THE GREEN BOTTOM LINE

SN STAFF

The next generation of Price Chopper stores could feature low-maintenance concrete floors, pre-assembled walls and geothermal heating and cooling systems, not because they cost less but because they will save money over the long term.

Adopting a “green” business perspective has required reversing some traditional business paradigms for the retailer, Mona Golub, vice president at Schenectady, N.Y.-based Price Chopper, told SN.

“We are looking for the high quality, environmentally approved products that cost more up front but prove to have a longer life cycle and require less maintenance,” she said. “That helps us put together a quantifiable ROI. We're trying to be environmentally sensitive but still accomplish what we need to accomplish as a business.”

Many supermarket operators have backed into the realm of the environmentally friendly by implementing energy-conservation initiatives in their truck fleets and in their refrigeration equipment, and by installing more efficient lighting systems.

Such initiatives have historically been rolled out in the name of saving costs in a volatile fuel market, and several chains said they have seen significant reductions in their energy bills through those endeavors.

Supermarkets that are willing to invest in more advanced energy conservation efforts, however, stand to reap more returns in the long run, some observers said, both from longer-term energy savings and from the favorable publicity that comes with such efforts.

“Being green can be profitable, and you don't have to spend a whole lot more up front to incorporate green building practices into the building design,” said Arthur Venables, a consultant with E-Source, an energy management consulting firm in Boulder, Colo. “The companies that have made that cultural shift are moving past some of the traditional obstacles and barriers, such as trying to obtain a two-year payback.”

Those who spend more may be better positioned as society as a whole gives more credit to those companies that are incorporating green practices, he said.

“Is Whole Foods spending more [on its green initiatives]? I can't speak to that, but are they profitable?” Venables said. “Yes, and is some of that attributable to being green? I think so.

“Some people are recognizing that there will be some type of law — maybe it will be in the form of a carrot, or maybe it will be in the form of a stick, but it is coming and we can't get away from that. Some companies recognize that, and they are trying to figure out how to do it and be profitable at the same time.”

Last week's Supreme Court ruling that the Environmental Protection Agency can regulate carbon dioxide emissions as air pollution was just one more indication that more regulations promoting the use of alternative energy could be on the horizon.

Andrew Wolf, an equity analyst at BB&T Capital Markets, Richmond, Va., agreed that reducing petroleum-based fuel consumption stands to become more important in the years ahead.

“With that court decision, it's only going to become more of a prominent issue,” he said.

Supermarkets, however, may not be on the leading edge of such advances, he pointed out, in part because of their razor-thin profit margins.

“It's too competitive for them to economically sponsor green initiatives that will cost them a lot,” he said. Plus, he added, supermarkets that have expanded their organic selections are already getting credit from consumers who are concerned about the environment.

“Until their customers demand it and are going to change their shopping because of it, supermarkets are not going to invest that much in these initiatives,” he said.

Wind Energy Credits

A handful of U.S. supermarket operators have begun to tout their use of alternative fuels, including Whole Foods, which in 2005 began purchasing all of its energy needs through wind energy credits. The program compensates wind farms for their contribution to the nation's supply of electricity. Whole Foods also uses solar power and biomass to supplement its energy needs, according to its website, which notes that a typical solar installation can save 2.2 million kilowatt hours of electricity over 20 years.

A few other U.S. food retailers have also dipped their toes into renewable energy supply sources, including Safeway, Pleasanton, Calif., and Price Chopper, both of which also purchase wind credits.

Some supermarket chains have also experimented with solar power, which many say is still too expensive for widespread rollout at costs approaching $1 million or more per store. Even at Whole Foods and Wal-Mart, which both have several stores that incorporate solar power, the systems only account for up to 25% of a store's energy needs, according to reports.

More and more local municipalities are offering incentives for such installations, however. In Kentfield, Calif., specialty food retailer Woodlands Market received a $4 per watt rebate from the state in 2005 (the rebate has since been reduced), which paid for half of Woodlands' $900,000 solar energy system, according to SolarCraft, the Novato, Calif.-based company that installed the system.

Catherine Fox-Simpson, a tax partner at BDO Seidman, Dallas, pointed out that federal tax credits are also available for using certain types of alternative energy through the Energy and Transportation Act of 2005.

