Supermarkets: is the industry delivering the goods?

As the government prepares its verdict on the Safeway’s takeover, Briefing considers the wider role that the supermarket industry plays in UK society. The sector’s main players makes much of their commitment to corporate social responsibility, but does this make much of a difference?

Pensioner Richard Bunn of Western-Super-Mare recently finished a 14-year quest to visit all of Asda’s 260 supermarkets – a labour of love sparked by his appreciation of the all-day breakfast at his local store.

Few can claim quite such an emotional attachment to the supermarket industry, but none of us remains unaffected by the rapid changes in food shopping over the last two decades. For some, supermarkets mark a boon in quality of life, representing the twenty-first century consumer virtues of convenience, quality and choice.

Others lament the decline of local shops, perceive an ugly monopoly squeezing suppliers dry and manipulating prices, and worry about the impact that these ‘marketing machines’ are having on our health and general life-styles. Consider that the UK’s top four supermarkets – Tesco, Sainsbury’s, Asda and Safeway – control over two-thirds of the nation’s grocery market and provide employment for more than half a million people, then the scope for controversy abounds.

To be fair to the sector’s main players, the scope of social issues and impacts are equal in measure – everything from affordable products for low-income families through to fair prices for third world farmers. How the sector is managing its multiple responsibilities, and what benefit the sector’s large players are gaining from their CSR commitments, remain questions of significant importance.

Industry overview

All four supermarkets have management structures in place – each with board level responsibility – to address CSR issues. The BitC Corporate Responsibility Index indicates that Tesco, Sainsbury’s and Safeway, in particular, have made progress in developing the necessary management practices and measurement tools that enable them to demonstrate delivery on their CSR commitments. Their ability to implement their CSR strategies in respect of the community, environment, marketplace and workplace reads like a star-pupil’s report card, with Grade ‘A’s all round.

The investment in stakeholder engagement marks one of the strengths of the sector. In an industry in which interviewing 25,000 customers at three-month intervals – as Safeway chose to do in 2002 – is not uncommon, the notion of remaining attuned to stakeholder demands is prevalent. Sainsbury’s, for example, offers all its employees the opportunity for dialogue with management through staff councils, an idea that Safeway intends to implement in the near future. Regular meetings with large suppliers, investors and community representatives are common to all the supermarkets.

Another feature of the industry – running in stark contrast to the ongoing battles for market share – is the readiness of the main players to work collectively on CSR issues. Frequently cited as an example is the Ethical Trading Initiative, which was set up in 1998 to provide a vehicle for all the main supermarkets to resolve the common problems of labour abuses in their supply chains.

Perhaps less well known outside the sector is Race to the Top, which counts Safeway and Sainsbury’s among its participants. The project is co-ordinated by the International Institute for Environment and Development and seeks to measure and track what supermarkets are doing across a broad range of ethical issues. Each of the participating supermarkets submits to stakeholder feedback and a performance review at fixed points during the year, which in turn feed into management plans. This model of co-operation and mutual learning provides a replicable example for other industries.

Management challenges

Extending the lens beyond the laurels of the CSR management community, however, debate about the social footprint of supermarkets is not over. The following three issues make for revealing tests of the quality and commitment of the sector’s management in respect of CSR: 1) local economic impact, 2) influence on suppliers and – by extension – the rural economy, and 3) impact on consumer health.

Local economies

A major criticism frequently levelled at supermarkets is that they destroy small local economies. Recent research by the Liberal Democrats estimates that the opening of a supermarket will cause the closure of all village shops within a seven-mile radius. The British Retail Planning Forum found that every time a large supermarket opens, an average of 276 jobs are lost.

The supermarkets readily respond with their own statistics. Tesco, for example, reports that it created 2,300 new jobs in 2002 (the net figure remains undisclosed). Asda makes the point that less than 7% of its stores are out-of-town – long interpreted by critics as the major cause for the demise of the small town high street. Supermarkets would also argue that building new stores, especially in inner city areas, serve to draw people into an area, which provides a positive knock-on effect for all local retailers in the area.

Beyond the statistic slinging, there is also evidence from the major supermarkets of a consolidated attempt to mitigate their impact on local economies. In terms of management best practice, many take Sainsbury’s lead in undertaking social impact assessments at the initial stages of a new project, followed up by an on-going policy of extensive stakeholder engagement concerning local retailing and employment needs.

With regard to the impact supermarkets have on smaller rural communities, the Sainsbury’s Assisting Village Enterprises scheme – which allows independent village stores and Post Office branches to buy and sell non-perishable proprietary and Sainsbury’s-branded products – provides a workable initiative that its competitors could mirror. Finding a similar model that would work in urban centres also poses an interesting challenge to the sector as a whole.

If the supermarkets are going to win the argument over their contribution to local economic development, however, one-off projects will never be enough. They need to show that the local economy is manifestly better off as a consequence of their investment if they wish to be considered responsible citizens. Well-managed, strategic community involvement programmes will help in this goal to an extent. More holistic approaches, however, such as Tesco’s Regeneration Programme are required. The scheme sees the company working closely with councils, government agencies and other community groups to deliver long-term economic development strategies. More supermarkets need to follow suit. Neither an easy challenge nor a light commitment, but such approaches remain the logical extension of supermarkets’ pledge to good citizenship.

