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Sustainability drivers in food retail
Journal of Retailing and Consumer Services 20 (2013) 365–371
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Journal of Retailing and Consumer Services journal homepage: www.elsevier.com/locate/jretconser
Sustainability drivers in food retail Danny Pimentel Claro n, Silvio Abraha~ o Laban Neto 1, Priscila Borin de Oliveira Claro 2 ´, 300, Sa~ o Paulo, Sa~ o Paulo 04546-042, Brazil Insper Institute of Education and Research, Rua Quata
a r t i c l e i n f o
abstract
Available online 22 March 2013
Sustainability has become a relevant issue for retailers. We develop an integrated model with three drivers of retailer’s investments in sustainability. First, the more their processes, human resources and customer driven capabilities are developed, the more investments in sustainability tend to occur. Second, retailers leverage their relationships with suppliers to invest in sustainability. Third, competition and economic instability may also lead to long run investments in social and environmental. We tested three hypotheses by surveying 101 retailers operating supermarkets, hypermarkets and neighborhood stores that focus mainly on food with a limited offering of general merchandise and apparel. Our results show the importance of customer driven capabilities for investments in sustainability. Communication with the supplier also has an impact on investments, while the process and policies of the supplier relationship do not. Retailers invest in sustainability to coordinate this relationship. Our study sheds light on the drivers for sustainability and offers an understanding of how a retailer may invest further in sustainability. & 2013 Elsevier Ltd. All rights reserved.
Keywords: Sustainability Retail strategy Consumer driven capability
1. Introduction Recently, sustainability has become a major business issue for retailers. Sustainability in this paper takes a broad perspective that accounts for the combination of economic, social and environmental dimensions to: ‘‘meet the needs of the present without compromising the ability of future generations to meet their own needs’’ (United Nations, 1987). Previous research in marketing has recognized the importance of sustainability by creating the concept of enviropreneurial marketing strategy (Menon and Menon, 1997) and also by looking at environmental and social concerns to develop a corporate strategy (Ganesan et al., 2009; Nidumolu and Prahalad, 2009). Retailers play a key role in sustainability initiatives due to the economic impact and proximity to end consumers. Increasingly competitive markets point to the importance of preserving loyalty and developing long term relationships with consumers. Consumers’ perceptions of a retailer’s investment in sustainability affect the retailer’s brand image and alter consumers’ propensity to buy specific brands as well as patronize certain retailers (Handelman and Arnold, 1999). To address the complex issue of sustainability in the retail
n
Corresponding author. Tel.: þ55 11 4504 2419. E-mail addresses: [email protected] (D.P. Claro), [email protected] (S.A. Laban Neto), [email protected] (P.B. de Oliveira Claro). 1 Tel.: þ55 11 4504 2708. 2 Tel.: þ55 11 4504-2707. 0969-6989/$ - see front matter & 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.jretconser.2013.02.003
industry, we identified three drivers that were drawn from the theoretical framework for creating sustainability value (Hart and Milstein, 2003). The Hart and Milstein’s (2003) framework presents a multidisciplinary approach that helps the understanding of drivers and payoffs of investing in sustainability strategies. This framework does not fully account for initiatives to incorporate sustainability in the retailers processes and within the supply chain. We therefore integrate prominent marketing and management theoretical frameworks to develop the three sustainability drivers that include internal, supplier relationship and external drivers (Fig. 1). First, the internal driver is based on the resource based view of the firm that emphasizes the application of unique and valuable resources to achieve a sustainable competitive advantage (Barney, 2001). From the perspective that capability is a special resource of a firm, we look into the retailers’ capabilities of human, customer and process to assess the impact on sustainability investments. The people that work for a retailer are central to any sustainable activity. People allow corporate social responsibility to be aligned with business objectives (Smith, 2003). Customers everywhere are more aware of the social and environmental activities of retailers, and companies that invest in such activities tend to perform better (Garcia-Gallego and Georgantzis, 2009). A survey of retailers showed the importance of specific capabilities to respond to customer needs (Griffith et al., 2006). In addition, a retailer’s internal process is acknowledged as being critical to gaining efficiency (Day, 1994) and may, for instance, support the implementation of green operations or further transparency in a supply chain (Ganesan et al., 2009).
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2. Sustainability in food retail
Fig. 1. Drivers of sustainability investments.
Second, literature of marketing channels acknowledges the importance of coordinating relationships with suppliers to achieve efficiencies (Wathne et al., 2001). Supplier relationship drivers of sustainability encompass process, policies and communication. Retailers may develop relationships with suppliers through communication and well established processes and policies. The challenges of sustainable business require an alignment with suppliers to work together and address problems as they emerge (Brown et al., 2006). Third, a political-economic theoretical framework of marketing channels accounts for the political and economic forces primarily external to the firm (Stern and Reve, 1980). This framework helps us explain how firms react to external forces: economic uncertainty and competitive pressure. The external driver also affects investments in sustainability. Retailers may face high competition and be forced to incorporate social and environmental practices that influence the consumers’ perception (Ganesan, 1994). Therefore, retailers should consider the three main drivers – internal, supplier relationship and external drivers – in fostering of investments in sustainability. Our contribution to the retail literature is to formally integrate the three drivers into a framework of sustainability in retail businesses. We explore the drivers that lead to increased retailer investment in sustainability. More specifically, this study assesses the effects of internal (process, human resources, and customer focus), supplier relationship (interorganizational process and policies, and communication) and external drivers (competition and economic uncertainty) that increase sustainable investments. Although some of the arguments developed here are well known and established in the literature, very little has been done to formally integrate them into a framework of sustainability in retail businesses. Such a formal assessment can provide marketing managers and scholars with specific insights that can effectively explain the drivers that lead to more investments in sustainability. We also contribute to managers and scholars with a survey analysis of sustainability strategy. This is an emerging area of research dominated by exploratory single company case studies with little quantitative empirical evidence. Our study is an attempt to fill that void by analyzing the framework with a survey of 101 supermarket retailers. By combining an integrated framework of three drivers, this study will be of value to researchers who are developing causal models of sustainability and to retail managers who are responsible for developing and implementing capabilities and training retail employees in how to effectively interact with specific investments in sustainability. Understanding the impact of each driver on investments will allow retailers to focus more precisely on the critical aspects of capabilities and interorganizational relationships.
