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T4 Part B Case
       Study Examination

Sustainable trading in the
    supermarket industry

                 Industry
           Familiarisation

         Sept / Nov 2011
© Kaplan Financial Limited, 2011
The text in this material and any others made available by any Kaplan Group company does not amount to
advice on a particular matter and should not be taken as such. No reliance should be placed on the content as
the basis for any investment or other decision or in connection with any advice given to third parties. Please
consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan
group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether
direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.
Printed and bound in Great Britain.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted,
in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior
written permission of Kaplan Publishing.



ii                                                                                        KAPLAN PUBLISHING
Contents

Introduction


Chapter 1:          Sustainability as a strategy

Chapter 2:          Key players

Chapter 3:          Sustainable trading

Chapter 4:          Responsible trading

Chapter 5:          Employees

Chapter 6:          Nutrition & healthy eating

Chapter 7:          Communities

Chapter 8:          Internet retailing

Chapter 9:          Combating climate change

Chapter 10:         Other relevant developments

Chapter 11:         25 Quotable facts




KAPLAN PUBLISHING                                  iii
Introduction

Introduction
     The aim of this booklet is to give you some background to the issues faced by
     supermarkets, in particular in relation to the area of sustainable trading, so you are
     able to better assess the pre-seen information for the Papy supermarket case.

     Whilst there may only be 5 diversity marks available for “displaying knowledge of
     relevant real life situations within the same or similar context as that in which the case
     is set”, a sound understanding of how the industry operates is essential to passing the
     Case Study Examination.

     Without it you will be unable to demonstrate good commercial judgement on the day.
     Without good judgement, you will be unable to offer sensible and realistic
     recommendations. This booklet should not therefore be regarded as a quick way to
     get 5 diversity marks. It is more a key to unlock nearly 50% of the marks on your Case
     Study paper.

     For each area, we provide some guidance on how this might be relevant in your exam.
     In addition, the final chapter contains a list of 25 easy to remember, quotable facts,
     grouped under topics that may come up in the exam.

     It is worth noting that much of the research for this document has been performed by
     looking at the large supermarket chains operating in the UK: Tesco, Asda, Sainsbury,
     Morrison, Co-operative Group and Marks & Spencer. However, the issues facing these
     supermarkets are no different to those facing any of the supermarket chains
     throughout Europe.

     If you are a Kaplan registered student, you can further develop your understanding of
     the industry, by watching our “industry expert” podcasts, and by using the discussion
     forum, both of which are available via Kaplan EN-gage.




KAPLAN PUBLISHING                                                                             1
Sustainability as a strategy

Chapter 1 – Sustainability as a strategy
        Why?
        One of the most important reasons why companies fail is that they ‘miss colossal
        external changes’1, and climate change can certainly be bracketed into this category.
        According to the 2006 Stern Report, climate change poses a major risk to the global
        economy, possibly shrinking its output by 20%.
        Every organisation will be affected, with resources that we currently take for granted
        such as water, food and carbon being in short supply. As a result, companies that are
        well positioned and pro-active, that start tackling these issues now, could create
        opportunities to increase their value by up to 80%2.
        Sustainability is no longer just about ‘doing the right thing’. In addition to the long-
        term needs of society, there are other real benefits of becoming a greener company:
              •   Reduced operating costs
                  Be it savings in energy costs or reducing waste, this is a very tangible benefit
                  from re-engineering to greener processes.
                  For example, Marks & Spencer launched their Plan A approach to business in
                  January 2007, with the aim of becoming the greenest retailer in the world. It
                  included 100 commitments designed to make the company carbon neutral,
                  send no waste to landfill, extend sustainable sourcing, and set new standards
                  in ethical trading. According to M&S, by year two the plan was cost neutral. By
                  year three the effort was rewarded with savings of £50 million - which, in
                  theory, should increase year-on-year.
              •   Increased sales and the development of new income streams
                  Research by the Carbon Trust 3has shown that over 65% of consumers think
                  it’s important to buy from environmentally responsible companies.
              •   Increased customer loyalty and motivation for employees.
                  The image of the company and its products are enhanced because
                  stakeholders believe the company acts according to the principles of integrity
                  and best practice.