Suppliers

A typical charges levied at the supermarket is presented in a 2003 report by Friends of the Earth, which accuses the industry of abusing its purchasing power by dictating terms and prices to their suppliers, reducing product variety and systematically eliminating competition. Hence the perceived need to set up Race for the Top, precisely to measure and track these allegations of supply chain abuse.

On the face of things, supermarkets appear to be taking the issue of ethical trade seriously. In terms of their international sourcing activities, Sainsbury, Tesco, Asda and Safeway have all adopted the Ethical Trade Initiative base code. All have devised policies and procedures to ensure that every aspect of the code is implemented. Most follow Safeway’s example of training its technologists and buyers in ethical trade, mapping its supply chain structures and standards, and employing second party auditors to ensure the code is being adhered to. Increasingly, Fair Trade products are also appearing on supermarket shelves.

As far as the UK supply chain goes, the story depends on whose statistics one reads. Sainsbury’s and Tesco’s respective stock-lists of 3,500 and 7,000 local or regional products, for example, appear to demonstrate a strong commitment to the domestic market. One measure that would certainly help the argument move forward is greater clarity for the local consumer on which products are sourced from their community, as well as better disclosure on the general break-down between product lines sourced from local UK suppliers, national companies and overseas markets. The development of online shopping provides a flexible tool to pilot such information on a product-by-product basis.

In terms of mainstream supplier relations, all of the supermarkets have codes of practice in place to ensure the fair treatment and prompt payment of suppliers, although critics would claim that these are often abused. The ongoing training of purchasing managers and improvements in compliance mechanisms should serve to improve performance in this respect.

Perhaps the most positive development in recent years is the supermarkets’ increased sensitivity to regional demands for local, specialist produce – a market worth as much as £160m per year by Asda’s reckoning. Identifying specialist suppliers and helping them gain market access, therefore, has become both a business and CSR objective for the national supermarkets. Asda, for example, recently introduced local supplier days, where small suppliers are given sales advice from the company’s PR and marketing personnel. Sainsbury’s is currently running a similar supplier development scheme in Wales, developed in conjunction with the national development agency. The scheme provides small businesses that have never worked with the company before, or which have sales with the supermarket of less than £30,000 a year, with a 12-week training programme to address practical issues such as ordering and delivery, paperwork required before supply, and minimum technical requirements.

A return to complex, multiple supplier networks, however, goes against the grain for the industry, the profit of which rest in large part on maximising efficiency in their supply chain (for example, Sainsbury’s might stock 23,000 products, but half of these come from just 100 suppliers). Pressure instead should focus within the confines of business realities – namely, in treating suppliers fairly and developing markets (and demand?) for specialist produce. Better disclosure in the first instance, and greater investment and publicity in the second, provide two ready markers to determine the underlying CSR commitment of the UK’s major supermarkets.

Health

Obesity and food health have emerged as high profile public-interest issues in recent months. As the source of seven tenths of groceries consumed in the UK, the supermarkets have a clear responsibility to help ensure that consumers get a balanced diet and meet their nutritional requirements. Yet a 2000 survey for Sustain, an agricultural advocacy group, found that fruit and vegetables in supermarkets cost around a third more than at market stalls. Furthermore, the majority of items being promoted in leading supermarkets were fatty, sugary, processed foods.

Consumer health provides a conundrum for the supermarkets. The logic of their CSR commitment would be to eradicate all unhealthy produce. The reduction in consumer choice and the cost premium for healthier food explain why only niche stores have opted for this route.

The position of the supermarket sector, therefore, has been to interpret its responsibility as raising awareness of food health and providing a wider range of healthier products to choose from. Sainbury’s and Tesco have perhaps been quickest in this respect. Both have teamed up with national charities to run in-store campaigns, encouraging customers to eat five portions of fruit and vegetables a day. In response to consumer demand, Sainsbury’s has also introduced a range of healthier foods, specifically marketed to children. Last year, Asda pledged to reduce fat, salt and sugar in its to own-label foods by ten percent over a two-year period – a commitment requiring 600 suppliers to review over 7,000 products. It should be noted that the company reduced the sodium content in 3,000 of its own brand foods as early as 1999, indicating an ongoing commitment to the health agenda.

The industry has been particularly successful in orientating its community involvement towards promoting healthy lifestyles and good nutrition. Tesco’s hugely popular Race for Life scheme is indicative of such a trend.

Pull or push?

The supermarket sector illuminates several important lessons for the CSR sector. Most obviously, it provides a good benchmark of best practice in terms of CSR management. All the main players are responding in some way or other to the main impacts of their operations, although perhaps underplaying just how far the industry’s social footprint extends.

What the supermarket sector clearly teaches, however, is that a robust management framework requires robust management decisions if the full benefits of CSR are ever to come to light. This means providing creative, sustainable solutions to an industry’s major issues – local economic impacts, supplier development and consumer health in the case of the supermarkets.

For the retail sector, it also means translating CSR performance to the till. As a consumer-driven industry, it’s no surprise that supermarkets have been champions of cause-related marketing. Market leadership, however, will come to those companies that can show they have overcome the sector’s macro social issues. This will require brave management and increased investment.

But, while perceived consumer concerns have pulled the sector into the CSR arena, the lion’s share of market advantage will fall to the ambitious supermarket that actively educates its consumers to push for CSR. Only then might the day arrive that responsible business – rather than a cheap (unhealthy?) breakfast – wins the hearts and minds of consumers.

Corporate Citizenship Briefing, issue no: 71 – September, 2003