Retail industry globalization and consolidation have created gigantic global and even local corporations that have attracted the attention of consumers, regulators, NGOs and society at large. Alongside the business scale and objectives, one must consider that retailers represent the last stage of the distribution channel and more specifically the fact that the retail industry may drive the whole supply chain process and its economic, environmental and social consequences. In response to this growing attention, retailers have created corporate programs to collect valuable data and formulate a strategy for sustainability (Banerjee et al., 2003; Iles, 2007). In summary, sustainability issues are becoming more and more relevant for any retail business. We adopt the concept of sustainability that is the triple bottom line concept, entailing the dimensions of care for the natural environment, social responsibility and economic results (Elkington, 1993; Savitz, 2006). As with any other strategic objective, sustainability is an integrated organizational objective that focuses on long term business competitive advantage. We follow the perspective that sustainability may create business opportunities rather than a solely moral or legal requirement. This perspective implies that companies will strategically look for ways to invest in sustainability initiatives (Hart and Milstein, 2003). There are several specific investments in sustainability. Retailers invest in corporate social responsibility through social projects in the surrounding communities. Corporate social responsibility encompasses a company’s status and activities with respect to its perceived societal obligations such as corporate philanthropy, causerelated marketing, minority support programs, socially responsible employment and manufacturing practices (Bhattacharya and Sen, 2004; Perry and Towers, 2009). An interesting example in Brazil is Walmart’s community stores where the company, alongside its traditional product and services, offers a community center where customers have access to health services, document expedition services, job agency and basic training courses (Ferraz, 2009). Some investments may have a direct impact on the social dimension and an indirect impact on the environmental and economic dimensions. The issues of global warming, deforestation and non-renewable resources have caught the attention of society and public opinion. In this area, many players are investing in improving their packaging and supply chains in order to reduce their carbon footprint and waste (TESCO, 2009; Carrefour, 2009). A recent document developed by Greenpeace about the deforestation in the Amazon Forest showed that cattle are responsible for about 80% of all deforestation in the Amazon region Greenpeace International (2009). Greenpeace has tracked the trade in cattle products back from the exports – pinpointing the facilities of Bertin, JBS and Marfrig, the three large Brazilian meat processors. These companies keep cattle in ranches within the Amazon Forest. Carrefour and Walmart were listed as silent partners to the crime since they were the major buyers of the Brazilian meat processors. As a reaction to this, Walmart, Carrefour and Pa~ o de Ac- u´car (Brazil’s largest retailer) banned meat from these processors from their shelves. The ban lasted until June 2009, when these suppliers together with these retailers signed a document to produce and commercialize sustainable meat, which includes eliminating cattle within the Amazon Forest. Retailers have also focused on investments in environmentally friendly infrastructure and bags as well as in training and campaigns to educate employees and customers on the importance of sustainability Nidumolu and Prahalad, 2009. An interesting example is given by Pa~ o de Ac- u´car: through recycling stations (in partnership with Unilever) and a pre-consumption recycling initiative called Green POS, consumers are invited to recycle and even discard product packaging right after checking out (Pa~ o de Ac- u´car,
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2009). Additionally, investments are being made in developing local suppliers which have an impact on the welfare of the local economy as well as production standards (Kova´cs, 2008). Several retailers and event trade associations create and adopt codes of conduct that outline acceptable practices for suppliers. In an effort to develop local suppliers, retailers enforce these codes in order to develop standards as is the case of the meat supply chain in Brazil (Freitas, 2009). From a global perspective, Whole Foods is a strong example of a retailer that emphasizes its responsibilities and roles beyond its own activities, looking after farm workers and the environment (Whole Foods, 2009). Research has shown the impact of several of these dimensions on brand image, reputation, sales and profits, and product and process innovation (Womack and Jones, 2005; Truch, 2006). As sustainable businesses lead to long term performance, research needs to address the relevant drivers that retailers should be taken into account when investing in sustainability. Specifically, we investigate three drivers in which retailers are leveraging sustainability investments inspired by Hart and Milstein (2003). Given the fact that retailers represent the end of a long supply chain, we must take into consideration aspects that go beyond retailers. Sustainability investments may be influenced by internal and external drivers as well as the nature of the supplier relationship.
3. Hypotheses: sustainability drivers
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Investments in sustainability require a better integration of different departments because of the set of new goals and adjustments of the current ones. For instance, a project that impacts the environment needs efficient information flow and decision making process. A team building approach is required for leaders to enforce the sustainability issues. Retailers with well developed processes underlying projects are able to efficiently integrate departments and consequently invest and conduct necessary changes to achieve a sustainable business Burger and Marius (2011). Thus, we formulate the following hypothesis: H1a. Process capabilities of retailers lead to investments in sustainability. A second category is human resource capabilities. Management literature over-emphasizes routines and processes without explicitly considering the human aspect of processes Anderson (1997). Human capability appears to be a realistic indicator of improved organizational effectiveness (Boxall and Steeneveld, 1999) because it contributes accumulated knowledge about complex processes. Retailers that embrace sustainability will demand new skills from their employees. These skills encompass knowledge and attitude towards sustainability, the ability to interact and help educating customers’ and other stakeholders. By developing internal training programs for employees, adequate workload and working group settings, retailers may be better prepared to face the investments in sustainability. Therefore, our hypothesis is as follows:
Investments in sustainability often starts with legal and moral arguments, however, retailers need to incorporate sustainability from a strategic point of view. Hart and Milstein (2003) discuss internal and external drivers that lead to sustainability value creation. We identified three drivers that influence a retailer’s investment on sustainability, which encompasses both internal and external elements. The first driver involves a move toward internal capabilities, which refers to the sum of expertise and resources with a specific purpose. We investigate the process, human resources and customer driven capabilities (Helfat, 2000). The second driver pertains to the challenge of maintaining a relationship with suppliers. For instance, retailers maintain these business relationships to facilitate access to an appropriate assortment of products. Interorganizational process and policy (Ganesan et al., 2009) as well as supplier communication (Mohr and Speckman, 1994) are considered in this analysis of sustainability investments. Finally, we looked into the external driver of uncertainty which may influence the tendency of retailers to invest. Uncertainty includes risk taken under economic instability or the increasing presence of competitors (Ganesan, 1994; Klein et al., 1990). For each of the drivers we develop specific hypothesis as follows.
H1b. Human resource capabilities of retailers lead to investments in sustainability.
3.1. Internal drivers: capabilities
3.2. Supplier relationship drivers
Capability has been extensively discussed in the marketing and management literature. From the resource base view of the firm, capabilities concept refers to the complex set of skills and resources that ensures superior functional activities (Wernerfelt, 1995). At the time of its introduction, the concept mainly focused on the matter of developing such distinct capabilities (Day, 2003). In a retail business context, capabilities can be usefully sorted into three categories, depending on the nature and orientation. A first category is process capabilities that are related to the day-to-day organizational operations and routines. Zeithaml (2000) shows the importance of process capabilities by reviewing the literature of overall quality in services and the implications of cost reduction for customer relationship management.
Following a marketing channels perspective, the coordination activities with suppliers is key to success Wathne et al., 2001. A number of retailers are involved in developing relationships with suppliers to better cope with the increasing demands of consumers (Ganesan et al., 2009) and consequently carry on sustainability investments. Interorganizational relationships have long been recognized as being critical for businesses Anderson (1997). In nature, relationships require two notable dimensions to be operational. Process and policy must be well defined and implemented in a way that reassures relationship partners and tells them how to work together and address problems (Brown et al., 2006). For instance, a supplier changing its packing may impose changes to a contractual arrangement without adequate notice or negotiation.
A third category is customer driven capability. Every discussion of market orientation emphasizes the ability of a firm to learn about its customers and execute market driven activities. Day (1994) explored the idea of market sensing and customer linking to develop and sustain customer driven capabilities. In addition, the new dominant logic of marketing suggests a clear and direct focus on customers because they are the active participant in change and co-producers in the market Vargo and Lusch (2004). Consumers are not indifferent to sustainability and demand that the companies, they deal with do understand and help them in understanding sustainability and its implications. Retailers that are able to ensure the delivery of customer needs, in terms of price, service or products, are more likely to invest in sustainability. By monitoring customer satisfaction and employing a customer management system, retailers will be prepared to deal with sustainability issues. Thus, we formulate the following hypothesis: H1c. Customer driven capabilities of retailers lead to investments in sustainability.
