Thanks Dawit – this is a really interesting read. Its fascinating (and heartening!) to see the extent to which Kellogg have developed a strategy to address the environmental impact of their operations and they appear to be implementing this in their manufacturing sites. I would argue however, that there are issues in their supply chain that they also should seek to address as part of their climate change agenda. Specifically, as a supplier to Kellogg, we found there was limited engagement on sustainability, but more of a price focus. As a major CPG player, they have a moral obligation to improve sustainability throughout the supply chain and they are uniquely well positioned to do this.
This is a really interesting read Amanda – thanks for a great article! Working for a company that supply Tesco, I full agree with the issues that are outlined above. The impact on food imports and subsequent price implications could be significant, placing further stress on an industry that is already struggling with significant margin erosion. Another potential impact could be on labor costs as Tesco employs a significant number of low wage frontline employees, a significant portion of this is immigrant labour from the EU. If hard migration controls are imposed, this could limit low cost labour supply. However, given the uncertainty in the outcome of Brexit negotiations and specifically whether there will be a ‘hard’ or ‘soft’ Brexit, there is an argument for Tesco to hold off on significant actions at this stage.
I found this article fascinating, particularly from the perspective of a company that was directly involved in the UK horsemeat scandal in 2013. The most significant impact of this scandal was a massive increase on traceability requirements for suppliers. Since the scandal, UK retailers have imposed new obligations on UK suppliers requiring them to be able to trace every component of a food product to the original source within 3 hours of a request. They audit this standard regularly. Obviously, the ability to employ blockchain technology to achieve this would revolutionise the supply chain and dramatically reduce the complexity of this task. However, for me, the biggest challenge in implementing this technology is slim margins in elements of the supply chain for food. This would require co-operation and investment at each stage of the supply chain and the dollar investment required could be prohibitive for some or all players.
This is a really interesting article Nam! The battle between Wal-Mart and Amazon is just beginning and it will be fascinating to see how this plays out over the coming decade. Wal-Mart have such strong pricing power and relationships with suppliers which have enabled them to undercut all competition on price to date which is their core competitive advantage. However, as you highlight, I think sustaining this price advantage will be challenging as Amazon continue to grow their scale, without the legacy cost base from brick and mortar stores that Wal-Mart have. You outline how they have started to develop a digitisation strategy by leveraging their brick and mortar stores which is an interesting proposition. However, it seems like they don’t yet have coherent strategy or proposition to compete with Amazon and they will need to consider how their legacy cost base will impact their ability to compete on price.
This is a really interesting article Grant and I agree with your perspective and the issues you raise. The aspect of ingredient sustainability was particularly interesting to me – and for corn specifically where over-reliance is a broader issue for the US food industry. Corn as a crop is not particularly sustainable from a farming perspective, as it depletes nitrogen and requires significant water usage to farm, even more so than other crops. This also means corn is more vulnerable to climate change, particularly droughts (https://modernfarmer.com/2014/06/thing-sustainable-corn/), which could impact on corn availability and prices over the coming decade.
I see that Kellogg have a policy in place to identify corn as one of their 10 priority ingredients for responsible sourcing (http://www.openforbreakfast.com/en_US/content/sustainability/responsible-sourcing.html), however, this effort appears to be focussed on “taking into account social and environmental considerations when sourcing these ingredients with suppliers”. In my mind, this does not go far enough and Kellogg should more actively consider the implications of their corn usage on the environment and their future cost structure. As such, to your question on whether consumers are willing to pay more for products created using sustainable supply chains – I would argue that whilst this might be true in the short term, in the medium term, Kellogg might actually benefit from reduced prices through reducing the composition of corn in their products.