“It's a tax credit of between 10% and 30%,” she said. “So for example, if you invest $10 million in alternative energy sources, you can get a tax credit of between $1 million and $3 million. These include solar and geothermal energies, as well as utilization of biodiesel fuels and renewable energy and alternative fuels.”

In addition, accelerated depreciation on such investments is also available, Fox-Simpson noted.

“If you do building or leasehold improvements that would normally be amortizable over a 39-year life, if they meet certain energy-efficiency requirements, you can get a 15-year life, allowing you to recoup your costs faster.”

She said she's seeing more and more retailers look at sustainability as a part of their long-term plans.

“A lot of retailers are in the early stages of this,” she said. “To improve their image, a lot of retailers are doing immediate changes on the easy items, like increasing the quantity of organic foods, pushing environmentally friendly and energy-efficient lightbulbs to the forefront on endcaps; those things are easy to roll out across the board. The more capital-intensive changes, like building more efficient buildings, as well as converting the trucking fleet to more efficient fuel usage and using biodiesel, those things are on a three- to five-year plan.”

Among the areas Price Chopper is exploring are building processes and materials that are less wasteful. Concrete floors, for example, represent a larger installation cost per square foot than tiled floors seen in most current Price Chopper stores, but because they are easier to maintain the company will realize benefits over a longer term, Golub said.

“It does not need to be stripped and laden with a chemical cleaning process that leaves its own discharge five times a year,” Golub said. “It can be washed down with soap and water.”

Price Chopper is also looking to construct buildings of more pre-fabricated parts such as walls, Golub said. This requires the retailer to be precise with building specifications, but pays off in reduced labor and waste at the building site.

While such initiatives tend to be more expensive than traditional building methods, prices are dropping as more businesses embrace the green movement, Golub said. In addition, the company has been active with state organizations like the New York State Energy Research and Development Authority and Efficiency Vermont, which in some cases provide tax breaks or other economic incentives to embrace sustainable buildings.

Alternative Experiments

A few supermarket retailers, including Gristedes and Hannaford Bros., have taken advantage of local circumstances to power stores using alternative energy (see related stories). Gristedes uses the power of tidal flows in New York's East River to power one store, while Hannaford has tapped into a local producer of biomass fuel to supplant its oil needs.

In both cases, the retailers see the moves as helping to reduce costs, rather than investments whose only payback is in the positive publicity.

“Where the rubber hits the road is when they take some of these initiatives and roll them out,” said Tim Morrison, a principal in Little Diversified Architectural Consulting, Charlotte, N.C., who said he's seen little interest in green building design among his supermarket clients.

“Having worked with a number of natural food retailers, you would think that's an issue that would be important for them, but it's not enough of an issue to make it happen,” he said. “Until people see some of these things successfully utilized in a competitor's store, a lot of times it's very difficult for someone to step out on just faith. It can be a pretty slow process.”

The heavy wear and tear on supermarkets also makes them poor candidates for the type of green construction that is being incorporated into many modern office buildings, Morrison explained.

“The thing about supermarkets is they have to be built tough,” he said, noting that his firm's work on correctional institutions often closely mirrors the design specifications that go into its supermarket work. “These projects have to be built to take extreme abuse. Whenever you are talking about a flooring option, people are looking at the wear and tear, and wondering if they are going to be pulling it up in a couple of years because they've got loaded carts going over it all day long.”

Skylighting

One of the increasingly common green design elements that big-box retailers are incorporating, however, has been the use of skylights. Even those have some drawbacks for supermarkets, however, because of the potential negative impact of ultraviolet light on food and other products, Morrison said, although he pointed out that some skylight systems have filtering technologies.

Some studies have demonstrated a “daylight effect,” which correlates high levels of natural light with increased sales. As a bonus, energy costs are lowered when more natural light is used.

At the Rocky Mountain Institute, a Snowmass, Colo., consulting firm, architect Alexis Karolides, principal with RMI's Breakthrough Design Team, has worked with several retailers, including Stop & Shop and Wal-Mart, to explore ways to reduce electric bills. Besides the obvious areas such as improving refrigeration efficiency, Karolides' team has found that an increased use of daylighting provides many benefits that are not limited to a store's utility bills.