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Ill-defined procedures hamper partners in providing constructive decision making input. Retailers may invest more in sustainability when supplier relationship procedure and policy are clear and aligned with the retailer strategy. H2a. Well developed supplier relationship process and policy lead to investments in sustainability. Communication is another dimension of the supplier relationship. The concept of communication refers to the transfer of information between two parties which includes providing and receiving it. Mohr and Nevin (1990) developed an extensive model to explore the facets of communication by looking at frequency, content and direction. Mohr and Speckman (1994) found evidence that communication influences financial performance and the satisfaction of the relationship parties. In the high tech industry, manufacturers are assumed to have more power than the retailer and use the power to hide valuable information (Mukhopadhyay et al., 2008). This lack of communication brings conflict and decay to the relationship. As per Sindhav and Lusch (2008), collaborative communication from suppliers is found to be positively related to coordination, and thus improves trust and commitment and reduces the chances for unresolved conflicts and power imbalances. Sustainability actions by suppliers will demand proper communications with retailers, in order to ensure customers will perceive and understand such actions and their relevance and impact. By having a positive flow of information with suppliers and consequently a clear idea about suppliers strategy, retailers may be more willing to commit invest in sustainability (Perry and Towers, 2009). Thus, we formulate the following hypothesis: H2b. Well developed supplier relationship communication lead to investments in sustainability.
3.3. External driver A political-economic perspective of marketing channels calls attention to the political and economic forces (Stern and Reve, 1980). The external driver accounts for the uncertainty that may arise from sources like economic instability or increasing competition (Klein et al., 1990). While economic instability represents the unexpected changes in economic policy that can catch firms by surprise, increasing competition represents the consolidation of the retail sector all over the world (Ganesan, 1994). One might suggest that in high uncertainty, retailers will take a defensive short term strategy and cut costs and investments. However, we argue that high uncertainty may lead to high investments in sustainability because sustainability is a long term investment that affects the brand image and reputation of retailers among customers. In addition, retailers may face high competition and be forced to incorporate social and environmental practices that influence consumer perception. Together with perceived differentiation, retailers may also gain with efficiency. From a risk taking perspective, disinvestments in sustainability can lead to more risks and fewer business opportunities, which can also influence competitiveness. Retailers may then be long term oriented and be willing to invest more in sustainability. Sustainability may also absorb economic instability through a long term perspective. Consumers can react positively during periods of instability by rationalizing their choices of retail brands. Thus, we formulate the following hypothesis: H3. Competition and economic uncertainty lead to investments in sustainability.
4. Methodology We tested our hypotheses by surveying retailers that operate supermarkets, hypermarkets and neighborhood stores with a focus on food and a limited offering of general merchandise and apparel in the State of Sao Paulo, Brazil. This industry has undergone a consolidation process over the past two decades and as a result the top 5 chains represented 40% of the total formal market in 2008 as measured by the Brazilian Supermarket Association ABRAS (2009). The other 60% is accounted for by small and medium chains with important local expertise and differential strategies (McKinsey Global Institute, 2006). Retailers are organized in state associations and the State of Sa~ o Paulo has more than 1000 members that account for the largest retail economic activity in the country. The state branch of the association supported the data collection. Our survey data collection processes initially focused on developing a questionnaire by identifying construct items used in previous studies. We obtained the help of other academics and managers to develop items where the literature was silent, to refine survey wording, and to check the overall validity of questions vis-a -vis the industry environment. The questionnaire was given by telephone to randomly selected retailers in the national association. The state brunch of the association provided a list of members operating in the State of Sao Paulo. The list contained the primary contact as registered in the association’s files, which allowed us to avoid respondents of the same retail chain in the sample and identify the key respondent more easily. A marketing research institute interviewed 101 retailers of the members’ list, over a period of 2 weeks during May 2009. There was an assistant research that provided a large list of members randomly selected to be called. As respondents were either participating in the interview or declining it the next name in the list would be approached. We identified the key respondents by inviting the retail owner (approximately 70% of the sample) or the highest general executive (approximately 30%). These individuals are the most knowledgeable about their business, as well as company specific information. In questions about their relationship with suppliers, we asked respondents to focus on ‘‘a supplier that the respondent was most knowledgeable about’’. Our sample’s retailer sizes are representative of the country’s national population of businesses. The variables used in the questionnaire are described in Table 1. Sustainability investments refer to environmental, economic and social dimensions. The variable of sustainability was assessed by a formative 4-point scale. The variable included eight items and was calculated by the unweighted average of the eight items. The capability construct is formed by three dimensions: process, human and customer. The process dimension refers to the extent to which activities and routines employed in the dayto-day business are relevant for the firm. This dimension was measured by three items. The human resources dimension refers to investments made in training staff, the work climate, the workload and opportunities for career advancement. This dimension was assessed by 10 items. The customer driven dimension refers to the activities and resources employed specifically in tangible (e.g. competitive price) and intangible (e.g. customer service) customer perceived value. The customer driven dimension was measured by three items. All dimensions were assessed by a formative 5-point scale ranging from ‘‘not at all important’’ to ‘‘very important’’. The variables were calculated by the unweighted average of the items of each dimension. The construct of supplier relationship drivers is formed by two dimensions. The process and policies dimension refers to the effect
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Table 1 Construct items. Sustainability investments (4-point scale, ‘‘no investments/under study/ under implementation/implemented’’) K K K K K K K K
Social activities for local communities Development and use of environmental friendly bags Environmentally friendly building Sourcing to local suppliers Training employees for social and environmental issues Waste management and control Campaigns to increase consumer awareness of sustainability issues Supporting of environmental projects
Capabilities (5-point scale, ‘‘not at all important’’–‘‘very important’’) – Process, What is important for your process management? K Reduction of costs K Improved logistics and operations K Reduction of product waste
– Human Resources, What is important for your HR management? K Transparent and fluid internal communication K Adequate workload K Opportunities to participate in social activities K Training programs
– Customer Driven What is important for managing your relationship with customers? K Increased assortment K Competitive prices K Customer service
Supplier relationships (5-point Likert scale, ‘‘totally disagree’’–‘‘totally agree’’) – Process and policies (a ¼ 0.72), K Suppliers manage policies fairly. K Suppliers apply policies consistently to retailers. K Suppliers treat retailers the same when implementing any policy. K Suppliers treat all retailers fairly the same. – Communication (a ¼0.83), K Suppliers are transparent in their communications with you. K Procedures are explained thoroughly by the supplier. K Suppliers communicate details in a timely manner. K Communication is timely and detailed.
Uncertainty (5-point scale, ‘‘not at all concerned’’–‘‘very concerned’’) K Changes in government tax policy for businesses K Economic policies to reduce consumption K Consolidation of the retail sector K More multinational competitors K National monetary policy K Policy to increase market growth
of the perception of the supermarket on the supplier’s development and the uniform enforcement of policies and procedures. A four-item measurement instrument was applied containing a reflective scale with a Cronbach’s alpha of 0.72. The communication dimension refers to the explanations provided by suppliers that convey information about why actions were employed in certain ways. The instrument included four items containing a reflective scale with a Cronbach’s alpha of 0.83. All two dimensions were assessed by a 5-point Likert scale ranging from ‘‘totally disagree’’ to ‘‘totally agree’’. The variables were calculated by the unweighted average of the items of each dimension.
