Independents Take Measured Steps to Sustainability

CHRISTINA VEIDERS

It is no surprise that environmental sustainability has risen to the forefront of the food distribution industry as an important issue, given rising energy costs, the threat of climate change and dire warnings of the possible consequences if corrective action is not taken.

The Grocery Manufacturers Association and Food Marketing Institute have scheduled separate summits on the topic this year. GMA's Environmental Sustainability Summit will be held next week, Jan. 17-18, in Washington. FMI's summit will take place in Minneapolis on June 16-18. The National Grocers Association, which represents the independent sector, will also examine the issue in a session entitled “Sustainability: A Natural for the Community-Focused Retailer” during its annual convention and trade show, Feb. 5-8.

Independent food retailers and wholesalers join the ranks of larger food distribution companies in recognizing the importance of adopting sustainable business practices not only from the standpoint of being a good corporate citizen but in an effort to impact their bottom lines.

SN conducted an online survey of the independent sector to gauge its sense of urgency for acting on environmental best practices, and found the issue is indeed considered important but has not yet reached a critical level. However, a high percentage of retailers and wholesalers said they have implemented sustainable strategies, and nearly 75% said they are monitoring their energy usage.

In commenting on the survey results, Thomas K. Zaucha, president and chief executive officer of the NGA, Arlington, Va., said sustainability is an issue that is not going to go away. “It is understandable that the worldwide macro-issue of a sustainable environment may not take on urgency. As an issue, however, it is growing in importance, and there is a realism about controlling costs.”

Independents may find opportunities to form partnerships on future sustainable projects. A large majority of those surveyed said they are pursuing sustainable initiatives on their own.

Zaucha said that given the community orientation of independent food retailers, working to protect the environment and promoting sustainability through their businesses practices is just another way for them to demonstrate how much they care for their communities and customers. However, he noted, such efforts have to be put in the context of the economics of running a business.

The survey was conducted by Penton Research via email on Nov. 14-30, 2007. Analysis was based on 213 completed surveys, from which 27% of the respondents were retailers and 10% were wholesalers. Of the retailers, 46% generate over $1 billion in revenue; 33% generate $1 million to $499 million; 9% generate $500 million to $1 billion; and the remainder reported less than $1 million in revenue or did not list their revenue. Of wholesalers, 48% generate $1 million to $499 million in revenue; 29% generate over $1 billion; and 10% generate $500 million to $1 billion. The remainder do less than $1 million or did not provide their revenue figures.

SURVEY RESULTS

Of those surveyed, nearly half, 49%, said it was somewhat important for them to have sustainable business practices in place in the communities where they do business, and 46% ranked it as critical. Just 1.3% said it was not important, and 4% put it as a low priority on their business agenda.

In looking at retailers' vs. wholesalers' responses, there appeared to be a greater urgency on the part of retailers. The majority of retailers, 53%, listed sustainable business practices as critical, vs. 29% of wholesalers. Conversely, the majority of wholesalers, 67%, said pursuing sustainable business practices is somewhat important, vs. 42% for retailers. No retailers listed the issue as not important. Just 5% of retailers gave it a low priority, and 5% of wholesalers said it was not important.

In terms of taking action and implementing sustainability programs, 70% said they currently practice environmental sustainability initiatives, while nearly a third, 30.8%, said they do not have any initiatives in place. When compared to wholesalers, a higher percentage of retailers, 72% to 57%, have initiatives in place.

Such strategies can run the gamut from investing in energy-saving equipment to phasing out refrigerants that contain hydrochlorofluorocarbons, which damage the earth's ozone layer, and implementing alternative refrigeration technology to simply merchandising more green-friendly products. Of the strategies mentioned, 90% of retailers and 67% of wholesalers said they are investing in energy-saving equipment and design. Waste reduction and recycling waste materials topped the list of initiatives for 85% of all respondents.

With the GreenChill Advanced Refrigeration Partnership, launched last year by the Environmental Protection Agency, many retailers and wholesalers are phasing out their old refrigeration systems and replacing them with alternative refrigeration methods. The current generation of refrigerated cases and walk-in coolers uses R-22 refrigerant, a coolant known to damage the earth's ozone layer, and the EPA plans to phase it out starting in 2010.