1
 Bregory P. Hackett and JohnEvans, Why Companies Fail: And the Information Imperatives to help Ensure
Survivability, Kalido White Paper, 2007.
2
    Carbon Trust & McKinsey Company , Climate Change – a business revolution?, www.carbontrust.co.uk
3
    Carbon Trust – Green your Business for Growth, March 2011


KAPLAN PUBLISHING                                                                                       3
Chapter 1
            •   Compliance with regulations
                Being ahead of the game will ensure compliance with the increasing
                regulations in this area.
       It is clear therefore that in order to maximise long-term shareholder wealth, to
       manage risk and to offer security for employees, strategies relating to sustainability
       must be embedded as part of the core strategic goals.
      How?
      The key way to embed sustainability strategies is to ensure effective target setting and
      monitoring. 60% of the FTSE 100 now declare targets to improve their environmental
      performance. However, research4 by the Carbon Trust has revealed significant
      differences in the rigour and quality of the targets that have been publicly set and
      reported.
      The Carbon Trust applied a simple framework to assess the quality of each target:
            •   Were they precise in what was being measured (including geographical and
                organisational boundaries, and the timescale)?
            •   Was it possible to measure the data behind the target accurately?
            •   Were they stretching and aspirational?
            •   Were they appropriate and relevant to the business and its sector?
      The research revealed that a number need to be revised and republished as they had
      either outlived their target date, not stated dates for their target, or not stated a
      baseline year.
      The research also found that:
            •   Most companies that have set good quality targets declare between one and
                five targets each.
            •   55% of the time-bound targets identified were short-term, dealing with
                timeframes from 2011 to 2013.
            •   22% of targets had timeframes to 2018 or beyond.
            •   53% of the targets relate to carbon, greenhouse gas emissions or energy
                reductions.
            •   26% of the FTSE 100 companies set targets to reduce the environmental
                impact of waste and 22% to reduce water use.
      The briefing document finished by providing key advice for setting high quality targets.


4
 Raising The Bar – Building sustainable business value through environmental targets, Business briefing from
Carbon Trust Advsory Services, June 2011.


4                                                                                      KAPLAN PUBLISHING
Sustainability as a strategy
     This includes:
        •   Set short-term as well as medium and long-term targets. The longer-term
            goals act as a vision with the short-term targets as stepping-stones.
        •   Build the business case; demonstrate value to all stakeholders.
        •   Set stretching targets.
        •   Act quickly. Having sustainability on the agenda for a long time with limited
            action increases apathy.
        •   Collect data: build a baseline and have robust reporting mechanisms in place.
     Relevance in the exam
     An appreciation of the business case for focusing on sustainable trading, together with
     an awareness of key drivers of environmental targets will help you to comment of the
     plans ahead for Papy.




KAPLAN PUBLISHING                                                                           5

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Industry Familiarisation Book Sept/Nov 2011