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The variable of uncertainty refers to the respondent’s perception of the impossibility of exactly describing the future outcomes of issues related to his or her business. A measurement instrument with six items with a formative 5-point scale ranging from ‘‘not at all concerned’’ to ‘‘very concerned’’ was employed. The variable was calculated by the unweighted average of the six items. We carefully checked the content validity of the measurement instruments. Content validity is based on the procedures that are used to develop the measurement instrument of a construct (Churchill, 1979). Our study started by examining the extant literature and selected items that broadly represent the variables as defined. We checked items and wording during a series of interviews with academics, specialists and potential respondents. We considered two control variables in the estimation. First, the variable number of checkouts refers to the sum of checkouts in all stores within the respondent retail chain. Second, the variable small and medium retail chains is a dummy variable for the number of stores, with a value of 1 representing the large retailers (over 300 stores) and 0 representing small and medium retailers (below 300 stores). Table 2 presents the descriptive statistics and the correlation matrix of our variables. The correlations between the measures do not suggest problems of pairwise collinearity that would preclude the use of all constructs in the estimation. Additionally, we found the highest value of the variation inflation factors (VIF) of 1.513 that is below the threshold value of 10 and reassures the absence of multicollinearity.
5. Results Table 3 summarizes the results of ordinary least square regression analysis. The table presents the standardized coefficients of the estimated regression model and the t-test in parentheses. The standardized coefficient allows for a comparison of ‘‘coefficient size’’ because all measures are in the same metric, namely, standardized normal deviates. The equation was statistically significant below the 0.01 level in the F-test. The R2 for the equation is 0.23, which indicates that the results of the estimated model present an acceptable explanatory power (Hair et al., 1998). The explanatory power of the equation and the relative pattern of the significant coefficients support the examination of individual coefficients testing the effects of each individual variable. Estimated drivers have significant effects on the measurement of sustainability investments. The results show that retailers with customer driven capabilities tend to invest more in sustainability (b ¼.24 p o.05) which is in line with our hypothesis (H1c). No significant effect was found on the impact of other capabilities. This suggests that retailers managing assortment, prices and services with a strong focus on customer behavior tend to invest in sustainable activities. We found a negative significant effect of the processes and policies of supplier relationships on sustainability investments (b ¼ .22 po.05). This is the opposite of our hypothesis H2a. We speculate that the investment in sustainability is working to counterbalance the lack of transparent processes and policies in the relationship with suppliers. Retailers may be focusing on improving their operation and image for consumers in order to safeguard the misty relationship with suppliers. On the other hand, we found support for H2b which refers to communication with suppliers. There is a positive significant effect of communication with suppliers on sustainable investments (b ¼.23 po.05). Communication appears to create an atmosphere conducive to retailers investing more in sustainability.
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Table 2 Descriptive statistics and correlation matrix. Mean 1. 2. 3. 4. 5. 6.
Sustainability investments Process Capabilities Human resources capabilities Customer driven capabilities Interorganizational process and policies Supplier communication
7. 8.
Uncertainty Number of checkouts (.000)
9.
Small and medium
1.33 4.28 4.88 4.05 2.52 3.06 3.68 0.12 0.04
SD
1
2
3
4
5
6
7
8
0.65 0.53 0.38 0.58 0.96 0.96 0.60 0.97 0.20
1 0.31 0.20 0.29 0.04 0.15 0.13 0.26 0.03
1 0.34 0.52 0.05 0.04 0.11 0.11 0.09
1 0.22 0.16 0.09 0.19 0.05 0.07
1 0.08 0.10 0.16 0.01 0.09
1 0.52 0.05 0.06 0.06
1 0.06 0.01 0.18
1 0.06 0.24
1 0.03
Note: Significant correlation coefficient in bold type (o0.05 level; 2-tailed).
Table 3 Drivers of sustainable investments. Variables
Hypotheses
Sustainability investments
H1a H1b H1c
0.09 (0.76) 0.14 (1.33) 0.24 (1.97)n
H2a H2b
0.22 (1.96)n 0.23 (1.96)n
H3
0.11 (1.11)
Capabilities Process Human resources Customer driven Supplier relationship Process and policies Supplier communication Uncertainty Competition and economic Control variables Number of checkouts Small and Medium R2 Adjusted R2 F-statistics
0.31 (3.19)nn 0.01 (.09) 0.23 0.17 3.24nn
Notes: Standardized coefficients are reported with t-value in parentheses. n
p o 05. p o.01.
nn
Considering the external driver of uncertainty, there was no significant effect of competitive and economic uncertainty on the sustainability investment of retailers. To further investigate the impact of such an external driver, we conducted an exploratory post-hoc analysis to assess a moderating effect of external driver on the other two drivers of the model. No significant impact was found in the estimations3. We included two control variables. We found a significant effect for size, by the number of checkouts, on sustainable investments (b ¼.31 po.01). Larger retailers tend to invest more in sustainability. No significant effect was found for the small and medium dummy variable.
6. Discussion and conclusion Building up on the theoretical underpinnings of sustainability value creation (Hart and Milstein, 2003), this paper combines prominent antecedents of theoretical elements to examine the drivers that influence retailer investments in sustainability. The retailers’ brand image and the propensity of consumer repurchase may be reinforced by sustainable investments and retailers may improve their financial performance through such investments (Luo and Bhattacharya, 2006). Our study sheds light on the drivers that lead to sustainability investment and offers an understanding of 3 We thank reviewers to point out a potential moderating effect of uncertainty in the model.
how retailers may invest further in sustainability. As such, this study extends the literature on retail sustainability and its drivers by exploring the internal, external and relationship based elements. In a study of retailers, Griffith et al, (2006) demonstrated that the capability of market responsiveness fosters retailer performance. The importance of capability to a retailer is often viewed in terms of its operational or financial outcomes, without careful consideration of the impact that customer orientation has on investments in sustainability. As such, the findings of this study underscore, and provide empirical support for, the theoretical precepts put forth in the capabilities literature that argue that resources are necessary yet insufficient for the establishment of enhanced performance. Here the findings demonstrate that it is through investments in sustainability that retailers can develop a strong image and position in the competitive market. Grewal et al. (2009) acknowledged that retail supply chain issues were somehow less important than other activities such as promotion, pricing and customer service. Ganesan et al. (2009) examined several important supply chain issues, including communication and the processes that foster innovation and efficient coordination. In our study, the supplier relationship from both the greater communication angle and the greater partnership angle has proven to be an important factor in leveraging investments in sustainability.
7. Managerial implications and future research By treating sustainability as a business goal, retailers will develop competencies that rivals will be hard pressed to match. Some of the sustainability issues are imposed by regulation and national policies that retailers have to comply with. Apart from compliance, voluntary actions appear to be recognized by organized and informed consumers and create a virtuous cycle for retailers. Our research shows that an integrated supply chain allows for more investments in sustainability. Retailers are close to consumers and may play an important role in stimulating environmental and socially conscious actions. Retailers appear to respond more effectively to consumer needs when they establish a fluid relationship with suppliers. Sustainable business cannot be well implemented without commitment from the retailers’ top management. The sentiment is that concern for social and environmental responsibility must become an integral part of the retailer’s corporate culture. It is common sense that people have somewhat either egoistic or altruistic motivations or both when it comes to having such broad and not directly accountable social and environmental responsibilities. Therefore, it is critical that leadership be shown in embracing and involving all a company’s activities, people and partners in the challenges of investing in sustainability.