According to Karolides, a supermarket can expect to save something like 30% of its total energy bill by improving natural lighting through the use of skylights and photocontrols. The bonus: Improved daylighting also gives a store a more pleasant and uniform lighting treatment. “It's better-quality lighting; you can see the product better,” Karolides said. “It's lower-energy, so it saves them money to their bottom line. And then the daylight, and especially if you have views, natural light — it's better for the shoppers and the employees. They will like it better; people will stay in your store longer. We've done a number of studies of this.”

In fact, according to an October 2003 study by the Heschone Mahone Group, Fair Oaks, Calif., for the California Energy Commission, daylight has as reliable an effect on retail sales as such traditional predictors as the amount of parking available and the number of local competitors. According to the study, improved daylighting can increase retail sales by as much as 6%, adding to any energy savings achieved from reducing dependence on artificial lighting. In effect, the study found that not only does a high level of electric lighting show up in a store's energy bill, but the resulting shadows, poorly lit areas, harshly bright spots and unnatural color rendering will tend to influence consumers to spend less.

Karolides emphasized the role of the improved shopping experience in driving green retail design now. “There's higher competition in the market in terms of presentation of product and customer experience,” she said. “You see that happening with the Whole Foods stores, and Whole Foods is also thinking about energy efficiency in a nicer-feeling store, so I think that's going to drive some of these upgrades. The happy marriage is that it also reduces energy use.”

Karolides emphasized that the technology driver right now is not so much energy savings as it is incremental sales, but that the two provide parallel benefits. “It's going to be the early adopters that are going to see the real competitive advantage,” she said. “Attracting people with a more customer-friendly store, attracting people to your stores now, will set patterns and trends. And so, especially if you are building a new store, if you build it such that people are excited to go there, you really have a small window where they're going to like your store.”

No one should think of green design as mere window dressing or public relations fluff, Karolides cautioned. “There's real benefits to these things — the effect of daylighting on people when they're in the store is a real benefit; it's been shown to increase sales. It's because people feel better, and so it's not about some kind of marketing gimmick.”

Energy Conservation

Some supermarket companies have made significant progress in reducing their energy use. Unlike large manufacturers or other industrial companies, individual supermarkets tend to have relatively low-level energy needs. Refrigeration ranks as the largest segment of a supermarket's utility bill, ranging from 38% to more than 50% of the total. Lighting makes up another 20% to 25%.

All energy costs combined can comprise 7% to 10% of a store's operating costs, according to Karen Peterson, a spokeswoman for Food Lion, a Salisbury, N.C.-based chain that has been an industry leader in energy conservation and has long worked with the EPA on setting standards for energy conservation.

“Nearly a decade ago, we partnered with the U.S. EPA as an early adaptor of its Energy Star program,” Peterson said. “Food Lion benefited by being able to tap the knowledge base and expertise of EPA experts. The EPA, in turn, benefited by being able to test pilot initiatives in the field.”

In 2002, Food Lion beta tested the EPA's Energy Star grocery store evaluation tool. Food Lion provided the energy usage data to score 1,200 stores in order to verify the accuracy of the EPA's scoring algorithm.

More recently, Food Lion became a charter member of the EPA's Portfolio Manager program, which ultimately became the benchmark for scoring stores at Food Lion and other retailers across the country. As a charter member, Food Lion was able to help the EPA develop and test the Portfolio Manager program.

Earlier this year, Food Lion became one of the first supermarket operators to join the EPA's Green Chill program.

The activity has earned Food Lion both accolades from the EPA and lower energy bills.

It has won six EPA Energy Star awards (as Partner of the Year and Sustainability).

Since 2000, Food Lion has trimmed energy use by more than 27%, despite a net increase in the number of stores, Peterson said. In the past six years, Food Lion has reduced energy consumption by more than 2.43 trillion BTUs, she said.

“New technologies and on-going energy management projects have helped Food Lion net energy reductions equal to powering 457 virtual Food Lion stores,” Peterson said. “It's as if 457 stores, or 37% of the chain, uses no energy at all.”

Wal-Mart Goes Green

Wal-Mart Stores, Bentonville, Ark., also has made energy conservation and green business practices a part of its mission, and said it is seeing the effects on the bottom line.

