Case
Supplementary Resources
Abstract
In February 2009, Justin Smith, manager of the Good business journey at Woolworths, a leading South African department store, was a worried man. Woolworths had launched its five-year sustainability strategy just under two years before. After undertaking an impact assessment, Smith was concerned that the original targets – which covered transformation, social development, the environment and climate change (see Exhibit 1) – had been set without a clear understanding of exactly what it would take to achieve them. Woolworths had recently identified 10 key risk areas that impacted on the achievement of its original goals. If the sustainability goals were not reached, Woolworths could lose credibility among its shareholders, staff and consumers. What did Woolworths need to do to ensure that it achieved its sustainability goals? And had the company been too ambitious in the targets it had set initially, he wondered?
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1 The Good Business Journey Targets (2007–2012)
Transformation
- Become a level four BEE contributor in line with DTI codes.
- Drive preferential procurement, with the goal of BEE suppliers providing core products for Woolworths by 2012.
- Advance skills development through training initiatives, including the accreditation of Woolworths’ courses and the establishment of three provincial learning centres.
- Meet employment equity targets and create a skills pipeline for managers from previously disadvantaged groups.
- Push our ‘South Africa first’ policy, with the goal of buying as much of our product locally as possible and maintaining strong local and regional clothing and food sources.
- Introduce a BEE employee share ownership scheme.
Social Development
- Utilise Woolworths’ expertise in enterprise development by working closely with emerging suppliers, sharing expertise and identifying suppliers who can grow with Woolworths.
- Increase social contributions to more than R300 million per year.
- Expand the Eduplant programme.
- Introduce a fundraising programme in stores to raise money for orphans and vulnerable children.
- Develop a more effective model, through an enterprise development initiative, to distribute our surplus food and clothing.
- Support our employees in their community initiatives with matching corporate funds to increase their contribution to needy causes at a local level.
Environmental Focus
- Increase organic and free-range food sales fourfold to over R1 billion per annum, and increase organic content clothing sales to more than R1 billion per annum.
- Develop a South African organic cotton pipeline.
- Continue the transformation to healthy eating and lifestyles through the Good food journey.
- Accelerate environmental conservation and biodiversity programmes:
- Ensure that conventional produce farmers migrate to organic production or environmentally sensitive farming methods.
- Reduce Woolworths’ water consumption by 30%.
- Work with suppliers to reduce water used and improve waste water management.
- Enforce our strict code of conduct regarding dyes, chemicals and water management in our supply chain.
- Ensure that key raw materials come from sustainable sources.
- Introduce a wide range of hemp, bamboo and soya fabrics.
- Work with experts to resolve wildlife/human conflicts such as the hive-raiding honey badger (resolved)and predators which attack lambs on sheep farms.
- Sell no products of threatened species.
- Reduce and recycle packaging from source through to customer:
- Reduce clothing packaging by more than a third.
- Reduce food packaging by 20%.
- Eliminate excess packaging and offer more bulk packs.
- Decrease plastic bag usage by encouraging customers to buy reusable bags.
- Increase the amount of recycled plastic in clothing and home bags to 100%, and in food bags to 50%.
- Ensure that all trolleys and shopping baskets are made from recycled material.
- Work closely with suppliers to create alternative recyclable packaging.
- Introduce a nationwide programme supporting the recycling of customers’ waste, and work with the local recycling industry to develop the demand for recycling.
- Involve and influence the local packaging industry to develop more sustainable materials.
- Recycle all store equipment, including food trays and hangers.
Address Climate Change
- Reduce relative carbon footprint by 30% by focusing on energy savings and transport emissions:
- Reduce relative transport emissions by 20%.
- Reduce relative electricity usage by 30%.
- Invest savings from reductions in the use of electricity and water into other sustainable business products.
- Source food regionally where possible, reducing reliance on long-distance road transport.
- Restrict air freight of our food products, and label food imported by air.
- Help set up model green factories with selected suppliers, and work with suppliers to reduce their carbon footprint.
- Work with soil scientists to monitor our farmers’soil sustainability regularly, increasing its CO2 absorption abilities.
- Open a trial carbon neutral store.
Source: ‘Woolworths announces the “Good business journey”, press release, 19 April 2007, www.woolworthsholdings.co.za , media centre link.
Exhibit 2 A Woolworths Home & Food Store Front
Source: Photograph supplied by Justin Smith, 6 July 2009.