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Contents lists available at SciVerse ScienceDirect
Journal of Retailing and Consumer Services journal homepage: www.elsevier.com/locate/jretconser
Sustainability drivers in food retail Danny Pimentel Claro n, Silvio Abraha~ o Laban Neto 1, Priscila Borin de Oliveira Claro 2 ´, 300, Sa~ o Paulo, Sa~ o Paulo 04546-042, Brazil Insper Institute of Education and Research, Rua Quata
a r t i c l e i n f o
abstract
Available online 22 March 2013
Sustainability has become a relevant issue for retailers. We develop an integrated model with three drivers of retailer’s investments in sustainability. First, the more their processes, human resources and customer driven capabilities are developed, the more investments in sustainability tend to occur. Second, retailers leverage their relationships with suppliers to invest in sustainability. Third, competition and economic instability may also lead to long run investments in social and environmental. We tested three hypotheses by surveying 101 retailers operating supermarkets, hypermarkets and neighborhood stores that focus mainly on food with a limited offering of general merchandise and apparel. Our results show the importance of customer driven capabilities for investments in sustainability. Communication with the supplier also has an impact on investments, while the process and policies of the supplier relationship do not. Retailers invest in sustainability to coordinate this relationship. Our study sheds light on the drivers for sustainability and offers an understanding of how a retailer may invest further in sustainability. & 2013 Elsevier Ltd. All rights reserved.
Keywords: Sustainability Retail strategy Consumer driven capability
1. Introduction Recently, sustainability has become a major business issue for retailers. Sustainability in this paper takes a broad perspective that accounts for the combination of economic, social and environmental dimensions to: ‘‘meet the needs of the present without compromising the ability of future generations to meet their own needs’’ (United Nations, 1987). Previous research in marketing has recognized the importance of sustainability by creating the concept of enviropreneurial marketing strategy (Menon and Menon, 1997) and also by looking at environmental and social concerns to develop a corporate strategy (Ganesan et al., 2009; Nidumolu and Prahalad, 2009). Retailers play a key role in sustainability initiatives due to the economic impact and proximity to end consumers. Increasingly competitive markets point to the importance of preserving loyalty and developing long term relationships with consumers. Consumers’ perceptions of a retailer’s investment in sustainability affect the retailer’s brand image and alter consumers’ propensity to buy specific brands as well as patronize certain retailers (Handelman and Arnold, 1999). To address the complex issue of sustainability in the retail
n
Corresponding author. Tel.: þ55 11 4504 2419. E-mail addresses: [email protected] (D.P. Claro), [email protected] (S.A. Laban Neto), [email protected] (P.B. de Oliveira Claro). 1 Tel.: þ55 11 4504 2708. 2 Tel.: þ55 11 4504-2707. 0969-6989/$ - see front matter & 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.jretconser.2013.02.003
industry, we identified three drivers that were drawn from the theoretical framework for creating sustainability value (Hart and Milstein, 2003). The Hart and Milstein’s (2003) framework presents a multidisciplinary approach that helps the understanding of drivers and payoffs of investing in sustainability strategies. This framework does not fully account for initiatives to incorporate sustainability in the retailers processes and within the supply chain. We therefore integrate prominent marketing and management theoretical frameworks to develop the three sustainability drivers that include internal, supplier relationship and external drivers (Fig. 1). First, the internal driver is based on the resource based view of the firm that emphasizes the application of unique and valuable resources to achieve a sustainable competitive advantage (Barney, 2001). From the perspective that capability is a special resource of a firm, we look into the retailers’ capabilities of human, customer and process to assess the impact on sustainability investments. The people that work for a retailer are central to any sustainable activity. People allow corporate social responsibility to be aligned with business objectives (Smith, 2003). Customers everywhere are more aware of the social and environmental activities of retailers, and companies that invest in such activities tend to perform better (Garcia-Gallego and Georgantzis, 2009). A survey of retailers showed the importance of specific capabilities to respond to customer needs (Griffith et al., 2006). In addition, a retailer’s internal process is acknowledged as being critical to gaining efficiency (Day, 1994) and may, for instance, support the implementation of green operations or further transparency in a supply chain (Ganesan et al., 2009).
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2. Sustainability in food retail
Fig. 1. Drivers of sustainability investments.
Second, literature of marketing channels acknowledges the importance of coordinating relationships with suppliers to achieve efficiencies (Wathne et al., 2001). Supplier relationship drivers of sustainability encompass process, policies and communication. Retailers may develop relationships with suppliers through communication and well established processes and policies. The challenges of sustainable business require an alignment with suppliers to work together and address problems as they emerge (Brown et al., 2006). Third, a political-economic theoretical framework of marketing channels accounts for the political and economic forces primarily external to the firm (Stern and Reve, 1980). This framework helps us explain how firms react to external forces: economic uncertainty and competitive pressure. The external driver also affects investments in sustainability. Retailers may face high competition and be forced to incorporate social and environmental practices that influence the consumers’ perception (Ganesan, 1994). Therefore, retailers should consider the three main drivers – internal, supplier relationship and external drivers – in fostering of investments in sustainability. Our contribution to the retail literature is to formally integrate the three drivers into a framework of sustainability in retail businesses. We explore the drivers that lead to increased retailer investment in sustainability. More specifically, this study assesses the effects of internal (process, human resources, and customer focus), supplier relationship (interorganizational process and policies, and communication) and external drivers (competition and economic uncertainty) that increase sustainable investments. Although some of the arguments developed here are well known and established in the literature, very little has been done to formally integrate them into a framework of sustainability in retail businesses. Such a formal assessment can provide marketing managers and scholars with specific insights that can effectively explain the drivers that lead to more investments in sustainability. We also contribute to managers and scholars with a survey analysis of sustainability strategy. This is an emerging area of research dominated by exploratory single company case studies with little quantitative empirical evidence. Our study is an attempt to fill that void by analyzing the framework with a survey of 101 supermarket retailers. By combining an integrated framework of three drivers, this study will be of value to researchers who are developing causal models of sustainability and to retail managers who are responsible for developing and implementing capabilities and training retail employees in how to effectively interact with specific investments in sustainability. Understanding the impact of each driver on investments will allow retailers to focus more precisely on the critical aspects of capabilities and interorganizational relationships.
