Barry Evans, Robert Mason and Vasco Sanchez Rodrigues of Cardiff Business School and Michael Bernon of Cranfield University share an interesting analysis of British retail giant Tesco’s green credentials and strategy.
The UK retail grocery sector is among the most sophisticated, and competitive, in the world. Highly efficient retailers compete to provide an ever-increasing range of goods to their customers. In the process, the “big” UK grocery retailers are aware of their impact on the environment – for instance, food production, fertiliser use, processing, packaging and retail distribution and store operations are all potentially significant contributors to carbon impact on climate. In turn, the major food retailers have developed significant programmes to attempt to mitigate their carbon impact – they can be seen as a sector that provides a template that others, who wish to mitigate their impact on the environment, could follow.
In this article, we will present an overview of what UK grocery retailers are doing in mitigation and then look specifically at Tesco (as the market leader) to show what it has been doing on its lean journey to address its sustainability issues. Tesco, as we will portray, is not unique amongst UK grocery retailers in having a sustainability agenda, but provides a useful case study to exhibit the kind of approach being adopted. The future of supermarkets Firstly then, what are the UK grocery retailers doing to address their environmental impact? In a recent conference paper (Mason et al, 2010) , we looked at documented and/ or company-evidenced material (like Company Corporate Social Responsibility reports) to provide a comprehensive listing of what eight major UK food retailers, and nine of their major suppliers, are doing against a number of mitigation themes. These main themes are:
- Smarter transport;
- Greener distribution centres;
- Lower carbon retail formats;
- General de-carbonising.
Within each theme, we looked at a range of 15 “opportunity” areas, and within each “opportunity” area we identified a number of carbon mitigation initiatives – 46 in total.
Subsequently, in research that is being developed by the team each of these initiatives was assessed for:
- Typical CO2 mitigation impact – low, medium or high;
- Typical efficiency improvement factor – low, medium or high;
- Resultant investment payback period – short, medium or extended.
The results are shown in table 1.
This research provides data about how each initiative is being adopted by the retailers and suppliers and in most instances a majority of them are active in undertaking these initiatives. Moreover, the majority of initiatives have medium or low impacts coupled with medium or low efficiency improvement. This results in medium or extended payback periods. Thus it is reasonable to conclude that these companies – retailers and suppliers – are not adopting the mitigation programmes because “quick wins” or “low hanging fruit” will result. Rather they are acting as responsible organisations taking a long-term view and recognising that acting responsibly is increasingly expected by all “stakeholder” groups – consumers, community (neighbours), etc.
Let’s then turn to Tesco and what it is doing under the “lean and green” agenda. There were 46 initiatives listed in table 1 – Tesco was listed in the source paper as being active in 35 of them. Clearly there is much source material that could be addressed in this article – but it would fill the entire edition! Therefore we are using two sources, only namely:
- Sir Terry Leahy (ex chief executi ve – Tesco) who wrote a chapter on lean in his 2012 book Management in Ten Words. He devotes the chapter specifi cally to the “sustainability” theme, having fi rst explained that lean has been extensively used by Tesco – parti cularly to address muda, muri and mura;
- Tesco Corporate website – the company publishes comprehensive data on the “community” segment of their “steering wheel” (balanced scorecard), which includes the results of their carbon reducti on (and water use reducti on) programme.
Leahy introduces lean as doing “more for less” and dismisses conventional wisdom that if you spend less or do something more cheaply then that means ending with worse products or something that is not as good. He uses, as examples of the counter-intuitive “getting more for less”, Henry Ford, Ohno at Toyota and the US supermarket who impressed Ohno with their focus on effective stock re-ordering – Piggly Wiggly! He addresses the ideas initiated by Toyota on waste reduction and the cultural themes that drove them – continuous improvement and respect for people.
Leahy then turns to the lean, sustainable theme. He cites the Shanghai carpet manufacturer who completely redesigned its energy/pump system – wider pipes that cost more but, because they were more efficient, could be used with smaller and cheaper pumps and motors. Layouts permitting straighter pipes reduce friction and therefore consume less energy. The end result – 92% reduction in the horsepower needed to operate the pumps. He explains his view of the need to go green – conservation of energy and resources plus the reduction of carbon emissions – but also how lean thinking provides a route to be green and to consume, and for economies to grow. In his view, it doesn’t equal the need for more tax, less consumption and slower economic growth!
“ …learn how to maintain and even increase consumption in a sustainable way. Make it easier, cheaper and more logical for consumers to go green – by a complete rebuilding of the entire supply chain to make it lean”
He then describes Tesco’s strategy to root out wasteful consumption of resources in its supply chain – Tesco’s UK operations produce 2.5m tonnes of carbon in direct emissions and their suppliers emit 36m tonnes in supplying Tesco’s UK operations. Tesco therefore set two challenges:
- Reduce carbon emissions across its global supply chain by 30% by 2020;
- Become a zero-carbon business by 2050 (any carbon that Tesco still emits to be matched by extra renewable energy generated by Tesco for others to use).
These targets are ambitious but Tesco’s UK consumption of gas and electricity was £200m in 2011 and the company has, to date, reduced its global energy costs by £150m annually. Included in the steps taken are:
- Relocate distribution centres closer to the group of stores they serve;
- Fuel reduction by lorries designed to be more aerodynamic;
- Greater focus on stores that produce 70% of Tesco’s emissions. So, for example, improvement in store design between the mid-1990s to 2007 gave a store than consumed 50% of the energy of a store built 10 years earlier.
