Whole Foods (WFMI)
HIP practices:  Perishable items comprise 67% of sales, meaning fresh food for customers.  As the first mover, Whole Foods proved large demand for quality fresh foods, sparking food retailers to offer more organic, artisan, and/or local products – a benefit for more customers than they serve directly (though a multi-year erosion on shareholder value).

Not-so-HIP practices: While making the largest wind-energy-credit purchase in the history of North America and offsetting 100% of its electricity use, Whole Foods refused to release the exact cost of the credits.  A comparable purchase of offsets on Terrapass would cost $4.2 million.  From a shareholder perspective, Whole Foods might have earned a higher return (and reduced energy demand) by investing those funds in their own clean-energy generation systems (like rooftop solar and wind farms).
Safeway (SWY)
HIP practices: Safeway’s Food Flex program allows a household to quickly and easily view their grocery purchases, benchmark their performance against USDA guidelines, identify healthier food alternatives in specific grocery categories and create a personalized shopping list to achieve their nutritional goals – boosting customer health and loyalty simultaneously.  Expect continued growth “O Organics” and “Eating Right” brands, both of which have contributed to over $400 million in sales in 3 years and are available at all stores nationally.

Not-so-HIP practices:  CEO Steve Burd has been compensated over $108 million in the past five years and currently ranks as the 14th highest paid CEO by Forbes magazine while only the 167th most effective.

Wal-Mart (WMT)
HIP practices:  Walmart is beginning to rate and rank suppliers with a scorecard tracking sustainability, weighting those factors alongside price, quality and service, and shifting the mix of products that is merchandised in their stores. With 60,000-plus suppliers globally and 85% of their goods coming from China, a sustainability scorecard is shifting global businesses towards more sustainable products and packaging – at lower prices for consumers.

Not-so-HIP practices:  Mandatory meetings conducted this year suggest to store managers and department supervisors (hourly employees) that a vote for a Democratic president could mean no choice on joining a union, higher costs for Wal-Mart, and possible loss of Wal-Mart jobs.
Kroger (KR)
HIP practices:  Kroger sources $1 billion annually from minority or women owned business; and employee a chief diversity officer who manages supplier and employee diversity initiatives.

Not-so-HIP practices: Kroger’s Board rejected a 2006 proposal by shareholders, the Nathan Cummings Foundation, to conduct an independent assessment on Kroger’s baseline (GHG: greenhouse gas) emissions and what the company could do to lower the overall level. – and hence future potential liabilities.

Tesco, including Fresh and Easy (TSCDY)
HIP practices: In the U.K., Tesco’s local sourcing procures 3,000 products worth $780 million in 2007 revenue, with goal of $2 billion by 2011.  Tesco is currently testing a carbon labeling system on varieties of orange juice, potatoes, energy-efficient light bulbs, and washing detergent, stating the quantity in grams of CO-2 equivalents polluting the atmosphere by their manufacture and distribution.

Not-so-HIP practices: Tesco seems pretty HIP to us…do you have thoughts about what they need to improve upon?  Add your comments and let HIP know.

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As consumers and investors alike begin to realize that the decisions we make with our money have a dramatic effect on the world’s social and ecological systems, there is increased pressure for our nation’s major grocers to go “green”.  People of all backgrounds are beginning to ask their grocers, “Are you selling fresh produce in urban and suburban areas?” “How are you keeping your supply chain safe and improving it?” and, “What is your company doing to reduce its carbon footprint?”

The industry leaders – from Whole Foods to Walmart – are adapting to the changing market with smaller stores in more locations, innovative programs for improving their supply chain, and increased investment in clean technology.   However, creating an integrated strategy that encompasses the HIP methodology – setting and achieving goals for positive human impact that drive increased profit – has proven difficult for all the players.  By incorporating concepts of sustainability into the heart of their business model, and linking them to their billions of dollars in expenditures, these businesses have the opportunity for significant growth and increased status amongst consumers, investors, and employees.
For grocers to truly maximize Human Impact + Profit, they have to transform lone practices into one cohesive strategy.  The grocery industry has a unique, important role to play in the move to sustainability and they can further the process by focusing on three distinct areas of their business:

1) Healthy Foods – Access, education, promotion.  Providing access and education, and promoting healthy foods, can directly benefit customers, employers, and shareholders.  By improving customers’ and employees’ personal health, grocers can reduce their own healthcare costs and those of their stakeholders, and profit directly from a growing market need for nutritious foods. Through education initiatives and increased supply, they will generate additional demand, creating a virtuous cycle of healthy eating.  In addition, healthy foods, such as fresh fruits and vegetables, are on average lower in carbon emissions, food miles, packaging, and resource use than processed foods and meats – which brings overall environmental and operating costs down.

A recently released study from the Department of City Planning in New York City found that over 3 million New York residents (37% of the population) live in areas with a high need for a grocery store or supermarket.  The study used metrics that included high population density, low access to a car, low income, high rates of diabetes, high rates of obesity, and low consumption of fruits and vegetables.  It estimated the potential for over 100 new stores with anticipated revenue of $1 billion in New York City alone.

This is an issue that has been largely overlooked by the industry, and Whole Foods Market is a prime example.  With their practice of only locating stores near a “large number of college educated residents” and with prices that clearly seek to serve affluent consumers, it is hard to see how their mission to “change the way the world eats” can be accomplished.  With only 27% of the US adult population holding a college degree, the strategy of a nationwide food company to focus on that segment of the market is inherently narrow and drives a lower HIP score in the Equality metric (access for customers of all income levels).  This has also amplified financial problems, with a continuous slide of their stock value since the end of 2005 and a loss of more than 50% over the past year.  It seems CEO John Mackey is slowly figuring it out: “With the price of gasoline right now, … people aren’t driving as far, as frequently to our stores as they used to,” Mackey said during a recent investor conference call.

There is a direct correlation between the problems of access and overall health and life expectancy. A recent Harvard Medical School report found that the life expectancy of Americans with less than 12 years of education is 7 years less than those with more than 12 years of education.  That gap in lifetime is actually has actually widened since benchmarks set in 1990.  Less education equals less income, and as the graph below (originally published in the New York Times) shows, it also leads to higher rates of obesity.  These human problems do have market-based solutions–and provide an excellent opportunity for grocers to enhance profits.

For the fundamental issue of access to be solved it may take a “British Invasion”.  The United Kingdom’s largest retailer and the world’s third largest, Tesco, recently entered the U.S. market with an innovative chain called “Fresh and Easy”.  Their stores, mostly located in high need areas, are 1/6th the size of an average grocery store.  They have posted the highest sales nationwide in the produce and prepared food categories, largely because they are providing access to healthy foods in places that typically lack it.  Tesco’s Fresh and Easy recently opened the first new grocery store in Compton, California in over three decades.  With their neighborhood strategy they have been committed to being good neighbors by refusing to sell tobacco products or non-wholesale quantities of alcohol, reducing noise on their trucks by 66%, and adopting a zero noise policy after 9pm.

While their strategy targets profitability, they have experienced some setbacks early on; Tesco expects to post a $200 million loss in the U.S. the first two years.  With investors like Warren Buffett (who owns 4% of Tesco) continuing to support the investment and seeing strong returns overall, Fresh and Easy is still a promising venture.  Tesco has succeeded in one thing at least: alarming American retailers to the fundamental issues of access.  U.S. retailers are following their lead, with Safeway and Wal-Mart piloting similar store models in proximity to the already existing Fresh and Easy stores.

2) LEVERAGING CAPITAL.  Grocery chains experience very low profit margins, with 95% to 99% of grocery stores’ revenue going predominantly to labor, product, and energy.  However, the stores that ask, “How can we use our money in a way that increases the long term value of the company’s infrastructure, suppliers, employees, and customers?” will have a greater chance for increased long term profits.  While the idea of voting with your dollars empowers many of us, following your monetary impact through your food’s supply chain may leave you bewildered.  How the five companies we assessed in our scorecard — Wal-Mart, Whole Foods Market, Tesco, Kroger, and Safeway — leverage their collective total revenue of $624 billion has the power to drive worldwide markets and directly impact the lives of millions of people.