Retail industry globalization and consolidation have created gigantic global and even local corporations that have attracted the attention of consumers, regulators, NGOs and society at large. Alongside the business scale and objectives, one must consider that retailers represent the last stage of the distribution channel and more specifically the fact that the retail industry may drive the whole supply chain process and its economic, environmental and social consequences. In response to this growing attention, retailers have created corporate programs to collect valuable data and formulate a strategy for sustainability (Banerjee et al., 2003; Iles, 2007). In summary, sustainability issues are becoming more and more relevant for any retail business. We adopt the concept of sustainability that is the triple bottom line concept, entailing the dimensions of care for the natural environment, social responsibility and economic results (Elkington, 1993; Savitz, 2006). As with any other strategic objective, sustainability is an integrated organizational objective that focuses on long term business competitive advantage. We follow the perspective that sustainability may create business opportunities rather than a solely moral or legal requirement. This perspective implies that companies will strategically look for ways to invest in sustainability initiatives (Hart and Milstein, 2003). There are several specific investments in sustainability. Retailers invest in corporate social responsibility through social projects in the surrounding communities. Corporate social responsibility encompasses a company’s status and activities with respect to its perceived societal obligations such as corporate philanthropy, causerelated marketing, minority support programs, socially responsible employment and manufacturing practices (Bhattacharya and Sen, 2004; Perry and Towers, 2009). An interesting example in Brazil is Walmart’s community stores where the company, alongside its traditional product and services, offers a community center where customers have access to health services, document expedition services, job agency and basic training courses (Ferraz, 2009). Some investments may have a direct impact on the social dimension and an indirect impact on the environmental and economic dimensions. The issues of global warming, deforestation and non-renewable resources have caught the attention of society and public opinion. In this area, many players are investing in improving their packaging and supply chains in order to reduce their carbon footprint and waste (TESCO, 2009; Carrefour, 2009). A recent document developed by Greenpeace about the deforestation in the Amazon Forest showed that cattle are responsible for about 80% of all deforestation in the Amazon region Greenpeace International (2009). Greenpeace has tracked the trade in cattle products back from the exports – pinpointing the facilities of Bertin, JBS and Marfrig, the three large Brazilian meat processors. These companies keep cattle in ranches within the Amazon Forest. Carrefour and Walmart were listed as silent partners to the crime since they were the major buyers of the Brazilian meat processors. As a reaction to this, Walmart, Carrefour and Pa~ o de Ac- u´car (Brazil’s largest retailer) banned meat from these processors from their shelves. The ban lasted until June 2009, when these suppliers together with these retailers signed a document to produce and commercialize sustainable meat, which includes eliminating cattle within the Amazon Forest. Retailers have also focused on investments in environmentally friendly infrastructure and bags as well as in training and campaigns to educate employees and customers on the importance of sustainability Nidumolu and Prahalad, 2009. An interesting example is given by Pa~ o de Ac- u´car: through recycling stations (in partnership with Unilever) and a pre-consumption recycling initiative called Green POS, consumers are invited to recycle and even discard product packaging right after checking out (Pa~ o de Ac- u´car,
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2009). Additionally, investments are being made in developing local suppliers which have an impact on the welfare of the local economy as well as production standards (Kova´cs, 2008). Several retailers and event trade associations create and adopt codes of conduct that outline acceptable practices for suppliers. In an effort to develop local suppliers, retailers enforce these codes in order to develop standards as is the case of the meat supply chain in Brazil (Freitas, 2009). From a global perspective, Whole Foods is a strong example of a retailer that emphasizes its responsibilities and roles beyond its own activities, looking after farm workers and the environment (Whole Foods, 2009). Research has shown the impact of several of these dimensions on brand image, reputation, sales and profits, and product and process innovation (Womack and Jones, 2005; Truch, 2006). As sustainable businesses lead to long term performance, research needs to address the relevant drivers that retailers should be taken into account when investing in sustainability. Specifically, we investigate three drivers in which retailers are leveraging sustainability investments inspired by Hart and Milstein (2003). Given the fact that retailers represent the end of a long supply chain, we must take into consideration aspects that go beyond retailers. Sustainability investments may be influenced by internal and external drivers as well as the nature of the supplier relationship.
3. Hypotheses: sustainability drivers
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Investments in sustainability require a better integration of different departments because of the set of new goals and adjustments of the current ones. For instance, a project that impacts the environment needs efficient information flow and decision making process. A team building approach is required for leaders to enforce the sustainability issues. Retailers with well developed processes underlying projects are able to efficiently integrate departments and consequently invest and conduct necessary changes to achieve a sustainable business Burger and Marius (2011). Thus, we formulate the following hypothesis: H1a. Process capabilities of retailers lead to investments in sustainability. A second category is human resource capabilities. Management literature over-emphasizes routines and processes without explicitly considering the human aspect of processes Anderson (1997). Human capability appears to be a realistic indicator of improved organizational effectiveness (Boxall and Steeneveld, 1999) because it contributes accumulated knowledge about complex processes. Retailers that embrace sustainability will demand new skills from their employees. These skills encompass knowledge and attitude towards sustainability, the ability to interact and help educating customers’ and other stakeholders. By developing internal training programs for employees, adequate workload and working group settings, retailers may be better prepared to face the investments in sustainability. Therefore, our hypothesis is as follows:
Investments in sustainability often starts with legal and moral arguments, however, retailers need to incorporate sustainability from a strategic point of view. Hart and Milstein (2003) discuss internal and external drivers that lead to sustainability value creation. We identified three drivers that influence a retailer’s investment on sustainability, which encompasses both internal and external elements. The first driver involves a move toward internal capabilities, which refers to the sum of expertise and resources with a specific purpose. We investigate the process, human resources and customer driven capabilities (Helfat, 2000). The second driver pertains to the challenge of maintaining a relationship with suppliers. For instance, retailers maintain these business relationships to facilitate access to an appropriate assortment of products. Interorganizational process and policy (Ganesan et al., 2009) as well as supplier communication (Mohr and Speckman, 1994) are considered in this analysis of sustainability investments. Finally, we looked into the external driver of uncertainty which may influence the tendency of retailers to invest. Uncertainty includes risk taken under economic instability or the increasing presence of competitors (Ganesan, 1994; Klein et al., 1990). For each of the drivers we develop specific hypothesis as follows.
H1b. Human resource capabilities of retailers lead to investments in sustainability.
3.1. Internal drivers: capabilities
3.2. Supplier relationship drivers
Capability has been extensively discussed in the marketing and management literature. From the resource base view of the firm, capabilities concept refers to the complex set of skills and resources that ensures superior functional activities (Wernerfelt, 1995). At the time of its introduction, the concept mainly focused on the matter of developing such distinct capabilities (Day, 2003). In a retail business context, capabilities can be usefully sorted into three categories, depending on the nature and orientation. A first category is process capabilities that are related to the day-to-day organizational operations and routines. Zeithaml (2000) shows the importance of process capabilities by reviewing the literature of overall quality in services and the implications of cost reduction for customer relationship management.
Following a marketing channels perspective, the coordination activities with suppliers is key to success Wathne et al., 2001. A number of retailers are involved in developing relationships with suppliers to better cope with the increasing demands of consumers (Ganesan et al., 2009) and consequently carry on sustainability investments. Interorganizational relationships have long been recognized as being critical for businesses Anderson (1997). In nature, relationships require two notable dimensions to be operational. Process and policy must be well defined and implemented in a way that reassures relationship partners and tells them how to work together and address problems (Brown et al., 2006). For instance, a supplier changing its packing may impose changes to a contractual arrangement without adequate notice or negotiation.
A third category is customer driven capability. Every discussion of market orientation emphasizes the ability of a firm to learn about its customers and execute market driven activities. Day (1994) explored the idea of market sensing and customer linking to develop and sustain customer driven capabilities. In addition, the new dominant logic of marketing suggests a clear and direct focus on customers because they are the active participant in change and co-producers in the market Vargo and Lusch (2004). Consumers are not indifferent to sustainability and demand that the companies, they deal with do understand and help them in understanding sustainability and its implications. Retailers that are able to ensure the delivery of customer needs, in terms of price, service or products, are more likely to invest in sustainability. By monitoring customer satisfaction and employing a customer management system, retailers will be prepared to deal with sustainability issues. Thus, we formulate the following hypothesis: H1c. Customer driven capabilities of retailers lead to investments in sustainability.
