CIES Food Safety Conference

Chris McCann
Country Manager, UK
Wal-Mart Ethical Standards
Wal-Mart Stores, Inc.

February 2008
Table of Contents

Wal-Mart Overview

Horizon Scanning

Implications

Whose Problem?

Case Study
Wal-Mart Overview

• More than 1.9 million associates located around the world

• More than 176 million store customers serviced each week

• Wal-Mart U.S. – sales of $226 billion**

• Wal-Mart International – sales of $77 billion**

• Sam’s Club – sales of $42 billion**

*From The Journal of Commerce, May 29, 2006

**Numbers as of fiscal year 2007 (Feb. 1, 2006-Jan.31, 2007)
Canada UK Units as of 1/08
298 Units 352 Units
Japan
U.S. 394 Units
4,128 Units

Puerto Rico China

54 Units 101 Units,
Mexico
1020 Units 102 Trust
Mart Units
Central America
456 Units
Brazil
313 Units
Argentina
21 Units

4,128 U.S. Units

3,111 International Units 1.9 Million Associates
7,239 Worldwide Units 23 offices sourcing from 70 countries
MAGAZINE

ASDA
LIVING

mini
bompreco
˜
Horizon scanning
Rapid change is, today, a way of life…

"It is not necessary to change. Survival is not mandatory."

W. Edwards Deming
Statistician & Author
1900 – 1993
Human activities are now adding 7 billion metric tons of carbon
into the atmosphere each year
Diseases such as malaria are predicted to spread as the world
grows warmer
Worldwide energy consumption is projected to grow by 58% by 2025
By 2025, the worldwide demand for fuel is projected to increase by
30%, and that for electricity by 265%
International Energy Outlook to 2025 …

• China and India alone account for 37 percent of the world

increase in energy use over the period.

• China and India account for 31 percent of the world increase in

oil use between 2003 and 2025; 71 percent of the increase in
coal use

• China and India combined account for 45 percent of the world

increase in carbon dioxide emissions between 2003 and 2025.
Scientists estimate sea-levels will rise 19 inches by 2100, though it
could rise as much as 37 inches
The current pace of sea-level rise is three times the historical rate,
and appears to be accelerating.
After 2010, key aquifers in China, India , West Asia and North Africa
will begin to fail
Rapid population growth and urbanization in developing
countries will increase water consumption at least 50% in the
next 20 years
By 2025 water scarcity will cause annual global losses of 350
million metric tons of food production – slightly more than the
entire U.S. grain crop
Unless we change polices and priorities, in twenty years, there won’t
be enough water for cities, the environment, or growing food
Implications
4.8 billion people live in the developing world
3 billion live on less than $2/day
Approximately 1.2 billion people suffer from hunger. Over 9 million
people die worldwide each year because of hunger and
malnutrition. 5 million are children
The direct medical cost of hunger and malnutrition is estimated at $30
billion each year
Declines in food supply could cause prices to skyrocket, which
will increase the malnutrition rate, since many poor people in
developing countries already spend more than half their income
on food
Go With The Flow – Global Migration

• Changing flows
Mega Cities & Milestones

Shanghai
Lagos Mexico City
• Growth

Seoul Tokyo Sao Paulo

Mega Cities & Milestones

• Living in poverty
• Increasing health concerns
The Perfect Storm

• Increasing demand
• Decreasing E&P, export, reserves
• Escalating prices
The Perfect Storm

• Fuel versus food

• Rising prices
The Perfect Storm – Food Insecurity
Aren’t these problems for
Government to deal with?
The Media Frenzy
Consumers are concerned

Actively campaigned on environmental /

social issues

Felt guilty about unethical purchase

Actively sought information on

company's reputation

Avoided product / service on basis of 2004

company's reputation
1999
Recommended a company on basis of
company's responsible reputation

Supported local shops / suppliers

Recycled

0 20 40 60 80 100
Source: The Ethical Consumer Report 2005, The Cooperative Bank
Base: 1000 who have undertaken the activity at least once in the year
 License To Trade/ Freedom To Grow

An 80-hour week for 5p an hour:

the real price of high-street
fashion
 Reputation/ commercial risks

• Public opinion could “turn” should corporates

fail to live up to expectations

• Future fossil fuel reserves are likely to involve

higher environmental costs

• Supply chains in developing economies

increasingly employ dirty sources of energy

• Possibility of legislative punishment for failure

to comply with existing/ emerging legislation
Governmental pressure

“Brussels Seeks Powers To Criminalise Pollution”

Brussels seeks powers to put polluters in jail

EUOBSERVER / BRUSSELS - The European
Commission is ready to move into national
governments' criminal law, proposing to
harmonise what constitutes serious environmental
crimes and what the minimum level of penalties should be
across the EU.
An appropriate response-
The beginning
Change Thought Leadership

“The surest way to predict the future is to continue to invent it.”