In a recent interview with Fox News, H. Lee Scott, Wal-Mart's president and chief executive officer, said sustainability initiatives are resulting in “tens of millions of dollars” of extra profit for the company.

“Based on our calculation, we made tens of millions of dollars more in profit last year because of the elimination of trash, the elimination of packaging [and] the elimination of waste in the system,” Scott said.

Pursuing environmental concerns “is the right thing to do for the business,” he continued. “Over the long term, by doing things that are going to be great for this environment, we will be a stronger, more profitable company and be able to roll back prices even further.”

Wal-Mart said it has opened two supercenters this year — in Kansas City, Mo., and Rockton, Ill. — that will use 20% less energy than typical supercenters — part of its goal to operate stores that are 25% to 30% more efficient by 2009.

Wal-Mart said it plans to open two more high-efficiency supercenters this year in different climate zones to evaluate how the systems perform under different conditions.

The Kansas City and Rockton supercenters — dubbed high-efficiency stores — use technologies Wal-Mart tested in 2005 at two experimental stores in McKinney, Texas, and Aurora, Colo. The 197,000-square-foot Kansas City store and the 205,000-square-foot Rockton store are the first supercenters to bring some of those experiments from the preliminary testing phase to a practical trial phase, the company said.

Wal-Mart said its ability to achieve the 20% energy reduction at the stores is based on several technologies, including:

Scott said Wal-Mart sees sustainability as a mainstream issue. “Whether it is the world's rapidly growing population or the worsening problem of global warming, we see the need for sustainable business practices as increasingly urgent,” he said in a speech earlier this year.

“It's the responsibility of every corporation to be more sustainable. It's not just about reducing our environmental footprint. It's about stepping out — even without all the answers — and aggressively promoting sustainability among all the stakeholders of our company.”

Besides the benefits to the planet, Scott added, “we think sustainability is cool.”

In the speech, Scott laid out the reasons Wal-Mart believes sustainability will be a vital consideration when doing business in the future, and he described what his company is doing and how it is benefiting from efforts in that area.

“We want our merchandise to be affordable and sustainable,” he said, “because when it is, we empower our customers to make the right decisions — to do the right thing for themselves and their families and also for humanity and this planet.”

According to Scott, Wal-Mart has developed a program called Sustainability 360 that seeks to reduce environmental costs — a series of programs that grew out of the chain's experiences in the wake of Hurricane Katrina.

“We responded [to Katrina] by empowering our people and leveraging our presence and logistics to deliver the supplies hurricane victims so desperately needed,” he said.

“Hurricane Katrina changed Wal-Mart forever because we saw our full potential — the opportunity and the responsibility to serve not just our customers but also our communities, our countries and even the world.”

After Katrina, Wal-Mart set three corporate goals, Scott said: To be supplied 100% by renewable energy, to create zero waste and to sell products that sustain resources and the environment.

AFS Sees Benefits

Associated Foods Stores, Salt Lake City, has installed a refrigerant metering and maintenance tracking system at a couple of corporate Harmon's stores to monitor any leakage. “The system gives you a complete record for tracking refrigerant loss that the Environmental Protection Agency requires,” Todd Porter, director of store engineering for Associated, told SN.

At the recently opened corporate Macey's store in Providence, Utah, Associated has installed thermo-simple units in every refrigerated and frozen case “so that anytime a case has a fluctuation in temperature, it will alert the monitor at the service desk and cause a red light to flash on whichever case has a problem,” Porter said.

The system paid off a few weeks ago when a fan belt broke on the evaporation condenser, which caused red lights to blink on every case. “We noticed the blinking lights quickly, and with all of them blinking, we knew there was a problem in the central condenser, not on any single unit, and that saved us time pinpointing what needed attention. In a 78,000-square-foot store, that saved us a lot of time and enabled us not to lose any product, which saved us money.”

Porter said Associated will monitor the thermal-simple units at the single store for about a year, “though we could put it into another corporate store during that time.”