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Ill-defined procedures hamper partners in providing constructive decision making input. Retailers may invest more in sustainability when supplier relationship procedure and policy are clear and aligned with the retailer strategy. H2a. Well developed supplier relationship process and policy lead to investments in sustainability. Communication is another dimension of the supplier relationship. The concept of communication refers to the transfer of information between two parties which includes providing and receiving it. Mohr and Nevin (1990) developed an extensive model to explore the facets of communication by looking at frequency, content and direction. Mohr and Speckman (1994) found evidence that communication influences financial performance and the satisfaction of the relationship parties. In the high tech industry, manufacturers are assumed to have more power than the retailer and use the power to hide valuable information (Mukhopadhyay et al., 2008). This lack of communication brings conflict and decay to the relationship. As per Sindhav and Lusch (2008), collaborative communication from suppliers is found to be positively related to coordination, and thus improves trust and commitment and reduces the chances for unresolved conflicts and power imbalances. Sustainability actions by suppliers will demand proper communications with retailers, in order to ensure customers will perceive and understand such actions and their relevance and impact. By having a positive flow of information with suppliers and consequently a clear idea about suppliers strategy, retailers may be more willing to commit invest in sustainability (Perry and Towers, 2009). Thus, we formulate the following hypothesis: H2b. Well developed supplier relationship communication lead to investments in sustainability.
3.3. External driver A political-economic perspective of marketing channels calls attention to the political and economic forces (Stern and Reve, 1980). The external driver accounts for the uncertainty that may arise from sources like economic instability or increasing competition (Klein et al., 1990). While economic instability represents the unexpected changes in economic policy that can catch firms by surprise, increasing competition represents the consolidation of the retail sector all over the world (Ganesan, 1994). One might suggest that in high uncertainty, retailers will take a defensive short term strategy and cut costs and investments. However, we argue that high uncertainty may lead to high investments in sustainability because sustainability is a long term investment that affects the brand image and reputation of retailers among customers. In addition, retailers may face high competition and be forced to incorporate social and environmental practices that influence consumer perception. Together with perceived differentiation, retailers may also gain with efficiency. From a risk taking perspective, disinvestments in sustainability can lead to more risks and fewer business opportunities, which can also influence competitiveness. Retailers may then be long term oriented and be willing to invest more in sustainability. Sustainability may also absorb economic instability through a long term perspective. Consumers can react positively during periods of instability by rationalizing their choices of retail brands. Thus, we formulate the following hypothesis: H3. Competition and economic uncertainty lead to investments in sustainability.
4. Methodology We tested our hypotheses by surveying retailers that operate supermarkets, hypermarkets and neighborhood stores with a focus on food and a limited offering of general merchandise and apparel in the State of Sao Paulo, Brazil. This industry has undergone a consolidation process over the past two decades and as a result the top 5 chains represented 40% of the total formal market in 2008 as measured by the Brazilian Supermarket Association ABRAS (2009). The other 60% is accounted for by small and medium chains with important local expertise and differential strategies (McKinsey Global Institute, 2006). Retailers are organized in state associations and the State of Sa~ o Paulo has more than 1000 members that account for the largest retail economic activity in the country. The state branch of the association supported the data collection. Our survey data collection processes initially focused on developing a questionnaire by identifying construct items used in previous studies. We obtained the help of other academics and managers to develop items where the literature was silent, to refine survey wording, and to check the overall validity of questions vis-a -vis the industry environment. The questionnaire was given by telephone to randomly selected retailers in the national association. The state brunch of the association provided a list of members operating in the State of Sao Paulo. The list contained the primary contact as registered in the association’s files, which allowed us to avoid respondents of the same retail chain in the sample and identify the key respondent more easily. A marketing research institute interviewed 101 retailers of the members’ list, over a period of 2 weeks during May 2009. There was an assistant research that provided a large list of members randomly selected to be called. As respondents were either participating in the interview or declining it the next name in the list would be approached. We identified the key respondents by inviting the retail owner (approximately 70% of the sample) or the highest general executive (approximately 30%). These individuals are the most knowledgeable about their business, as well as company specific information. In questions about their relationship with suppliers, we asked respondents to focus on ‘‘a supplier that the respondent was most knowledgeable about’’. Our sample’s retailer sizes are representative of the country’s national population of businesses. The variables used in the questionnaire are described in Table 1. Sustainability investments refer to environmental, economic and social dimensions. The variable of sustainability was assessed by a formative 4-point scale. The variable included eight items and was calculated by the unweighted average of the eight items. The capability construct is formed by three dimensions: process, human and customer. The process dimension refers to the extent to which activities and routines employed in the dayto-day business are relevant for the firm. This dimension was measured by three items. The human resources dimension refers to investments made in training staff, the work climate, the workload and opportunities for career advancement. This dimension was assessed by 10 items. The customer driven dimension refers to the activities and resources employed specifically in tangible (e.g. competitive price) and intangible (e.g. customer service) customer perceived value. The customer driven dimension was measured by three items. All dimensions were assessed by a formative 5-point scale ranging from ‘‘not at all important’’ to ‘‘very important’’. The variables were calculated by the unweighted average of the items of each dimension. The construct of supplier relationship drivers is formed by two dimensions. The process and policies dimension refers to the effect
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Table 1 Construct items. Sustainability investments (4-point scale, ‘‘no investments/under study/ under implementation/implemented’’) K K K K K K K K
Social activities for local communities Development and use of environmental friendly bags Environmentally friendly building Sourcing to local suppliers Training employees for social and environmental issues Waste management and control Campaigns to increase consumer awareness of sustainability issues Supporting of environmental projects
Capabilities (5-point scale, ‘‘not at all important’’–‘‘very important’’) – Process, What is important for your process management? K Reduction of costs K Improved logistics and operations K Reduction of product waste
– Human Resources, What is important for your HR management? K Transparent and fluid internal communication K Adequate workload K Opportunities to participate in social activities K Training programs
– Customer Driven What is important for managing your relationship with customers? K Increased assortment K Competitive prices K Customer service
Supplier relationships (5-point Likert scale, ‘‘totally disagree’’–‘‘totally agree’’) – Process and policies (a ¼ 0.72), K Suppliers manage policies fairly. K Suppliers apply policies consistently to retailers. K Suppliers treat retailers the same when implementing any policy. K Suppliers treat all retailers fairly the same. – Communication (a ¼0.83), K Suppliers are transparent in their communications with you. K Procedures are explained thoroughly by the supplier. K Suppliers communicate details in a timely manner. K Communication is timely and detailed.
Uncertainty (5-point scale, ‘‘not at all concerned’’–‘‘very concerned’’) K Changes in government tax policy for businesses K Economic policies to reduce consumption K Consolidation of the retail sector K More multinational competitors K National monetary policy K Policy to increase market growth
of the perception of the supermarket on the supplier’s development and the uniform enforcement of policies and procedures. A four-item measurement instrument was applied containing a reflective scale with a Cronbach’s alpha of 0.72. The communication dimension refers to the explanations provided by suppliers that convey information about why actions were employed in certain ways. The instrument included four items containing a reflective scale with a Cronbach’s alpha of 0.83. All two dimensions were assessed by a 5-point Likert scale ranging from ‘‘totally disagree’’ to ‘‘totally agree’’. The variables were calculated by the unweighted average of the items of each dimension.