Whole Foods currently has the most innovative monetary policy.  They loan $10 million annually to improve and localize their supply chain at interest rates between 5% and 9%.  Whole Foods makes loans to local producers that sell value-added products, produce, and other natural items.  This provides Whole Foods with improved public perception and additional incremental revenue. It also results in greater supplier efficiency, which should translate to lower costs for consumers.

In addition, since launching the Whole Planet Foundation in 2005, they have donated over $5 million to high-impact microfinance projects in the communities from which they source their goods.  The money is used to provide loans to micro-entrepreneurs and once paid back is loaned to someone else in the same community with the mission of lifting the entire community out of poverty.  The impact is similar to that of their loan program, with entire communities in Latin America and India increasingly able to provide value added goods at reasonable prices.  This is an innovative way to participate in charitable giving that spurs innovation and entrepreneurship in developing nations, while also driving stronger financial returns for the donor.

3) ENVIRONMENTAL SUSTAINABILITY.  The dramatic increase in stakeholders’ concern about the carbon footprint of their food, as well as exponentially rising energy costs, demand that companies get serious about energy efficiency and supply chain management.  In addition, a forthcoming “cap-and-trade” system for Greenhouse gases could reward the most efficient grocers.  There are many “low hanging fruit” energy reductions companies can make, and such initiatives, many of which have short-term paybacks, have the potential to significantly cut operating costs.

Walmart has been an active leader in this arena since October 24, 2005 when CEO Lee Scott made his now infamous speech that Wal-Mart would strive for zero waste, be powered by 100% renewable energy, and sell only sustainable products.  While many of the grocers have struggled through the slowing economy and rising commodity and energy costs, Wal-Mart’s stock price has risen 25% since the day of that speech.  Many of the initiatives and results that came out of that speech’s vision helped to drive this increased profit.  One of the most recent examples is Wal-Mart’s mandatory switch to sell only concentrated laundry detergent.  Over three years in the United States, the commitment is expected to save more than 400 million gallons of water, 95 million pounds of plastic resin and 125 million pounds of cardboard. This move will also provide a shareholder return since Walmart will save on transport and storage costs.

Safeway should also be recognized for their quantifiable targets around energy initiatives.  In HIP’s interview with Joe Pettus, Senior VP of Fuel and Energy, he stated, “Let’s define what green means at Safeway. Green for us is less carbon.  We can have it measured by outside auditors and see our progress.  What you can’t measure, you can’t manage.”

Safeway is currently the only retail member of the Chicago Climate Exchange, which mandates a legally binding obligation to cut greenhouse gas emissions.  Safeway has committed to reduce its emissions by 6% from its year 2000 levels by 2010 – or to buy the equivalent carbon offsets.  In January of 2008, the retailer converted virtually its entire transportation fleet to B20 ethanol (20% ethanol, 80% conventional diesel) to prevent 75 million pounds of CO2 from being emitted this year. It has implemented the Smart Fleet model with its fleet of 1,000 trucks, using software and driver education to save 19.5 million in fuel costs in 2006.  As the price of fuel continues at record levels, these savings will continue to pay dividends.

In addition, Safeway produces around half of its necessary power with natural gas generators through an intermediary company and uses the money it saves bypassing the utilities to purchase 90 million kilowatts in wind energy credits.

Overall, grocers that apply the three HIP strategies above — increase access to healthy food, leverage their capital, and pursue environmental sustainability – should expect to gain new and loyal customers, inspired employees and higher returns for shareholders.  Focusing on boosting human impact leads to higher profits, and that is how your grocer can be both “green” and “HIP”.

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To see how Safeway, Wal-Mart, Whole Foods, Kroger, and Tesco measure up on the HIP scorecard and where you should consider “voting” with your consumer dollars or investment portfolio, CLICK HERE: http://www.hipinvestor.com/hip-perspectives/whats-hip-and-not-so-much-about-your-grocer-by-lee-coker/ .