Associated has also been eliminating the coffin cases that ran between two aisles of upright cases with doors and replacing them with two more runs of uprights with doors, Porter said. “The uprights are more energy-efficient, and while that was part of our motivation, we also realized the frozen food category is growing so rapidly that to get more SKUs in, we needed to add more space, and the uprights enabled us to do that,” heexplained.

The company is testing LED lights in frozen food cases at a store in Riverton, Utah, Porter said. “The lights give off zero heat, compared with lamps that gave off a lot of heat, so we're saving on energy costs there. And the doors on the cases are now available without frame heaters, which eliminates additional costs.”

He said Associated is testing the LED lights “because we know there's an energy saving when you remove heat, plus we wanted to see how the LED lights made products stand out and how well customers could see the products.”

Having installed the technology only in early March, Associated is still monitoring the results — a process that could take up to six months, Porter said.

Asked what technologies Associated has rejected because of prohibitive costs, Porter said it had contemplated putting in skylights at the new Macey's store in Providence “but it was too expensive. We'd still like to try that, however, and it's something we will keep looking at in hopes prices come down.”

PCC ‘Walks the Talk’

At PCC Natural Markets, Seattle, “it's important to our customers and members that we walk the talk,” Lori Ross, director of store development for the eight-unit cooperative, told SN.

Given PCC's commitment to green building, sustainability initiatives are one aspect where it showcases its dedication to environmental responsibility, she pointed out, including installing energy-efficient lighting, water fixtures and other equipment.

The stores also have full recycling facilities for glass, plastic, waxed cardboard and food waste, and PCC is especially proud of recycling its food waste into compost materials, Ross said. “Last year we turned 500 tons of food waste into compost, which comes back to us in reduced trash costs,” she pointed out. “It also comes back to us in terms of knowing we did the right thing and completing the loop.”

Stores use skylights and window banks to capture solar energy, and the chain's newest store — which opened last May in Redmond, Wash. — has reduced wattage by 40% a day when the sun is out, Ross said.

The chain has not been measuring the savings that some of its initiatives have created. However, it is beginning to set up measuring and verification processes “to determine if we are realizing the efficiencies these systems promise, especially those that come with a higher price tag. Running a retail store can make that hard to determine, though we know the payback on the skylights began immediately at the Redmond store, and with all of the store's lighting on sensors, there's a very physical sense of what's happening.”

The company's new store in Redmond reflects PCC's commitment to sustainable business practices, from its energy-efficient features to the use of biodegradable shopping bags. By day, the sales area is lit by natural light enhanced by 28 skylights specially glazed to block solar heat, the company said. Energy-efficient fixtures provide lighting well below Washington state's energy code, and timers and sensors have been installed to minimize usage of all store energy-consuming systems.

The store's space heating, hot water heating and refrigeration systems have been designed so they are interconnected, making it possible for the refrigeration system's waste heat to be utilized by the other systems.

U.K. Chains Cut Carbon

In the U.K., where companies have been under more pressure from consumers to green their operations, Wal-Mart's Asda chain competes for “green” headlines with the likes of Sainsbury, Tesco and Marks & Spencer.

Unlike in the U.S., where cost savings have been at the heart of food retailers' efforts to conserve energy, retailers in the U.K. have made more aggressive statements about minimizing their impact on the environment. Asda, for example, supplies product through its stores by railroad cars painted with the “Always Low Carbon Emissions” slogan, a takeoff on its “Always Low Prices” tag line.
Reporting by Mark Hamstra, Elliot Zwiebach, Jon Springer and George Ellis

The Leadership in Energy and Environmental Design (LEED) Green Building Rating System is a benchmark for the design, construction, and operation of high-performance green buildings. LEED promotes a whole-building approach to sustainability by recognizing performance in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. LEED buildings meet strict criteria for environmentally friendly construction and design.

Source: U.S. Green Buildings Council

Publix Super Markets, Lakeland, Fla., has been recycling cardboard since 1974. Some of the other materials recycled from Publix stores and facilities include: fat and bone scraps, plus waste cooking oil and rotisserie grease (recycled by renderers); waste dough from the Publix bakery plant (collected for recycling into cattle feed); beverage cans and bottles at headquarters (donated to the city of Lakeland); computers and other electronics — either sold or donated for reuse, or sent to recycle centers; ceiling tiles from remodeling.

Source: Publix Super Markets