However, these were regarded as only having incremental improvement potential – to achieve the 2050 zero-carbon goal required more radical thinking. So the retailer discovered that whilst a Tesco store has on average a 30-year life, only 14% of it was re-used on rebuilding. Thus they targeted re-using everything and set a challenge to design a new store that was as easy to dismantle and re-use as to assemble initially.
So much for store design, but what about its operation? Leahy cited an existing store – Cheetham Hill – to illustrate his points. Tesco obtained insight into the consumption – and waste – of energy, heat loss and hence carbon impact. Heating, ventilation, lighting, refrigeration (the biggest root cause driver of issues) were investigated and analysed. These insights allowed Tesco to design a zero carbon store, which featured:
- Timber rather than steel and concrete;
- Use of older building designs to obtain more use of nature to light, heat and cool buildings through natural light and natural ventilation;
- LED lighting instead of halogen and fluorescent;
- Store insulation and glass designed to reduce heat gain and loss;
- Refrigeration systems utilising different, less environmentally-impactful, gases plus putting doors on all fridges;
- Renewable power source – a combined heat and power plant, powered by reuse of waste vegetable oil from food manufacturing. It produced enough surplus for nearby housing.
The result – the first zero-carbon store worldwide – opened near Cambridge, in England, in 2009.
Leahy also described how Tesco has examined how lean can help cut carbon emissions in the supply chain. The company adopted “footprinting” to look for waste in the chain, which seeks to include not just manufacture but use. So, for example, a T-shirt sold in a Tesco store in one country may be made in another, with cotton grown in a third! After purchase, it may be washed many times using technology from elsewhere. All of this product lifecycle involves carbon emissions! Tesco calculated the carbon footprints of over 1,000 own-label products – and over a wide range including flowers, fabric conditioner, pasta, nappies, milk and magazines. As it grew its capability to carry out these analyses and refined it, the “footprinting” cost dropped from as much as £25,000 to as little as £1,000. In the process Tesco showed some counter-intuitive results including:
- Tesco orange juice from concentrate has a lower carbon footprint than non-concentrated juices because less energy is needed to chill and transport concentrated juice;
- The carbon footprint of Tesco Fresh Sweetened Soya Milk is a third of that of semi-skinned cow’s milk because of the methane produced by cattle;
- The carbon footprint of fresh pasta products is typically 10 to 20% higher than that of dried pasta products because of the need to chill fresh pasta;
- Cucumbers seasonally produced in Spain without heating have a significantly lower carbon footprint than cucumbers grown in the UK in heated greenhouses (even after the transporting impact from Spain).
Leahy concluded with the critical role of the consumer. After all, it is the consumer who decides which product they wish to buy and consume. Thus the consumer controls or influences the generation of some 60% of carbon emissions. He points out that it is the consumer who generates the “supply more product” signal as they purchase and consume from the retailer. Giving customers information and treating them as responsible decision-makers can achieve green goals – by removing the barriers to green consumption – price, inconvenience and lack of information. In summary – lean and green!
Finally, the Tesco Corporate website presents the current results arising from their “lean and green” programme. In their Corporate Social responsibility agenda, they include a goal on “Caring for the Environment”. This goal addresses three areas, namely:
- Climate change;
- Water use;
- Waste and packaging.
Tesco’s overall goal is to become a zero-carbon business by 2050, with the following targets:
- By 2020, halve its carbon emissions from the 2006/7 baseline portfolio of stores;
- New stores built between 2007 and 2020 to emit half the CO2 of a 2006 new store;
- To reduce the carbon emissions of the products in the supply chain by 30% by 2020;
- To find ways to help customers reduce their own carbon footprints by 50% by 2020;
- To reduce the carbon emissions per case of goods delivered by 25% by 2020 against a baseline of 2011/12.
It calculates its carbon footprint according to the World Business Council for Sustainable Development (WBCSD, 2004) Greenhouse Gas (GHG) Protocol, which is the internati onally recognised standard for corporate carbon reporti ng, and guidelines published by the UK Government (DECC / DEFRA, 2011). They include the following greenhouse gases (GHG) in their direct carbon footprint: carbon dioxide (CO2) and a range of fl uorinated gases (oft en used as refrigerants). Emissions from all of these gases are expressed as CO2 equivalent (CO2e) emissions.
Their top-line performance is shown in table 2.
Figure 1 shows the Tesco year on year reducti on in CO2 emissions expressed as kg CO2 / sq ft (Tesco, 2012).
Table 3 shows Tesco’s carbon impact in each market where they operate stores. The final comment on its journey to their zero-carbon goal is to be found on their CSR website and makes the point that it is not intending to use carbon-trading to get there:
“Achieving our ambition of becoming a zero-carbon business by 2050 will require us to reduce our absolute carbon emissions across the Group. We aim to achieve this not by purchasing carbon offsets but by generating all our electricity and heat/cooling from renewable sources. If there are any residual emissions that we cannot eliminate, we will generate more renewable energy than we need and pass the excess to others”
Finally, we have demonstrated that green is certainly an important element in a lean agenda and that lean and green should not be seen as mutually exclusive concepts. Lean proponents should factor in future generati ons as well as the current community that organisati ons operate within, as their customers in the fullest sense and thus the arbiters of value provision.