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The variable of uncertainty refers to the respondent’s perception of the impossibility of exactly describing the future outcomes of issues related to his or her business. A measurement instrument with six items with a formative 5-point scale ranging from ‘‘not at all concerned’’ to ‘‘very concerned’’ was employed. The variable was calculated by the unweighted average of the six items. We carefully checked the content validity of the measurement instruments. Content validity is based on the procedures that are used to develop the measurement instrument of a construct (Churchill, 1979). Our study started by examining the extant literature and selected items that broadly represent the variables as defined. We checked items and wording during a series of interviews with academics, specialists and potential respondents. We considered two control variables in the estimation. First, the variable number of checkouts refers to the sum of checkouts in all stores within the respondent retail chain. Second, the variable small and medium retail chains is a dummy variable for the number of stores, with a value of 1 representing the large retailers (over 300 stores) and 0 representing small and medium retailers (below 300 stores). Table 2 presents the descriptive statistics and the correlation matrix of our variables. The correlations between the measures do not suggest problems of pairwise collinearity that would preclude the use of all constructs in the estimation. Additionally, we found the highest value of the variation inflation factors (VIF) of 1.513 that is below the threshold value of 10 and reassures the absence of multicollinearity.
5. Results Table 3 summarizes the results of ordinary least square regression analysis. The table presents the standardized coefficients of the estimated regression model and the t-test in parentheses. The standardized coefficient allows for a comparison of ‘‘coefficient size’’ because all measures are in the same metric, namely, standardized normal deviates. The equation was statistically significant below the 0.01 level in the F-test. The R2 for the equation is 0.23, which indicates that the results of the estimated model present an acceptable explanatory power (Hair et al., 1998). The explanatory power of the equation and the relative pattern of the significant coefficients support the examination of individual coefficients testing the effects of each individual variable. Estimated drivers have significant effects on the measurement of sustainability investments. The results show that retailers with customer driven capabilities tend to invest more in sustainability (b ¼.24 p o.05) which is in line with our hypothesis (H1c). No significant effect was found on the impact of other capabilities. This suggests that retailers managing assortment, prices and services with a strong focus on customer behavior tend to invest in sustainable activities. We found a negative significant effect of the processes and policies of supplier relationships on sustainability investments (b ¼ .22 po.05). This is the opposite of our hypothesis H2a. We speculate that the investment in sustainability is working to counterbalance the lack of transparent processes and policies in the relationship with suppliers. Retailers may be focusing on improving their operation and image for consumers in order to safeguard the misty relationship with suppliers. On the other hand, we found support for H2b which refers to communication with suppliers. There is a positive significant effect of communication with suppliers on sustainable investments (b ¼.23 po.05). Communication appears to create an atmosphere conducive to retailers investing more in sustainability.
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Table 2 Descriptive statistics and correlation matrix. Mean 1. 2. 3. 4. 5. 6.
Sustainability investments Process Capabilities Human resources capabilities Customer driven capabilities Interorganizational process and policies Supplier communication
7. 8.
Uncertainty Number of checkouts (.000)
9.
Small and medium
1.33 4.28 4.88 4.05 2.52 3.06 3.68 0.12 0.04
SD
1
2
3
4
5
6
7
8
0.65 0.53 0.38 0.58 0.96 0.96 0.60 0.97 0.20
1 0.31 0.20 0.29 0.04 0.15 0.13 0.26 0.03
1 0.34 0.52 0.05 0.04 0.11 0.11 0.09
1 0.22 0.16 0.09 0.19 0.05 0.07
1 0.08 0.10 0.16 0.01 0.09
1 0.52 0.05 0.06 0.06
1 0.06 0.01 0.18
1 0.06 0.24
1 0.03
Note: Significant correlation coefficient in bold type (o0.05 level; 2-tailed).
Table 3 Drivers of sustainable investments. Variables
Hypotheses
Sustainability investments
H1a H1b H1c
0.09 (0.76) 0.14 (1.33) 0.24 (1.97)n
H2a H2b
0.22 (1.96)n 0.23 (1.96)n
H3
0.11 (1.11)
Capabilities Process Human resources Customer driven Supplier relationship Process and policies Supplier communication Uncertainty Competition and economic Control variables Number of checkouts Small and Medium R2 Adjusted R2 F-statistics
0.31 (3.19)nn 0.01 (.09) 0.23 0.17 3.24nn
Notes: Standardized coefficients are reported with t-value in parentheses. n
p o 05. p o.01.
nn
Considering the external driver of uncertainty, there was no significant effect of competitive and economic uncertainty on the sustainability investment of retailers. To further investigate the impact of such an external driver, we conducted an exploratory post-hoc analysis to assess a moderating effect of external driver on the other two drivers of the model. No significant impact was found in the estimations3. We included two control variables. We found a significant effect for size, by the number of checkouts, on sustainable investments (b ¼.31 po.01). Larger retailers tend to invest more in sustainability. No significant effect was found for the small and medium dummy variable.
6. Discussion and conclusion Building up on the theoretical underpinnings of sustainability value creation (Hart and Milstein, 2003), this paper combines prominent antecedents of theoretical elements to examine the drivers that influence retailer investments in sustainability. The retailers’ brand image and the propensity of consumer repurchase may be reinforced by sustainable investments and retailers may improve their financial performance through such investments (Luo and Bhattacharya, 2006). Our study sheds light on the drivers that lead to sustainability investment and offers an understanding of 3 We thank reviewers to point out a potential moderating effect of uncertainty in the model.
how retailers may invest further in sustainability. As such, this study extends the literature on retail sustainability and its drivers by exploring the internal, external and relationship based elements. In a study of retailers, Griffith et al, (2006) demonstrated that the capability of market responsiveness fosters retailer performance. The importance of capability to a retailer is often viewed in terms of its operational or financial outcomes, without careful consideration of the impact that customer orientation has on investments in sustainability. As such, the findings of this study underscore, and provide empirical support for, the theoretical precepts put forth in the capabilities literature that argue that resources are necessary yet insufficient for the establishment of enhanced performance. Here the findings demonstrate that it is through investments in sustainability that retailers can develop a strong image and position in the competitive market. Grewal et al. (2009) acknowledged that retail supply chain issues were somehow less important than other activities such as promotion, pricing and customer service. Ganesan et al. (2009) examined several important supply chain issues, including communication and the processes that foster innovation and efficient coordination. In our study, the supplier relationship from both the greater communication angle and the greater partnership angle has proven to be an important factor in leveraging investments in sustainability.
7. Managerial implications and future research By treating sustainability as a business goal, retailers will develop competencies that rivals will be hard pressed to match. Some of the sustainability issues are imposed by regulation and national policies that retailers have to comply with. Apart from compliance, voluntary actions appear to be recognized by organized and informed consumers and create a virtuous cycle for retailers. Our research shows that an integrated supply chain allows for more investments in sustainability. Retailers are close to consumers and may play an important role in stimulating environmental and socially conscious actions. Retailers appear to respond more effectively to consumer needs when they establish a fluid relationship with suppliers. Sustainable business cannot be well implemented without commitment from the retailers’ top management. The sentiment is that concern for social and environmental responsibility must become an integral part of the retailer’s corporate culture. It is common sense that people have somewhat either egoistic or altruistic motivations or both when it comes to having such broad and not directly accountable social and environmental responsibilities. Therefore, it is critical that leadership be shown in embracing and involving all a company’s activities, people and partners in the challenges of investing in sustainability.
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