Exhibit 3 Woolworths Income Statements 2004–2008
| Year | 2004 | 2005 | 2006 | 2007 | 2008 |
| Revenue | 11,281.7 | 12,988.9 | 15,143.0 | 18,641.9 | 21,753.6 |
| Turnover | 10,648.8 | 12,220.7 | 14,208.0 | 17,376.9 | 20,064.9 |
| Cost of merchandise | 7,262.2 | 8,207.6 | 9,340.4 | 11,399.9 | 13,076.7 |
| Gross profit | 3,386.6 | 4,013.1 | 4,867.6 | 5,977.0 | 6,988.2 |
| Other revenue | 632.9 | 768.2 | 935.0 | 1,265.0 | 1,688.7 |
| Expenses | 2,957.7 | 3,517.1 | 4,312.3 | 5,396.5 | 6,670.3 |
| Depreciation | 232.8 | 262.1 | 269.9 | 316.7 | 374.4 |
| Occupancy cost | 544.4 | 609.8 | 679.1 | 806.0 | 1,073.6 |
| Employment cost | 1,303.2 | 1,449.6 | 1,699.6 | 2,129.3 | 2,560.6 |
| Other operating cost | 877.3 | 1,195.6 | 1,663.7 | 2,144.5 | 584.3 (bad debt) 2,077.4 |
| Operating profit | 1,061.8 | 1,264.2 | 1,490.3 | 1,845.5 | 2,006.6 |
| Interest expense | 108.7 | 152.7 | 243.9 | 378.7 | 502.5 |
| Net profit before exceptional items | 953.1 | 1,111.5 | 1,246.4 | 1,466.8 | 1,504.1 |
| Exceptional items | (16.4) | - | - | 54.6 | - |
| Net profit/(loss) before tax | 936.7 | 1,111.5 | 1,246.4 | 1,521.4 | 1,504.1 |
| Tax | 268.9 | 307.7 | 409.0 | 434.7 | 552.5 |
| Net profit/(loss) after tax | 667.8 | 803.8 | 837.4 | 1,086.7 | 951.6 |
| Outside shareholders’ interest | (1.0) | (2.2) | (1.8) | (12.3) | (8.5) |
| Net profit/(loss) attributable to ordinary shareholders | 666.8 | 801.6 | 835.6 | 1,074.4 | 943.1 |
| Headline earnings – cents per share | 78.6 | 92.1 | 105.0 | 127.8 | 115.7 |
| Earnings – cents per share | 77.4 | 94.4 | 105.1 | 133.9 | 115.6 |
| Fully diluted earnings – cents per share | 75.3 | 92.0 | 103.0 | 131.5 | 112.8 |
| Total | 38.5 | 54.0 | 63.0 | 76.0 | 79.0 |
| Interim | 13.0 | 18.5 | 24.0 | 29.5 | 29.5 |
| Final | 25.5 | 35.5 | 39.0 | 46.5 | 49.5 |
Source: Annual reports 2004–2008, Woolworths Holdings Limited.
Exhibit 4 Woolworth’s Divisional Performance 2004–2008
| Year | Five year compound annual growth rate | 2008 | 2007 | 2006 | 2005 | 2004 |
| Clothing and home | 11.6% | 7,409.8 | 6,985.0 | 6,012.2 | 5,349.5 | 4,792.2 |
| Food | 21.1% | 10,360.3 | 8,718.8 | 6,941.5 | 5,666.0 | 4,747.1 |
| Other | 17.4% | 376.4 | 319.9 | 273.6 | 223.1 | 176.1 |
| Country Road | 12.4% | 1,918.4 | 1,354.0 | 980.7 | 982.1 | 933.4 |
| Total | 16.1% | 20,064.9 | 17,376.9 | 14,208.0 | 12,220.7 | 10,648.8 |
Source: Annual reports 2004–2008, Woolworths Holdings Limited.