Between 45% and 57% of surveyed respondents said they are revamping their refrigeration systems to meet environmental standards: 57% said they have replaced ozone-depleting HCFC refrigerant (such as R-22) with non-ozone-depleting refrigerant; 47% have installed alternative refrigeration systems, such as secondary-loop or distributed systems that reduce refrigerant charge; and 45% have reduced the amount of refrigerant leakage from their systems. Another 51% said they use energy management systems to monitor energy usage in their stores.

A majority of respondents said they are selling or promoting products that are considered earth-friendly or green. Over three-quarters of those surveyed (77%) sell organic foods, and 60% said they sell eco-friendly products.

Plastic, petroleum-based shopping bags have also come under the scrutiny of environmentalists as a health hazard, energy user and polluter. Last year, San Francisco became the first city in the United States to ban distribution of the bags in all supermarkets and pharmacies that generate over $2 million in sales annually. Retailers have the option of using biodegradable bags made of corn starch or recyclable paper. Other states and municipalities are currently weighing similar plastic bag laws.

Over two-thirds, 68%, of independent retailers said they have switched to biodegradable shopping bags or are merchandising reusable bags. Only 25% of wholesalers said they are doing the same.

Environmental issues impact the bottom line and add to rising costs. Retailers are seeing 30% to 40% increases in their gas and electrical costs in some parts of the country. According to the EPA, a 10% reduction in energy costs for the average supermarket can boost net profit margins by as much as 16% and sales per square foot by $44. So the payoff can be big for retailers and wholesalers who monitor their energy usage. According to survey respondents, close to three-quarters of retailers and wholesalers are doing just that.

One company, Giant Eagle, has won Energy Star recognition from the EPA by cutting energy use in its stores by billions of BTUs through aggressive energy management strategies, including energy demand tracking, continuous monitoring of equipment and adoption of energy-efficient lighting, refrigeration and HVAC technologies.

Still, one-quarter of those surveyed are not monitoring their utilities. Thus, they are missing out on cutting back these escalating costs and on helping to save energy as well.

Environmental sustainability issues affect all stakeholders, so joint ventures and partnerships in finding solutions would appear to foster natural alliances. However, just a quarter of those surveyed said their environmental initiatives are done in partnerships with others. The majority, 73%, are going it alone for now.

Some of the organizations that respondents said they co-partner with include the EPA's Energy Star program, FMI, local power and natural gas companies, refrigerated case suppliers, retailer-owned food distributors, NGOs, government agencies, wholesalers and the CHEP pallet system.

There is little doubt that environmental sustainability is top-of-mind for retailers' customers and their communities. However, for 59% of those surveyed, the issue has not yet reached a critical juncture. They ranked sustainability as somewhat important for their customers and the communities where they do business. Just over a third, 35%, thought the issue was critical for their customers and communities.

A majority of respondents (58%), however, said they expect the government to step in and regulate their business when it comes to environmental practices, while 41% said they don't expect that to happen.

Although there are plenty of signs that environmental changes are now a fact of life, much of the urgency at this point appears to be driven by the media. Al Gore's book and movie, “An Inconvenient Truth,” which describe a range of environmental dangers facing the planet, drew a lot of attention and awareness. However, 70% of respondents said they have not read the book or seen the movie, while 30% said they have.

Over half, 56%, however, believe Gore's premise that current business practices generate carbon emissions and that these present a near-term threat to the planet, while 37% said the premise does not hold water for them.

State of Alert

While a greater percentage of retailers recognize the urgency of sustainable business practices than wholesalers, the issue is of growing importance for all food distribution sectors.

Natural Partnerships

For independents that are deeply involved in the communities they serve, it would make sense to partner on environmentally friendly projects. However, survey results show the majority are going it alone.

Big Brother

The majority of retailers and wholesalers expect greater government regulation of their businesses when it comes to the environment. The majority also believe in Al Gore's premise that current business practices generate carbon emissions, which represent a near-term threat to the planet.