SKAN TALK

The KRAFT Dilemma

Over at The SKAN Factor, we recently rated the sustainability of this company, arguably the biggest food company in the world.  For those that don't know, The SKAN Factor is a sustainability rating system that measures a company's sustainability on 56 different points, including carbon emissions, energy reduction, water management, waste and a variety of social issues.  At first, I wasn't expecting much as I hadn't really seen much about Kraft in the daily barrage of green rags and newsletters that I receive...that is until they recently cut the ribbon on a fabulous, 800,000 square foot distribution center in Moline, IL which achieved LEED-CI Gold certification status.  Then we looked further.

Read on...

The SKAN Factor -- Kraft

Kraft Foods Inc. (NYSE:KFT)

(http://www.kraftfoods.com Corporate Site: http://kraft.com)

Background

$37.2 Bil Net Revenue (07; up 8.4% from 06)

$2.59 Bil Net income (07; down 15.4% from 06)

Net Revenue over 5 years (billions):

2003= 30.5

2004= 32.2

2005= 34.1

2006= 34.4

2007= 37.2

Net Earnings over 5 years (billions):

2003= 3,476

2004= 2,665

2005= 2,632

2006= 3,060

2007= 2,590

103,000 Employees Worldwide

Operations in 70+ countries

180 Manufacturing and Processing Facilities

Products in 150 Countries

11 R&D Centers

Over 60 brands in North America

Most recognized / Largest Brands:

Cheez Whiz

Cool Whip

Honey Maid

Jell-O

Kraft

Maxwell House

Nabisco

Oreo

Oscar Mayer

Philadelphia

Planters

Ritz

Toblerone

Triscuit

Velveeta

Wheat Thins

General Information

Described as one of the largest food and beverage companies in the world, Kraft Foods is the manufacturer and marketer of a broad range of food products.  With over 60 well-known brands, 9 of the Kraft brands bring in over $1 Billion in revenue.  Kraft divides products into 5 major categories:  snacks & cereals, beverages, cheese, convenient meals, and grocery.  The company is also branching out to an international market, including Europe, South America and Asia.  These business units are broken out into Kraft North America and Kraft International.  The company also has strategic partnerships with Starbucks, South Beach Living and California Kitchen in addition to several other partnerships.  Kraft sells these brands in grocery stores under a licenses agreement with the parent company.

The company spun off from the Altria Group, the parent company of Philip Morris, on March 30, 2007.  In June 2008, Kraft sold Post Cereals brand thus eliminating the slow growing brand from their business.  As an independent company, Kraft has launched a three-year growth strategy under the direction of CEO Irene Rosenfeld. In their growth phase, the company is trying to cut costs and increase their profit margin.  High commodity and input costs are currently affecting the food industry including Kraft.  Kraft is focusing on getting the right team on board for this growth phase, connecting with consumer trends, leveraging their sales expertise, and reducing costs without negotiating quality.   

Kraft is watching consumer trends closely.  Consumer initiatives include a new Sensible Solutions product label, 100-calorie pack products, and new products based on established brands (ex: Oreo Cakester). The company has seen Double Digit growth in new product revenue.  The Kraft Foods website caters to customers, offering recipes and meal planning assistance, a healthy living section, and kid friendly recipes and nutrition information.  In addition, Kraft recently made an announcement that they would not use cloned meat based on consumer concern over the issue.  Overall, Kraft’s product offer is providing convenience, quality and affordability in their product lines.  During the current economic downturn, some consumers are sacrificing convenience for more affordable options, including generic brands.  As a response, Kraft is increasing their marketing to reach consumers and maintain their brand loyalty.