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HIP Investor’s popular Roundtable Series is now being delivered online and coming straight to your computer wherever you are! At each “webinar” session, a new industry or hot topic will be explored with thorough analysis and rich discussion led by HIP’s CEO + Founder R. Paul Herman. Industry experts and innovative executives will make guest appearances.

Here’s what you can expect:

• Learn about emerging trends and the latest industry innovations
• Dive into a HIP analysis (Human Impact + Profit)
• Hear case studies of the key HIP players in the industry
• Join the discussion with industry experts
• Get insightful answers to your burning questions

HIP Web Seminar: Green Real Estate (including LEED)
Tuesday, September 2
Commercial and residential buildings in the U.S. account for more than 70% of total electricity consumption — and 36% of related Greenhouse Gas emissions. Fortunately, “green” building is emerging swiftly as a critical strategy to reducing the energy, water, carbon emissions and associated costs of this high-impact industry.

How is it possible to realize 40% reductions in energy, water and emissions for almost no additional construction costs? Which projects have the fastest payback? Who are the developers, real estate investment trusts (REITs), and investment funds leading the way in green construction and retrofitting? How are they innovating for Human Impact + Profit?

Join this HIP seminar on Green Real Estate – and learn how to HIP your residence and workplace AND to HIP your portfolio with real estate leaders on the path to sustainable, profitable growth.

For tickets: http://greenrealestatewebinar.eventbrite.com/

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Does adding women leaders make companies more money? The research of Catalyst.org, a non-profit based in New York, has consistently shown that the top 25% of companies with the largest share of women Directors on a public-company Board beat the bottom quartile companies with a return on equity 53% higher (13.9% for Boards with more women; 9.1% with fewer or no women). For public-company Boards with 3 or more women (the upper echelons of the top quartile), the return on equity skyrockets to 16%. Read more details about higher financial returns when women are represented in leadership which is not yet close to the 50% of women in the population, or the 47% in the workforce. At HIP Investor, we evaluate how companies that represent the population in Boards, executive teams, managers and staff drive higher “Human Impact” which tends to increase “Profit” and financial returns. This Human Impact + Profit, or HIP, correlation can be tracked and a useful measure for both companies and investors.

And the most recent Catalyst study this year shows that a higher proportion of women on the Board typically leads to more women in senior management and roles in lines of business in those companies.

How do women increase financial performance? A wide variety of possible reasons: a more diverse representation of leaders may better understand the variety of customer needs; many women tend to be more collaborative problem-solvers critical to employee engagement and satisfaction; and more women tend to incorporate the longer-term considerations, like environmental sustainability and social impacts.

In 1993, the Women’s Equity Fund was founded to invest along the theme of women in leadership at public companies. Its former ticker symbol is FEMMX (Google Finance), currently has liquidity (investor funds) of about $42 million, and became part of the Pax family of funds last year along with the new ticker PXWEX. (Side note: Pax was fined $500,000 last week by the SEC for not adhering to its “socially responsible” mission during 2001-2005.)

Why are fewer women represented in leadership roles? In the past, some have argued that women may not be as technically capable. However, last week, Science magazine has published a study, funded by the National Science Foundation, that there is no math performance gap between girls and boys unlike 20 years ago. The gender disparity has disappeared so how long till there is gender equality in math, science and engineering degrees?

High-tech companies especially await the answer, as they seek to address EEOC (Equal Employment Opportunity Commission) inquiries about the continued gender gaps in computer science hires. The leading high-tech companies seek to recruit the maximum number of women engineers to balance out their ranks, but need a larger pipeline of graduate and undergraduate women in science and math. That will increase their pool of qualified engineers and managers, and contribute to better financial returns from the more diverse pool of problem solvers.

So, how can you influence a company’s commitment to equal representation? Research the Boards and executive teams of the products you buy, places you work, and stocks you invest in. You can find this on their websites (”About Us”) or on the finance sections of Google or Yahoo. In addition to voting your preferences with your dollars, you will likely be making a great investment choice with the potential for higher returns, lower risk and a commitment to a society where positive Human Impact drives increased Profit and that is HIP for you, your company, your portfolio and your world.