David Glass
Former CEO, Wal-Mart Stores, Inc.
Wal*Mart Corporate Sustainability Goals

To be supplied 100% To create zero waste To sell products that

by renewable energy sustain our resources
& environment
ƒ Existing stores 20% ƒ 25% reduction in
more efficient in 7 solid waste in 3 ƒ 20% supply base
years years aligned in 3 years
ƒ New stores 30% ƒ All private brand ƒ Preference given to
more efficient in 4 packaging improved aligned suppliers in 2
years in 2 years (right years
ƒ Fleet 25% more sized, reusable
efficient in 3 years, materials)
50% in 10 years

2
Asda Sustainability Objectives

• Send zero waste to landfill by 2010

• New stores consume 30% less energy by end 2009

• Existing stores consumer 20% less energy by end 2009

• Fleet transport reduces CO2 emissions by 40% by end 2009

• Reduce carrier bags environmental impact by 25% by end 2008

• Reduce food packaging by weight by 25% by end 2008

• 100% sustainable fish by end 2010

• ASDA brand products contain sustainable palm oil by end 2008

• End sale of filament light bulbs by end 2010

 And results so far…in 2007

• 65% of our waste is recycled, reused or composted

• 140,000 tonnes of cardboard
Recycled from the back
• 5,500 tonnes of plastic of our stores

• £8.9million p/a saved in landfill tax from recycling of cardboard

and plastic
• £12.3million p/a saved in energy consumption
• £6.1million saved in transport
• Winner of ‘Multiple Environmental Retailer of the Year’ at 2007
Retail Industry Awards
Consumer perceptions are changing

“I' d be prepared to pay a little more for products and services from a
company if I knew it did a lot for the wider society and community”

100%
Tend to agree
90% Agree strongly

80%

70%

60%

50%

40%

30%

20%

10%

0%
All 16-24 25-34 35-44 45-54 55-64 65+

Source: 'Changing Lives', nVision

Base: 1200 adults 16+, UK, 2006
SUSTAINABLE NON-FOOD PRODUCTS
Supply chain labour standards-

• Team of 200+ auditors

• 16,700 audits of 8,873 factories in 2006

– 26% of all audits unannounced

• 5,000 suppliers trained in 2006

• Industry Collaboration
– MFA Forum
– Business for Social Responsibility
Beyond Monitoring
– Global Social Compliance Program
– etc
Supply chain labour standards- Beyond Auditing

Ethical Standards
Collaboration Convergence Change Education and
Management Training

International Stakeholder Supplier Sustainability

Giving Engagement Development
International Giving

The Asia Foundation

• A vocational scholarship program for migrant women
factory workers in the Guangdong Province
Photo courtesy of The Asia Foundation
Hope Worldwide – India
• Vocational and primary education centers in areas concentrated with factories

Mobility International USA (MIUSA)

• Leadership development and empowerment of people with disabilities in Central America

CIMCAW
• A capacity building program for garment workers and manufacturers in Central America

Hope Worldwide – Kenya

• Vocational and primary education centers in areas concentrated with factories
and an HIV/AIDS program

Apparel Lesotho Alliance to Fight AIDS

• An HIV/AIDS prevention program for the apparel workforce in Lesotho
 Case Study-
An argument for a
more strategic approach
• Mid 20th Century UK Farming Strategy
– Post WWII, driven by the desire for Food Security, shaped by:

• Importance of food in households’ budgets in a potentially

unstable framework for international trade

• Importance of agriculture as a sector of the economy,

particularly in depressed areas

• Agriculture’s contribution to a trade balance constrained by

fixed exchange rates

Source:
Defra ‘Farming and Food’s Contribution to Sustainable Development: Economic & Statistical
Analysis 2002’
• Late 20th Century UK Farming Strategy
Driven by:
– Food security best served by improved trading relations vs.
self-sufficiency
– International/ domestic push to open markets, liberalise trade
& abolish subsidies
– Recognition of decline of agriculture’s role in rural economy
– Recognition of importance of countryside environment to
consumer
Source:
Defra ‘Farming & Food’s Contribution to Sustainable Development- Econ. & Statistical Analysis
2002. Defra “The Strategy for Farming & Food- Facing the Future 2002

Govt role fundamentally changes:

– Reward farmers for public benefits (landscape, access to
countryside)
– Take balanced approach to regulation
– Promote benchmarking & good practice
Source:
Defra “Sustainable Farming and Food Strategy” Forward Look” July 2006
Current Position of UK Farming Industry

– Declining farm incomes

– Declining labour force
– Declining importance of agricultural labour in UK workforce
– Declining importance of agriculture in UK economy
– Declining numbers of farm holdings
– Improvements in general levels of productivity
Source: Defra “Study of long-term trends affecting the farming industry” EFFP 2005

– But, decline in productivity against EU farm holdings

– Declining levels of self-sufficiency (from previous levels of 70%)
Source: Defra “Farming and Food’s Contribution to Sustainable Development: Current Situation” 2002

– And CAP reform/ WTO changes will exacerbate this situation

Source: Defra “Study of long-term trends affecting the farming industry” EFFP 2005
Defra “Agricultural Futures and Implications for Environment: Defra ISO209”
 However…

• CAP reform and UK Farming Strategy based on assumptions, including:

• ii) Extensive distribution networks
• i) Relative stability in Europe (no major wars in 50 years)
• iii) Relatively cheap costs of movement

• While Ceteris Paribus (“ All things being equal”) reform and strategy is
logical…

• Current and growing externalities have potential of introducing instability

• Impact of externalities is exacerbated by downwards trend re. self-
sufficiency, and exodus of knowledge/ experience from farming industry

• Externalities include:
– Population growth
– Climate change
– Energy security
Eg. Energy security

• 20th Century emerged as world’s first ‘oil based’ civilisation

• Estimated that approximately 10 calories of fossil fuels required
to produce 1 calorie of food
• Every step of modern food production is fossil fuel and
petrochemical powered (eg. pesticides from oil, fertilizers from
ammonia, farming implements construction and powered by oil,
etc)
• In a global economy, with extended food chains, it is not unusual
for a food item to travel thousands of miles

• President George W. Bush, May 2001

“What people need to hear loud and clear is we’re running out of
energy in America”
Energy security contd.

“The most significant difference between now and a decade ago is the
extraordinarily rapid erosion of spare capacities at critical segments of
energy chains. Today, shortfalls appear to be endemic. Among the most
extraordinary of these losses of spare capacity is in the oil arena…The
world is precariously close to utilising all of its available global oil
production capacity, raising chances of an oil crisis with more substantial
consequences than seen in 3 decades”
Source: “Strategic Energy Policy Changes for the 21st Century” US Council on Foreign Relations &
Baker Institute for Public Policy April 2001

Oil production currently in decline in 33 of the 48 largest oil producing countries

“Without timely intervention, world supply/ demand balance will be

achieved through massive demand destruction (shortages)…The
problems associated with world oil production peaking will not be
temporary…The challenge of oil peaking deserves immediate, serious
attention…the world has never faced a problem like this…”
Source: US Department of Energy, March 2005
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Spot the obvious mistake
“Of the world's 100 largest economic entities,
42 are now corporations, not countries”

-Center for Strategic and

International Studies, 2004
While future proofing is difficult at best…

• The challenges posed by climate change, population growth and

resource depletion clearly move Sustainability from the categories of
consumer ‘niche interest’ and ‘brand protection’

• Indeed, Sustainability is rapidly becoming a strategic issue for global

retailers and food manufacturers

• Question: To what extent will business respond to these issues? And

to what extent will business engage in collaboration with other
Stakeholders (govt, retail, manufacturing etc.) to address these
common challenges?
“The food business is far and away the most important business in the world.
Everything else is a luxury. Food is what you need to sustain life every day. Food
is fuel. You can't run a tractor without fuel and you can't run a human being
without it either. Food is the absolute beginning.”

Dwayne Andreas, former Chair and CEO of global grain trader, Archer Daniels Midland

Thank You