * Reduction in health hazards: computers and other electronics contain hazardous substances such as lead, cadmium and mercury. In fact, electronic items account for nearly 40 percent of lead content in US landfills. Recycling of e-waste would reduce health hazards as it would divert e-waste away from landfills and incinerators. * Conservation of resources: Recycling e-waste would provide a steady supply of raw materials without having to exploit the nature for additional resources. Customers would also benefit because they would get the cost benefit in terms of lowered product price.
* Energy efficiency: Energy cost to mine minerals is much more than the energy cost to recycle e-waste for minerals. For example, recycling aluminium requires 95 percent less energy than making it from raw material. Although this initiative has not succeeded in changing people’s behaviour, it promises to offer a great deal of benefits to society and environment. So, Wal-Mart should continue to support this initiative by educating customers and offering creative e-waste recycling approaches.. Case 2: Sustainability at Jamie Kennedy Kitchens
Q. What are the key drivers of sustainability at Jamie Kennedy Kitchens (JKK)? Ans: JKK has very successfully integrated sustainability into its core business, activities and objectives from its inception. I would classify the key drivers of sustainability at JKK into the following categories:
Economic Benefits: embedding sustainability, under the leadership of Jamie Kennedy, into JKK’s core business has helped this restaurant achieve several operational benefits. * Increased reputation and brand image: JKK has established a unique identity within the highly competitive restaurant business because of its focus on local and seasonal foods. This uniqueness has considerably increased its reputation and brand image in restaurant business. This provides another key benefit that they have to spend less on marketing activities compared to their competitors * Increased operational efficiency: JKK has reported a gross margin before taxes of 6.7 percent which is much higher than industry average of 2.8 to 5.5 percent. This increased gross margin for JKK suggests that it has reduced its operational cost by focussing on local and seasonal ingredients and by promoting awareness of local food choices to restore cultural dignity of food. Social Benefits: Kennedy always believed that he is a part of the community and that he, through his business, should support other people in his community. Integrating sustainability into JKK has benefitted the community in several ways.
* Promoting collective well being: Kennedy, for last 15 years, has been very actively promoting collective well being of the society. For example, in 1993, he raised money for Anishnawbe Health Toronto, an aboriginal community-based health care centre. Since then, he has helped raised money for the Princess Margaret Hospital and other organisations. In 2006, he supported St. Francis Table’s program to feed the homeless. * Promoting seasonal and local cooking: Kennedy played a crucial role in reviving the cultural dignity of food and in promoting seasonal and local cooking. For example, he was on the board of directors of the Stratford Chefs School and made several guest lectures at various institutions such as Stratford Northwestern Secondary School to educate students on the benefits of local and seasonal foods. * Promoting mixed farming and locally grown produce: he was instrumental in founding The Knives and Forks Alliance, a group of chefs and farmers with a shared commitment to promote mixed farming and local produce. He also founded Feast of Fields, a non-profit organisation that created awareness about organic food and that organised annual events such as ‘Sustainability Starts with Your Local Organic Farm’ to further promote this theme. Environmental Benefits: Jamie was very committed to reduce the impact of JMM’s operations on the environment.
* Promoted renewable energy: In 2004, he used renewable energy to power his farm his vineyard and his home and became a founding member of Bullfrog Power, a non-profit organisation supporting renewable sources of energy to protect and preserve our environment. * Protected endangered species: In 2002, he formed ‘Endangered Fish Alliance’, a partnership with other chefs, restaurateurs and conservationists to protect the endangered fish by not cooking them. In 2005, he supported Canadian seafood boycott to protect the seals. In 2006, he rallied and raised fund to support Mr Schmidt, a local farmer arrested for selling unpasteurised milk.
Q. Which growth option would allow Jamie Kennedy Kitchens to grow most sustainably? Ans: It is an exciting and challenging time in the history of JMM because these growth initiatives are likely to produce both new opportunities and new constraints. JMM has been very successful so far with its overall profit margin almost double the industry average, providing a huge financial incentive for it to grow. However, these growth plans are likely to disrupt the harmony between its values and cooking style. The restaurant should not lose its core values i.e. its focus on local, seasonal and organic ingredients and continue to offer unmatched dining experience to its customers at affordable prices. In my opinion, Closed-Loop Cuisine option is the best strategy to grow JMM sustainably for the following reasons:
Consistent supply of ingredients at reduced cost: controlling the value chain by itself would reduce the dependency on farmers for local, seasonal and organic ingredients and increase the quality of the ingredients. In addition, it would reduce the cost of ingredients procured as value chain would be shortened.
Greater positive impact on the consumers and society: farm land, apart from growing ingredients, could also be used for multiple purposes such as organising educational sessions on promoting seasonal and local food, inviting consumers to experience the facility and different processing and canning units, supporting and educating local artisan producers etc. These initiatives would further strengthen the relationships that existed among its various stakeholders including consumers, farmers, staffs and members of the community.
Affordable prices to consumers: this option would allow JMM to pass to its end customers the cost savings achieved because of closed loop supply chain. With affordable prices and excellent service, the demand would further increase for its services.
Alignment with JMM’s core values: this option is completely aligned with its core values that strive to provide seasonal, local and organic food to its customers. In fact, this would even strengthen the alignment of its core values with its cooking style. The constraint imposed by focussing on local ingredients only would further stimulate innovation and allow the chefs to experiment with their dishes.
In my opinion, other options available to him should not be considered for the following reasons: Relocating production kitchen off-site: in the beginning, moving production kitchen may seem to offer cost advantage but it is more likely to pose serious challenges later on such as * Increased difficulty in managing staff at two different locations * Increased difficulty in ensuring on-time delivery of customer orders (poor service) * Change in customer’s perception that kitchen and restaurants are separate
* Focus on profitability at the expense of customer service New Foundation to integrate Kennedy’s efforts: This option is focussed on spreading his vision and how to create a consumption pattern with a social and environmental message. This strategy is unlikely to succeed in its goal because of the following reasons: * Less time available for Kennedy to focus on his business * Enough foundations and associations already existing to leverage this opportunity * Uncertainty on whether such a foundation would hinder or help brand differentiation