Generation Next Thinking: Greening the supply chain
From using energy-efficient fridges to diverting waste destined for landfills, grocers are working to reduce their environmental footprint. While sustainability initiatives have become increasingly important, the fact is, grocers aren’t the biggest culprits in the pollution problem.
Today, food systems generate one-third of global greenhouse gas (GHG) emissions, with around two-thirds coming from agriculture and land use, according to the United Nations. In a McKinsey & Company analysis of 40 of the world’s largest grocers and their value chains, Scope 1 emissions (direct from grocers’ operations) and Scope 2 emissions (emissions associated with the purchase of electricity, steam, heating or cooling) only account for about 7% of their total emissions, on average, while 93% are outside grocers’ direct control.
However, the heat is on, as ambitious climate commitments have been set by the Canadian government (achieving net-zero by 2050) and global food-industry players have set their own science-based targets—some pledging to reduce emissions upwards of 50% by 2030. As the last stop before products reach consumers, grocers are in a position to help integrate sustainability across the supply chain. And experts say the time is now.
“The hard reality is, if we don’t do this, we’re not going to have healthy supply chains because we’re going to have continued climate risk, drought, deforestation, biodiversity loss and landuse changes,” says Joe Solly, partner, consumer sustainability and climate leader at Deloitte in Toronto. “It’s just going to be an ugly situation across your supply chain … because you won’t have access to the things you need [like commodity crops], nor will your suppliers. Costs will also escalate to unaffordable levels with scarcity and carbon pricing around the world.”
Beyond environmental benefits, consumers are increasingly making sustainability a factor in their food choices, according to Deloitte. In a recent survey, the firm found that 94% of Canadian consumers believe it is a brand’s responsibility to create products that are not harmful to the planet. And despite tightening their purse strings, consumers are rewarding brands that deliver on sustainability promises, with 62% of shoppers showing a willingness to pay a premium of 20% or more on sustainably produced goods and services. “If companies do this right, they can build their brand and gain trust in the market among consumers,” says Solly.
As sustainability moves up on the food industry’s agenda, here’s a look at some of the efforts grocers can make to help green the supply chain.
Shifting gears: Low carbon transportation and logistics
With food products transported from around the globe by road, rail or sea, transportation is a big contributor to GHG emissions. Retail supply chain expert Gary Newbury says retailers can reduce emissions through more efficient logistics, exploring biofuel options, optimizing delivery routes and with electric vehicles (EVs). “There are a lot of options along that path … converting to biofuels and eventually full electrification,” he says.
READ: How extreme weather affects prices along the food supply chain
One challenge, however, is EV charging infrastructure in Canada hasn’t really caught up, says Newbury. “Companies are looking at what happens if there’s an emergency and all the vehicles are on [electric] charges. Normally, they’re just putting in diesel and off it goes and they don’t worry too much about it.”
On the logistics front, retailers can reach their carbon footprint goals with the help of artificial intelligence (AI), notes Amar Singh, senior director of retail at Kantar Retail. For example, AI tools allow retailers to see weather patterns and buying trends, allowing for optimized demand planning. The technology can also predict when products will arrive from a manufacturing facility to a store, helping to reduce the purchase cycle and move products quickly. “You can really streamline the justin-time process all the way from manufacturing to the selling cycle,” says Singh. “The faster you sell products, the lower the holding costs and the lower the environmental costs become.”
As part of its sustainability strategy, Longo’s is taking some trucks off the road thanks to the recent expansion of its distribution centre in Vaughan, Ont. “Through our distribution project, we are able to optimize direct store delivery channels and convert them into the warehouse,” says Sara Olivieri, sustainability specialist at Longo’s. “Through channel optimization, this saves over 180,000 truck stops yearly, which results in a significant reduction in our overall greenhouse gas emissions.”
For Calgary Co-op, transportation is a key focus area in its ongoing environmental efforts. “We make sure our trucks are cubed out [maximizing cargo space] and that there’s the most efficient transportation and logistics from [the wholesalers’] point of view, on the road to us,” says Ken Keelor, CEO of Calgary Co-op. “That helps us with the environment as well as managing our financial sustainability.”
Another way Calgary Co-op minimizes its footprint on the transportation front is using local suppliers, which minimizes the distance trucks must travel. The retailer sources more than 2,400 products from 300 local vendors. “Shipping locally means shorter lead times and it’s easier to get the product to our stores,” says Keelor.
There’s a social impact with going local, too. “Fostering that local economy helps some of these suppliers stand up on their feet and go national one day,” Keelor adds.
Declaring war on waste
While grocers use a variety of strategies to reduce food and packaging waste in their stores—from selling “ugly” produce to recycling cardboard—there are plenty of ways to reduce waste along the supply chain.
Deloitte’s Solly notes that grocers can now monitor food in transit with internet of things (IoT) or AI—and not just the trailer temperatures, but the temperature of the products themselves. “You can insert sensors in skids between layers of cheese and milk, for example, and monitor the product temperature to avoid spoilage—and all that is online,” he explains.
READ: Shoppers turn to ‘imperfect produce’ as grocery prices rise
Longo’s has a waste reduction strategy that includes inventory management and demand forecasting, in addition to more store-focused efforts such as food markdowns and donations. “Waste is a huge emitter of greenhouse gas emissions, so having inventory management and demand forecasting ensures we’re ordering the correct amount of food, which minimizes waste and reduces greenhouse gas emissions,” says Olivieri.
