Not long ago, Wal-Mart Stores Inc. announced plans to start judging its vast chain of suppliers not just on conventional criteria such as price, but also on a new standard — the environmental sustainability of its packaging.
Wal-Mart said the new scorecard wouldn’t be used to influence the massive retailers’ purchasing decisions until 2008. Still, the companies that fill the shelves in Wal-Mart’s stores — and in some cases depend on that business — knew better than to sit on their hands.
The result? Wal-Mart has seen more innovation in packaging in the past six months than it had seen in the previous five years, said Andy Ruben, Wal-Mart’s vice president for corporate strategy and sustainability
How did the retailing giant garner so much change so fast? Call it business as usual.
Wal-Mart says it is pushing its environmental goals onto its vast supply chain in the exact same way it pushes its commitment to low prices, efficient delivery systems or any other corporate initiative.
In this case, that means goading suppliers into reducing packaging by pointing out their competitors’ success stories, and not so subtly hinting that anyone who wants to get in good with the company better start thinking along the same lines.
It also means making clear that the company itself thinks there’s a business upside to making environmentally friendly changes — so maybe you, as supplier, should too.
Wal-Mart’s aggressive approach has been well-documented for getting the world’s largest retailer what it wants, be it extremely low prices for consumers or products that meet its specifications. The system also is known for pushing some companies to drastic changes in the name of penny-pinching, and even for driving some companies out of business.
In fact, it’s exactly that kind of power that has traditionally unnerved Wal-Mart critics, including environmentalists. But now, those same critics are conceding that Wal-Mart has the potential to use its power for good, if it can get its suppliers to make changes that help reduce greenhouse gas emissions and battle global warming.
“That sort of gets to the real reason why we’re Wal-Mart Watch and not Retail Watch,” said Nu Wexler, spokesman for one of the company’s most vocal critics. “... If you’re going to pick a company that can change American business, Wal-Mart’s the one."
Environmentalists also are warily seeing promise in the retailer’s pledges to change their own practices and push the people who make the products they sell to do the same.
“When Wal-Mart says to suppliers, ‘Don’t use excess packaging,’ … clearly that’s going to reshape packaging in American industry,” says Josh Dorner, spokesman for the Sierra Club.
Still, Dorner and others are also careful not to offer too much praise at this point, since many of Wal-Mart’s environmental commitments have yet to become reality. Also, Dorner hastens to point out, the Sierra Club continues to fault Wal-Mart for some of its other practices.
For Wal-Mart, there is a clear financial benefit to having suppliers reduce packaging or make more concentrated products — it translates into lower shipping costs and less waste, which reduces expenses. Wal-Mart says its goal is to reduce packaging by 5 percent by 2013, over 2006 levels.
The push also could help Wal-Mart’s reputation. The company has faced repeated attacks recently over its treatment of workers and other business practices.
The suppliers who can reduce packaging on things like cookies or toys also have the potential to see similar cost savings. Still, critics worry that suppliers will pay a higher price than Wal-Mart, since they have to invest in the product changes but may not be given any leeway to offset that by increasing prices.
“Wal-Mart has been coming out with a number of initiatives where they’ve said to suppliers, ‘You have to do this, that and the other,’ and the cost is borne by the supplier. Meanwhile Wal-Mart is using whatever that change is for its own public relations,” said Stacy Mitchell, author of “Big-Box Swindle,” a book critical of Wal-Mart and other massive retailers.
Mitchell also notes that, as part of Wal-Mart’s push to lower prices, many suppliers have moved more operations offshore, to places like China and India. She says that means that suppliers have to ship their products much further, translating into more greenhouse-gas emitting transportation needs than if the products were made closer to home.
Some of Wal-Mart’s suppliers concede that the new packaging recommendations could pose additional challenges. Still, several also say that they see the same business case — and potential cost-savings — that Wal-Mart does.
“Wal-Mart always challenges us, and all their suppliers, to be as efficient as possible with the products, and that happens to work. It saves us money, it saves them money and it’s good for the environment,” said Joe Cavaliere, a vice president of customer development for Unilever who is responsible for the company’s global Wal-Mart business.
Unilever is already seeing success with its All Small & Mighty, a more concentrated detergent that Wal-Mart executives have championed for its environmental benefits. Unilever has rung up more than $100 million in overall sales of All Small & Mighty, and is now at work on concentrated versions of other products as well.
Cavaliere admits that there’s pressure from Wal-Mart to make such changes, but said that’s not necessarily a bad thing.
“The pressure’s good pressure because it’s good for us and it’s good for them,” he said.
Proctor & Gamble also is at work on a more concentrated version of its Tide detergent, which will use 47 percent less plastic than its traditional counterpart. It’s one of many ways the company has tried to reduce packaging and increase recycled materials in its products since the 1980s, said Clifford Henry, a company spokesman.
Henry concedes that it might be more difficult for companies such as his to make further packaging improvements. But he said Proctor & Gamble nevertheless thinks Wal-Mart is making the right move.
“It is more of a challenge for us? Yes, but I would also say to you that we have been working on this for a long time, so we know what works,” he said. “...It just means that we have to be a little bit more smart and little bit more innovative.”
Pat Tiernan, a vice president for social and environmental responsibility with Hewlett-Packard, said it even went so far as to consult with Wal-Mart on its packaging strategy. Tiernan said the company, which counts Wal-Mart as a major customer, thinks the plan make sense for both retailer and computer maker.
Wal-Mart’s Ruben said suppliers grew more enthusiastic about the packaging reductions once the company was able to show some financial arguments for the changes, and convince them this wasn’t just a do-gooder move.
“The last thing that our suppliers needed right now was a push into philanthropy,” Ruben said.
In fact, he said, Wal-Mart is expecting its suppliers to find business reasons for the reductions.
“They’re a business and they need to approach this like a business,” Ruben said. “And if it’s not something that done in this way it’s not going to be a success.”