The greening of Walmart
As Walmart’s senior VP for sustainability, Andrea B. Thomas steers the giant retailer’s efforts to embed environmental sensitivity into every aspect of its operations. In a recent conversation with Sheila Bonini, a Senior Expert in McKinsey’s Sustainability and Resource Productivity Practice, Thomas spoke about the challenges of building a greener supply chain and explained why Walmart won’t be marketing sustainability to customers anytime soon.
BONINI: How do customer preferences influence Walmart’s approach to sustainability?
THOMAS: We’re looking to stock the products that customers want to buy. We serve a really broad audience: about 140 million customers come into our U.S. stores every week, and about 200 million globally. We actually cater to lower-income customers who are really busy, may have two jobs, and are struggling to make ends meet. Where sustainability fits into that picture is that customers shouldn’t have to pay a premium to have access to sustainable, healthy products.
BONINI: To what extent do you use marketing messages to steer customers toward more sustainable items?
THOMAS: Basically, we don’t. For example we stock a variety of laundry detergents including cold-water detergent, which consumes less energy than detergents that require hot water. We also sell a variety of garments that will get equally clean whether you wash them in hot or cold water. We changed the labels on those garments to say wash in cold water. But we don’t actively steer customers toward cold-water detergent. We’re not spending our marketing dollars telling them how to wash their clothes. Instead we tell them that we have everyday low prices on the items they want to buy in our stores.
BONINI: So most of your customers aren’t demanding sustainable products?
THOMAS: That’s right. And in fairness to them, the whole question of what makes a sustainable consumer product is fairly complicated. For example, you can argue that organic produce is more sustainable. It’s certainly true that organic farmers use less or no pesticides, which is positive. On the other hand, organic farming generally uses more water to produce smaller crop yields.
BONINI: Tell me about Walmart’s sustainability index.
THOMAS: We made a commitment in October of 2005 for the first time: to create zero waste, get to a hundred percent renewable energy and sell products that sustain people and the environment. Selling products that sustain people and the environment is a very big statement. In an effort to get the entire industry on board, we developed a sustainability index. The key assumption behind the index is that we need to act collectively as an industry. If suppliers are getting different sustainability requirements from different retailers, it’s actually less sustainable. In order to make that happen, we became founding members of The Sustainability Consortium (TSC).
BONINI: What does The Sustainability Consortium do?
THOMAS: It’s a membership organization that now has over 100 members, including retailers, manufacturers, some industry associations, and NGOs. Its mission is to develop the science behind the life cycle assessment of products. The idea is that the entire industry should collaborate on a consistent score card that we can use to gather product life cycle assessments from our suppliers.
BONINI: So the sustainability index rates your suppliers on the environmental impact of their products?
THOMAS: There is a competitive element, but it’s really about the journey of everybody becoming better, as opposed to winning and losing. If nobody’s doing very well and your company is number one, that’s not nearly as good as everyone doing well and you being number four. Take seafood, for example. We originally committed to purchasing only seafood certified by the Marine Stewardship Council (MSC). We soon figured out that there wasn’t enough MSC-certified seafood for us to meet the demand that we had. So we tried a broader approach, saying we’d sell certified seafood without specifying the certifying body. That still didn’t get us enough seafood. We ultimately decided we could have the biggest impact by asking all our seafood suppliers to start improving, knowing that they’re all starting at different places. So now we require every fishery that we source from to have a fishery improvement plan.
BONINI: How much of this do customers see? Do they know that their seafood is getting more sustainable?
THOMAS: We’re not really communicating sustainability using marketing resources at this point. On most products we’re doing it without the consumer knowing. Even when the consumer does see it, when it’s on the packaging or something like that, it’s not a major factor in most purchase decisions. The vast majority of our customers aren’t telling us they want more sustainable products. Instead they’re coming in and saying they want to buy seafood. And so we’re selling them the seafood that they want, but we’re trying to make all the seafood that we’re selling them more sustainable.
BONINI: How have customers reacted to some of your more visible steps, such as putting solar panels on retail stores? Are they supportive?
THOMAS: You wouldn’t necessarily know walking into our store if that store has solar panels, because you can’t see on top of the roof from the parking lot. But features like solar panels do make a difference when we’re launching a new store and facing public concern about Walmart moving into the neighborhood. That’s especially true in places like California or Vermont where sustainability is a much bigger issue. Then I think it does help people see that we’re trying to be a responsible company.
BONINI: Given that most of your sustainability efforts aren’t visible to consumers, what motivates Walmart to pursue this agenda as aggressively as you have?
THOMAS: Sustainability has become part of our corporate strategy. This year for the first time, all our merchants and sourcing teams will have a Live Better objective. It can either be a sustainability objective or a women’s economic empowerment objective. When we launched this initiative last year, our buyers told us that it gave them permission to do what they already wanted to do. They want to integrate sustainability into the business because they can see that being more efficient with how we use resources fits into what we call the Productivity Loop, which is about pushing costs and prices down so that you can get more customers into the stores and sell them more products. So it’s very ingrained in our business philosophy.