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Dr. Alex Edmans, an assistant professor at the Wharton School at the Univ. of Pennsylvania, just released a new analysis demonstrating that companies with high employee satisfaction and recognized by Fortune magazine’s “Best Companies to Work For” list, tend to have higher long-term shareholder value. 

In addition, these “intangibles” appear not to be priced into the short-term valuations of equities (along with other environmental, social and governance issues).  This gives investors applying a HIP framework an advantage to buy in at a discount and later benefit if they hold for the longer term.

This study reinforces the tenets of the HIP methodology and approach - that focusing on Human Impact leads to Profit and shareholder value.  Since employees are the core engine of a company, the developers of its intellectual capital, the face to the customer, and the managers of its assets, the focus of keeping them satisfied (like Southwest Airlines - NYSE: LUV) will typically result in investor benefits over the long term.

Read the insightful abstract and download the full fascinating paper here.

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• Ritesh Patel of Virtu Investments shared the company’s approach to sustainability through its Green Living Program, and described how energy conservation, water conservation, and waste reduction efforts across its properties have resulted in up to 20% cost savings; Virtu is also moving toward the development of a Green investment product, wherein green features are central to return.
• Amanda Hawn explained how New Forests Advisory is a broker in ecosystem-based markets, working to identify ecological assets, analyze routes to market and develop commercialization strategies for clients; she took the audience through two of New Forests’ current projects – the Tropical Timber Fund and Malua Wildlife Habitat Conservation Bank.
• Paul Gifford described ProjectDX , an emerging web-based tool for municipalities to aid the move from planning to action in reaching clean energy compliance targets, GHG emissions goals, and other local and regional environmental objectives.

Entrepreneurs, industry experts, and MBA students joined institutional, accredited and everyday investors, who all networked socially and professionally - and asked probing questions of the presenters.

The discussion also hosted these forward-looking ventures:

• Green Key Real Estate (Chris Bartle) - the first, and only, green real estate brokerage in the San Francisco Bay Area, working to solve environmental and social problems, and educating and empowering green-minded clients.
• Federspiel Controls (Jeff Rauenhorst) - a product and service provider for commercial buildings, that has developed, among other things, a cost effective and user friendly wireless energy management system, realizing environmental impact + profit for clients.

Listen to the presentation and see HIP’s PowerPoint (with audio from the roundtable):

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In addition to emerging designers and small-scale producers, major players are jumping on the green apparel bandwagon. From mass market retailers like Wal-Mart, the world’s largest purchaser of organic cotton fiber, and JCPenney, to specialty leaders from GAP/Banana Republic to Patagonia, the race to enter the space is on.

Who are the designers, manufacturers, and corporations leading the way in sustainable apparel? What practices and technologies are they bringing to bear? How are they innovating for Human Impact + Profit (HIP)?

Join HIP Investor’s rapidly growing Investor Roundtable Series and learn the answers to these questions and more as we explore some of the most HIP public and private companies in the apparel industry. Through speakers and discussion, the Roundtable will address how companies simultaneously solve customer needs, benefit the environment, and make money for investors.

EVENT DETAILS
Date: Tuesday, September 9, 2008
Time: 6 p.m. to 8 p.m.
Location: Downtown San Francisco, close to Muni/BART

RSVP: http://septemberroundtable.eventbrite.com

Our Agenda
6:00pm Network with HIP Investors - from hedge fund managers to entrepreneurs
6:30pm Learn the latest HIP perspective on sustainable apparel and hear from industry leaders
7:00pm Open discussion on green apparel options - for you, your company AND your portfolio
7:45pm Meet fellow HIP Investors

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How? By scoring your suppliers on sustainability. Corporate leaders like Walmart are beginning to rate and rank suppliers with a scorecard tracking sustainability, weighting those factors alongside price, quality and service, and shifting the mix of products that is merchandised in stores. Walmart expects to start at the company level, proceed to the category level and end up at the product level when it’s complete – from local, national and global suppliers (including the large share of China’s exports that Walmart receives).