On the packaging front, there’s a big consumer push for options that are less wasteful, says Kantar’s Singh. “Shoppers demand waste reduction and they want packaging materials that are more easily disposed of, are recyclable and have a lower carbon footprint,” he says. “And that’s where retailers are putting pressure on suppliers with packaging—if they can get away with it, less is more.”
For their part, “suppliers are also trying to find the best margins they can on their products because the costs have gone up, the raw material costs have gone up, the shipping costs have gone up,” adds Singh. “They’re really focused on those materials so they can reduce packaging waste. So, this is a win-win situation for all of them.”
Walmart’s Project Gigaton, which encourages suppliers to reduce their carbon footprint, places a big focus on packaging waste. Depending on a supplier’s scope, timeline and goal, suppliers can make commitments such as designing 100% of packaging to be fully recyclable by 2030, increasing use of recycled content by 20% by 2025, lessening packaging weight by 10% by 2025, or reducing 10% of virgin plastic packaging by 2025.
When Walmart launched Project Gigaton in the United States in 2017, its goal was to work with suppliers to reduce, avoid or sequester one gigaton (or one billion metric tons) of greenhouse gas emissions in product value chains by 2030. (Besides packaging, other focus areas are energy efficiency, food waste reduction and trucking load optimization.) Earlier this year, Walmart announced it had exceeded one gigaton—meeting its goal six years early.
In a corporate news article, Kathleen McLaughlin, Walmart’s executive vice-president and chief sustainability officer, highlighted the positive benefits to both suppliers and customers. “So often, the projects that reduce emissions are also the projects that enhance resilience, reduce cost, improve quality and create innovative new products for our customers,” she wrote.
Of course, in the quest to reduce emissions, not every grocer has as much influence as the major retailers. Keelor notes that Calgary Co-op is small, with 22 stores relative to the big giants in the industry. “And so, our focus is on making sure that we leverage local suppliers as much as possible and that we continue to grow our private brands with as much local focus as we can,” he says. “But, we’re very dependent on wholesalers when it comes to packaging reduction in the supply chain … We don’t sit here telling our suppliers to reduce their packaging because we don’t have that capability in terms of size.”
Buying for a better world with ethical sourcing
The unfortunate reality of a global food chain is that many products come at a huge social and environmental cost where the items are sourced. Issues the food industry is working to address include unfair wages, child labour, poor working environments, animal welfare, environmental harm and more.
Several years ago, Longo’s took a broader look at commodities that had significant social and environmental impacts where they’re conventionally produced. In 2021, Longo’s became the first grocery retailer in North America to offer only Fairtrade bananas in all its stores. The move was made possible through a partnership with Equifruit, a Fairtrade-certified banana importer that works to ensure farmers are paid fairly.
In 2023, Longo’s became the exclusive home for Tony’s Chocolonely in Canada, offering a selection of its Fairtrade-certified Belgian chocolate products. “With ethical sourcing, we want to ensure farmers in communities where these products are sourced are being paid a fair and sustainable income and are treated fairly,” says Olivieri. “We also have several private-label coffee products that are certified Fairtrade—Fairtrade being the most trusted and ethical label. And that assists producers in developing countries achieve more equitable and sustainable trade relationships.”
For Calgary Co-op, its focus on ethical sourcing includes animal welfare and sustainability practices. For example, the retailer works with Egg Farmers of Alberta—which has a Healthy Birds pillar that’s all about the responsibility of egg farmers to raise and care for their flocks—and Ocean Wise, which supports sustainable seafood.
Keelor also notes that Calgary Co-op recently completed the reporting required for Bill S-211, The Fighting Against Forced Labour and Child Labour Supply Chains Act, which passed in 2023 and took effect this year. The new law requires publicly listed companies, as well as those that meet two of these three conditions—$20 million in assets, $40 million in sales or 250 employees—to report publicly on the actions they’re taking to prevent and reduce the risk that forced labour and child labour are present in their supply chains.
“When we did the Bill S-211 work, we had to engage with a whole bunch of suppliers to collect information on what they’re doing,” Keelor says. With every retailer presumably reaching out to the same suppliers, he adds, “I don’t know how they coped with it, but I thought [the bill] was a good signal from the government around ethical sourcing and sustainability.”
Where to next?
If there’s one big takeaway for grocers, it’s that it’s paramount for companies to look at sustainability in a meaningful way, as a real thing that needs to be done, says Solly of Deloitte.
He sees sustainability as being akin to other revolutions or transformations such as digital. When that began, the message was “go digital or your business is going to die,” he says. “Everybody hired a chief digital officer and transformed the business. Those people aren’t around anymore. There’s no more chief digital officer because everything is digital.”
In that regard, sustainability is the new digital. “It is the next transformative plateau for businesses to redefine how they operate and continually win in the market while being loved by consumers,” Solly says. “Because if you’re not sustainable in everything that you do, you will not be around anymore.”
While the benefits of sustainable supply chains are increasingly clear, Newbury says sustainability remains an add-on for many organizations—a box to tick—rather than a long-term strategy. That needs to change.
“What we need to do now is ensure the long-term sustainability of supply chains can protect against future resource shortages—which could be land, water or people—and price volatility,” the supply chain expert says. “We know that climate change is real and it can affect availability and price as a result, so companies need to invest wisely to ensure supply chains become more resilient. That’s not a short-term bet. That’s a long-term play.”
Generation Next Thinking is an ongoing series that explores the cuttingedge topics that are impacting grocery retail today and in the future.
This article was first published in Canadian Grocer’s August issue.