Exhibit 5 Competitors’ Sustainability Programmes
In 2007, Pick ‘n Pay, Woolworths’ main competitor in the food business, also launched a sustainability programme. The programme was very similar in design to that of Woolworths, and rested on four pillars: economic growth, business and supplier transformation, social development and environmental responsibility. 1 Pick ‘n Pay also ventured into the organic produce market at the end of 2007, and was in the process of aggressively marketing its organic lines. 2 Smith believed that, because Pick n Pay tended to spend a lot on advertising and marketing, consumers probably knew more about its sustainability initiatives than those of Woolworths. 3 In 2008, Pick n Pay spent R60 million on corporate social investment programmes, which represented 6.4% of the company’s post-tax profit. 4 Shoprite’s sustainability programme was broader than that of Pick ‘n Pay, but tended to be less focused. Shoprite’s sustainability programme covered transformation, food and product safety, BEE (with a focus on unemployed youth) and environmental issues such as waste management and packaging. 5 Spar based its sustainability strategy on three pillars: social development, transformation and the environment. 6 In 2008, the company donated R6.9 million (1% of post-tax profits) to various social development programmes, such as poverty alleviation and Business Against Crime initiatives. 7 In terms of environmental initiatives, the company focused on fuel usage and emissions, reducing electricity usage and improving waste management. A range of “green” products was also under development, and would be sold under the company’s house brand range. 8
Exhibit 6 Woolworth’s BEE Status Level and the Department of Trade and Industry’s BEE Generic Scorecard
| Broad-Based Black Economic Empowerment Scorecard: Woolworths | |||
|---|---|---|---|
| BEE components | Weighting | BEE score as at June 2008 | 2012 target |
| Direct empowerment | |||
| Equity ownership | 20 points | 3.8 | 6.5 |
| Management control | 10 points | 8.4 | 8.0 |
| Human resource development | |||
| Employment equity | 15 points | 9.8 | 11 |
| Skills development | 15 points | 10.5 | 15 |
| Indirect empowerment | |||
| Preferential procurement | 20 points | 2.4 | 13 |
| Enterprise development | 15 points | 5.3 | 11 |
| Corporate social initiatives | |||
| Socio-economic development initiatives | 5 points | 5 | 5 |
| Total | 100 | 45.2 | 70 |
| Contributor level | Level 6 | Level 4 | |
Source: 2008 Annual Report, Woolworths Holdings Limited.
| Broad-Based Black Economic Empowerment Status Level | ||
|---|---|---|
| B-BBEE status | Qualification | B-BBEE recognition level |
| Level 1 contributor | ≥ 100 points on the generic scorecard | 135% |
| Level 2 contributor | ≥85 but <100 on the generic scorecard | 125% |
| Level 3 contributor | ≥ 75 but <85 on the generic scorecard | 110% |
| Level 4 contributor | ≥ 65 but < 75 on the generic scorecard | 100% |
| Level 5 contributor | ≥ 55 but < 65 on the generic scorecard | 80% |
| Level 6 contributor | ≥ 45 but < 55 on the generic scorecard | 60% |
| Level 7 contributor | ≥ 40 but < 45 on the generic scorecard | 50% |
| Level 8 contributor | ≥ 30 but < 40 on the generic scorecard | 10% |
| Non-compliant contributor | < 30 on the generic scorecard | 0% |
Source: Department of Trade and Industry, www.thedti.gov.za , broad-based black economic empowerment link.
Exhibit 7 Good Business Journey Major Achievements
| Key area | Major achievements |
| Transformation | In line with the “South Africa first” policy, the vast majority of goods were manufactured in South Africa. International sourcing was only encouraged when the right technology or quality were not available locally. |
| In 2008, Woolworths achieved level 6 BEE contributor status. | |
| Woolworths established the BEE employee share ownership scheme in 2007. | |
| Woolworths focused enterprise development initiatives on merging organisations within the supply chain, and offered financial assistance combined with business skills training, coaching and mentoring. | |
| Social development | In 2008, Woolworths donated R239 million worth of surplus clothing and food to needy charities (2007 figure: R183 million). |
| In 2008, Woolworths contributed R24.5 million to MySchool (2007 figure: R19.6 million). In five years, the company had contributed more than R72 million to MySchool. | |
| The Woolworths Trust formed a partnership with Heartbeat to promote and enable community care for 3,000 orphaned and vulnerable children. | |
| In 2007, the Woolworths Trust launched Working Wonders, an employee recognition programme for community work. | |
| The environment | Woolworths built the new 78,000 square metre Midrand distribution centre in line with stringent social and environmental considerations such as the optimum use of natural light, light fittings that adjusted to ambient natural light, and recycled heat from the refrigeration plant was used in the underfloor heating system. |
| Woolworths was the country’s leading retailer in certified organic fresh produce. | |