  • 1. T4 Part B Case Study Examination Sustainable trading in the supermarket industry Industry Familiarisation Sept / Nov 2011
  • 2. © Kaplan Financial Limited, 2011 The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Printed and bound in Great Britain. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Kaplan Publishing. ii KAPLAN PUBLISHING
  • 3. Contents Introduction Chapter 1: Sustainability as a strategy Chapter 2: Key players Chapter 3: Sustainable trading Chapter 4: Responsible trading Chapter 5: Employees Chapter 6: Nutrition & healthy eating Chapter 7: Communities Chapter 8: Internet retailing Chapter 9: Combating climate change Chapter 10: Other relevant developments Chapter 11: 25 Quotable facts KAPLAN PUBLISHING iii
  • 4. Introduction Introduction The aim of this booklet is to give you some background to the issues faced by supermarkets, in particular in relation to the area of sustainable trading, so you are able to better assess the pre-seen information for the Papy supermarket case. Whilst there may only be 5 diversity marks available for “displaying knowledge of relevant real life situations within the same or similar context as that in which the case is set”, a sound understanding of how the industry operates is essential to passing the Case Study Examination. Without it you will be unable to demonstrate good commercial judgement on the day. Without good judgement, you will be unable to offer sensible and realistic recommendations. This booklet should not therefore be regarded as a quick way to get 5 diversity marks. It is more a key to unlock nearly 50% of the marks on your Case Study paper. For each area, we provide some guidance on how this might be relevant in your exam. In addition, the final chapter contains a list of 25 easy to remember, quotable facts, grouped under topics that may come up in the exam. It is worth noting that much of the research for this document has been performed by looking at the large supermarket chains operating in the UK: Tesco, Asda, Sainsbury, Morrison, Co-operative Group and Marks & Spencer. However, the issues facing these supermarkets are no different to those facing any of the supermarket chains throughout Europe. If you are a Kaplan registered student, you can further develop your understanding of the industry, by watching our “industry expert” podcasts, and by using the discussion forum, both of which are available via Kaplan EN-gage. KAPLAN PUBLISHING 1
  • 5. Sustainability as a strategy Chapter 1 – Sustainability as a strategy Why? One of the most important reasons why companies fail is that they ‘miss colossal external changes’1, and climate change can certainly be bracketed into this category. According to the 2006 Stern Report, climate change poses a major risk to the global economy, possibly shrinking its output by 20%. Every organisation will be affected, with resources that we currently take for granted such as water, food and carbon being in short supply. As a result, companies that are well positioned and pro-active, that start tackling these issues now, could create opportunities to increase their value by up to 80%2. Sustainability is no longer just about ‘doing the right thing’. In addition to the long- term needs of society, there are other real benefits of becoming a greener company: • Reduced operating costs Be it savings in energy costs or reducing waste, this is a very tangible benefit from re-engineering to greener processes. For example, Marks & Spencer launched their Plan A approach to business in January 2007, with the aim of becoming the greenest retailer in the world. It included 100 commitments designed to make the company carbon neutral, send no waste to landfill, extend sustainable sourcing, and set new standards in ethical trading. According to M&S, by year two the plan was cost neutral. By year three the effort was rewarded with savings of £50 million - which, in theory, should increase year-on-year. • Increased sales and the development of new income streams Research by the Carbon Trust 3has shown that over 65% of consumers think it’s important to buy from environmentally responsible companies. • Increased customer loyalty and motivation for employees. The image of the company and its products are enhanced because stakeholders believe the company acts according to the principles of integrity and best practice. 1 Bregory P. Hackett and JohnEvans, Why Companies Fail: And the Information Imperatives to help Ensure Survivability, Kalido White Paper, 2007. 2 Carbon Trust & McKinsey Company , Climate Change – a business revolution?, www.carbontrust.co.uk 3 Carbon Trust – Green your Business for Growth, March 2011 KAPLAN PUBLISHING 3
  • 6. Chapter 1 • Compliance with regulations Being ahead of the game will ensure compliance with the increasing regulations in this area. It is clear therefore that in order to maximise long-term shareholder wealth, to manage risk and to offer security for employees, strategies relating to sustainability must be embedded as part of the core strategic goals. How? The key way to embed sustainability strategies is to ensure effective target setting and monitoring. 60% of the FTSE 100 now declare targets to improve their environmental performance. However, research4 by the Carbon Trust has revealed significant differences in the rigour and quality of the targets that have been publicly set and reported. The Carbon Trust applied a simple framework to assess the quality of each target: • Were they precise in what was being measured (including geographical and organisational boundaries, and the timescale)? • Was it possible to measure the data behind the target accurately? • Were they stretching and aspirational? • Were they appropriate and relevant to the business and its sector? The research revealed that a number need to be revised and republished as they had either outlived their target date, not stated dates for their target, or not stated a baseline year. The research also found that: • Most companies that have set good quality targets declare between one and five targets each. • 55% of the time-bound targets identified were short-term, dealing with timeframes from 2011 to 2013. • 22% of targets had timeframes to 2018 or beyond. • 53% of the targets relate to carbon, greenhouse gas emissions or energy reductions. • 26% of the FTSE 100 companies set targets to reduce the environmental impact of waste and 22% to reduce water use. The briefing document finished by providing key advice for setting high quality targets. 4 Raising The Bar – Building sustainable business value through environmental targets, Business briefing from Carbon Trust Advsory Services, June 2011. 4 KAPLAN PUBLISHING
  • 7. Sustainability as a strategy This includes: • Set short-term as well as medium and long-term targets. The longer-term goals act as a vision with the short-term targets as stepping-stones. • Build the business case; demonstrate value to all stakeholders. • Set stretching targets. • Act quickly. Having sustainability on the agenda for a long time with limited action increases apathy. • Collect data: build a baseline and have robust reporting mechanisms in place. Relevance in the exam An appreciation of the business case for focusing on sustainable trading, together with an awareness of key drivers of environmental targets will help you to comment of the plans ahead for Papy. KAPLAN PUBLISHING 5