On the sustainability front, Kraft views sustainability as a business strategy and claims it is factored into every business decision they make.  The company maintains a good reputation externally on their sustainability initiatives as well.  The company feels that implementing sustainability initiatives will have the following internal and external impacts: better manage costs, deliver operational savings, drive growth, reduce environmental impact, reduce utilization of natural resources, and enhance the communities Kraft sources commodities from and does business in.  The company is achieving these goals by focusing on six key areas: agricultural commodities, packaging, energy, water, waste and transportation & distribution.  In addition, the company is tracking and measuring Environmental Performance Indicators including water use, energy use, energy-related carbon dioxide emissions, solid waste generation and recycling rates.  The company is measuring its progress and has a third party consulting firm review their results and performance.  The company seems to be on the right track and covering the basic areas related to sustainability.  As they continue through their growth phase it will be interesting to see if they continue to develop their sustainability plan more fully.

Summary:

Kraft seems to have a real commitment to sustainability.  I think they are off to a good start at looking at their systems and their business from a sustainability perspective.  From a health perspective however, Kraft is still in the processed food industry. Although health seems to be a growing concern for Kraft, due to consumer demand, the company does not seem to be looking at the true meaning of health and healthy foods. The predicament that Kraft will face with health claims is that the healthiest foods don’t have labels or marketing departments.  With Americans spending less of their income on food than any other nation (~10%), Kraft has developed a market for affordable, convenience food products.   

I applaud the company’s commitment to discontinue advertising to children under the age of 12 and to revisit current brands and increase quality and nutrition (ex: Salad Dressing, removal of preservatives).  They are also leading in the area of coffee bean procurement and their partnership with the Rainforest Alliance.  The company has the opportunity to learn from that partnership and look at their sourcing for all of their ingredients and products.

On the international level, Kraft appears to be taking a “Bottom of the Pyramid” approach.  By marketing their products in smaller, more affordable sizes, they are tapping into lower income markets.  My concern stems from a cultural level and exporting our Western diet around the world.  Kraft’s marketing and entry into the developing world can be viewed as anti-cultural and may help to cause a shift or displace cultural ways of eating.  The Western diet has proven to be an unhealthy model, contributing to obesity and diseases like diabetes. The idea that Kraft embodies the American food brand unfortunately says something about their role in helping to establish the US as one of the most obese in the world. 

Although Kraft seems to have a commitment to sustainability, the company needs to look at sustainability from both a systemic perspective and at the detail level.

The SKAN Factor -- AT&T

AT&T. (NYSE:T)

(http://www.att.com/gen/landing-pages?pid=3309)

Background

$118 Bil Revenue (07)   

$18 Bil Net income (07)

307,000 Employees Worldwide

Operations in 200+ countries

Major Services Provided:

Wired phone service (for about 100 years)

73 Million wireless customers

Exclusive carrier for iPhones

Largest provider of broadband

71,000 hotspots plus 7000 Starbucks for Wi-Fi

Largest VPN and VoIP IP communications network

175 Million print directories plus Yellowpages.com

Largest US provider of local and long distance voice services

AT&T U-Verse – NEWEST SERVICE (“3 Screen Technology: mobile, PC and TV)

General Information

AT&T truly qualifies for the behemoth label.  This $118 Billion company, with 307,000 employees is one of the largest companies around.  For over 100 years, this company set its sites on being a telecommunication giant – and it’s been there and back, several times over.  Through break-ups, spin-offs and acquisitions, AT&T has again emerged from the dust as the clear “leader” in the telecom battles. 

However, “leader” is used only to identify AT&T on the money charts.  In all other respects, AT&T has failed to be a true world leader…or even a good corporate citizen.  For AT&T, it’s been primarily about the money and the behemoth label than just about anything else. 

The latest proof is found in AT&T’s new U-Verse project.  AT&T reinvented itself once again in 2005 when it decided to take-on not only the wireless companies but the cable and satellite companies as well.  U-Verse is an attempt to be the largest provider of “3 screen technology” – content that is delivered to handheld devices, computers and TV all in the same service.  The stock soared.  If you’re a stockholder, this was good news.  Though to most everyone else, it wasn’t.  For starters, the service requires a nationwide upgrade to AT&T’s existing network.  To accomplish this, AT&T is installing thousands upon thousands of VRAD -- or Video Ready Access Device – boxes in nearly every state.  Over 3500 will be going into Chicago proper.  Evanston, for example, will see 100 boxes.  These refrigerator-sized boxes popping-up on parkways everywhere are now the source of a nationwide outrage which is rocking state legislators and local citizens.  All in the name of competition (competitors are NOT using these boxes – they have chosen a more expensive and much less intrusive solution), AT&T has made the single largest stink in the digital era.