| In 2008, Woolworths donated 4,309 indigenous trees to a low income housing development in the Western Cape. Each household received training on how to care for their tree. In addition, Woolworths donated 1,000 trees to schools in Limpopo and the Western Cape. All the trees came from EduPlant nurseries, which generated income for the schools involved. | |
| In 2008, Woolworths launched a range of household cleaning and personal care products called Earth Friendly, which were made with plant-based, biodegradable ingredients and contained no petrochemicals, animal ingredients or artificial colours. In addition, the range was endorsed by Beauty Without Cruelty. | |
| In 2009, Woolworths started local production of biodegradable To Go sandwich packs. The environmentally-friendly, air-tight packs unzipped to form a self-contained, disposable tray. | |
| When building new stores, the company completed an environmental impact assessment, which involved investigating the storage and use of recycled water, the use of indigenous shrubs and ground cover to prevent water run-off, and storm water management that allowed rain water to be stored and used. | |
| Woolworths refused to sell any product from a threatened species, and donated R200,000 to the Landmark Foundation in 2008 in support of its Leopard and Predator Conservation project. | |
| Woolworths became the first retailer in South Africa to form a partnership with the South African Sustainable Seafood Initiative, using its red, amber and green colour coding system to indicate threatened species. | |
| Climate change | In 2006, Woolworths signed the Department of Minerals and Energy’s Efficiency Accord. |
| In 2008, Woolworths became one of the first retailers worldwide to sell only energy-saving light bulbs. The company also initiated in-store collection points for the safe disposal of redundant CFL (energy-saving) light bulbs. | |
| Woolworths initiated the recycling of used cooking oil to generate a 5% bio-diesel mix in its Cape and Gauteng fleet of trucks, resulting in a saving of 1 500 tons of CO2 per annum. | |
| Woolworths initiated a pilot programme using new refrigerant technology in food stores, which led to a 35% decrease in electricity usage in these stores. | |
| Refrigeration in the Midrand distribution centre ran on an ammonia glycol mix, which had zero global warming potential. | |
Source: 2008 Annual Report, Woolworths Holdings Limited.
Exhibit 8 Ten Key Sustainability Risk Areas
| Risk item | Risk rating | Mitigating actions |
| External trading conditions | High | The targets that were set for the Good business journey were based on an understanding of the international and local environments at that time. If necessary, our internal targets will be updated and shared publicly. |
| Inability to achieve energy targets | High | An energy programme is in place to deal with all aspects of energy and climate change across the business. |
| Inability to achieve packaging targets | High | Packaging benchmarks have been set and Good business journey guidelines are included in all packaging processes. |
| Inability to achieve transformation targets | High | Transformation targets and plans have been put in place for every business unit to ensure focus. |
| Accountability | High | Guidelines included in all targets are incorporated into the group strategy and balanced scorecards. |
| Data integrity | High | An assurance framework is in place to ensure data integrity. |
| Non-alignment of business plans | Medium | Business decisions are aligned to the Good business journey targets as business units were consulted regarding targets, which were ultimately agreed on by the board. |
| Internal financial constraints | Medium | The strategy is self-funding in that no additional costs are to be incurred by the business units in meeting the targets, and all Good business journey savings would be reinvested in other Good business journey initiatives. A process has been put in place to measure savings and ensure reinvestment. |
| Exclusions to the Good business journey | Medium | Country Road is developing a formal sustainability framework aligned to the Woolworths Good business journey. Franchise division and branded products require some additional engagement to ensure alignment with the Good business journey. |
| Inability to achieve water targets | Medium | Targets relating to direct water usage that had been incorporated into the Good business journey are considered to be achievable. A strategy for suppliers to manage their water usage more effectively is in the process of being developed, in consultation with industry experts. |
Source: 2008 Annual Report, Woolworths Holdings Limited.
Notes
1. www.picknpay-ir.co.za, sustainability report link (accessed 28 April 2009).
2. Ibid.
3. Telephonic interview with Justin Smith. 23 February 2009.
4. www.picknpay-ir.co.za, 2008 Sustainability Report (accessed 28 April 2009).
5. www.shoprite.co.za (accessed 28 April 2009).
6. www.spar.co.za (accessed 28 April 2009).
7. Ibid.
8. Ibid.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