To accomplish this massive transformation, Walmart has opened up its internal workings to “outsiders” – including its suppliers (those pursuing sustainability and those who need to get started), environmental- and socially-minded non-profits (like Environmental Defense Fund, Conservation International and NRDC), and a range of leading experts and sustainability advisors (including BluSkye Consulting and HIP’s CEO + Founder).  In conjunction with Walmart’s buyers and staff, this cross-sector group is formalizing a supplier scorecard for sustainability.

Wal-Mart SVP of Sustainability Matt Kistler is heading this ambitious global effort, and is speaking publicly about the company’s efforts.  Senior Director Rand Waddoups and his teammates are managing multiple pilot initiatives, including keeping an open dialogue with bloggers critiquing the company.

A cross-sector “sustainability working group” is building on the “sustainable value networks” Walmart launched across a dozen product categories (plus packaging) in conjunction with its strategic consulting partner BluSkye. In dairy products’ packaging, a radical new square container now holds more than 50% the milk per cubic foot than previous cartons (and is cheaper to move and transport). In the jewelry department, the Love, Earth line allows customers to track online where necklaces and bracelets were sustainably sourced, handled and sculpted.

Earlier this month in northwest Arkansas, Walmart brought together over 150 representatives of suppliers, NGOs, Walmart buyers and advisors (like HIP) to share and co-design the latest version of the sustainability scorecard for suppliers. This three-day meeting culminated in a broader awareness of the “Big 3” goals (100% renewable, clean energy; zero waste, including products and packaging; and sustainable products, benefiting society and the earth), feedback on and refinement to sustainable performance measures, and a consensus to track the full “lifecycle” of products from source to manufacturing to transport to use to recapture/re-use (or as Bill McDonough would say, “cradle to cradle”.

Now, imagine rolling a supplier scorecard out across multiple product categories – and you see how Walmart’s leadership will help change the world, and accomplish sustainable, profitable growth. By applying measures of Human Impact – less energy and climate impacts, reduced waste, lessened ecosystem impacts, closer social and community ties – suppliers will develop more sustainable products for customers to purchase, leading to a more environmentally sustainable and socially benefitical world - while at the same time increasing revenues and lowering costs for Walmart and its suppliers.  This is the essence of a HIP approach.

As a HIP customer, this means you will find more health-oriented products like Burt’s Bees personal care for your body, more eco-products like Clorox GreenWorks for your home, lighting products featuring low-usage LEDs in store displays and for purchase, and health-care innovations like the $4 generic pharmaceuticals and new financial products like a low-fee debit-card for the 10 million low-income families without a bank.

As a HIP investor, these initiatives are increasing in size and share at Walmart. The top three goals are being pursued each at the strategic, procurement, stores, and employee levels. With CEO Lee Scott leading the way – “the sustainability train has left the station, you need to be on it” – Walmart and its Board are serious about creating value for shareholders, staff and society.

All of this - the sustainability pilots, related supplier scorecards and increased transparency - is a major shift from the April 2007 HIP Scorecard (TM) that we published in Fast Company magazine (http://www.fastcompany.com/investing/21-walmart.html) [NOTE: you may need to hit reload for this link].  At that time, Walmart’s management practices and human impacts were rated on the lower end of the 21 companies evaluated, though still in a core group of industry leaders.  However,  over the past year, Walmart has continued to become more open, more systematic and ramped up increased sustainability in an increasingly comprehensive and swift manner.

And at the Walmart quarterly milestone meeting celebrating sustainability successes including Earth Month (April) record sales of sustainable products, actress Cameron Diaz, a sustainability advocate herself, encouraged all Walmart staff: “Everyone makes a difference with their purchases,” “economics alone don’t matter if you don’t have a planet,” and “This is not just a trend, but an absolute necessity,” and finally “I know you guys can save the planet!”

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Chief Financial Officers and General Counsels are wondering about the upside returns (and downside risks) of more transparency, a core element of Trust. HIP’s CEO R. Paul Herman will join Framework CR’s Kathee Rebernak and others at this full-day seminar in mid-town Manhattan to share why building Trust leads to higher Profit and increased shareholder value.

SPECIAL OFFER: 50% discount for the second paid attendee from the same firm registering before September 1.

REGISTER HERE: http://www.frameworkcr.com/disclosure/index.php

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