Here’s a list of their claimed initiatives other than making oodles of dough:

Sustainability Initiatives

• California Climate Action Registry, 2005 – though no actual reports of carbon emissions or progress since then
• Recently joined Green Grid, consortium to discuss data center energy use;
• Recently announced that it is adding 100 alternative fuel vehicles to fleet (CNG and Electric Hybrid) by June 09 to reduce fuel consumption by 34,000 gallons
• 2001-2004 reduction in gasoline consumption by 10 percent (fewer trucks, routes?)
• 2001-2004 reduction in diesel fuel consumption by 20 percent (fewer trucks, routes?)
• Yellow Pages printed on paper containing 40% post consumer content with intent to be recycled
• Paperless billing system (driven by whom or what?)
• Recycles used oil and antifreeze
• 25% improvement in efficiencies of facilities – no actual reports of which facilities or how it has achieved this
• Developed Journal of Industrial Ecology – won an award from the journal that IT CREATED
• 2008 – announced Aspire program; $100MM to address high school success and college readiness programs – job training program.
• 2007 – terminated the Excelerator program, giving innovation grants related to helping not-for-profits build stronger communities
  
  

  Summary

  Many of the world’s largest companies now seem to “get it,” meaning that they understand that they have certain responsibilities to take action against over-consumption of energy, carbon emissions, waste, water usage and a commitment to people and communities whom they touch.  Unfortunately, AT&T does not seem to be one of those companies.  Few of these world’s largest companies directly connect to the world’s citizens like AT&T does.  As the largest provider of consumer telecom services, we might expect a strong commitment to social responsibility, if not also environmental responsibility.  However, it’s simply not so.
  
  

  The stated environmental and social initiatives reported by this company qualify as being lame at best.  They haven't even issued a new corporate social responsibility report since 2006 – perhaps because they’ve been too busy reaping $18 Billion in profit with their new U-Verse expansion – and with tremendous cost to the consumer who pays for the very land upon which they’ve planted their very unsightly VRAD boxes.
  
  

  This is a missed opportunity for AT&T.  I’m confident that if they turned $25 Billion in profit, nobody would care so long as they were returning the favor with more respect for the people they serve and the planet they serve them upon.

The SKAN Factor Sustainability Rating Trend: DOWNWARD

The SKAN Factor -- Rush University Medical Center

RUSH UNIVERSITY MEDICAL CENTER
(http://www.rush.edu)

Background

$1BIL Revenue
613 Beds plus Johnson R Bowman Health Center (61) and Rush Oak Park Hospital
982 Medical Staff
1039 Professional Nurses
636 Residents and fellows
8057 Employees
Over 18,000 in and out-patient surgeries
Over 45,000 out patients
Admits over 30,000 per year (4500 at Rush Oak Park)
2006: Total community benefits and services funds $155,223,142
           Philanthropic Support $64,200,000.
           Research Awards $60,000,000. 
           Has a $300,000,000 Campaign goal for 2012   

Noteworthy Information
Rush University Medical Center is a nonprofit organization with an acute care hospital serving adults and children. The center also includes The Johnston R. Bowman Health Center which serves the elderly and rehabilitation patients. Rush University is home to one of the first medical colleges in the Midwest, dating back to 1837, and has one of the nation’s top-ranked nursing colleges, as well as graduate programs in health systems management, allied health and biomedical research. The Medical Center also offers more than 70 highly selective residency and fellow¬ship programs in medical and surgical special¬ties and subspecialties.  10,000 physicians received their training at Rush Medical College.
Since its founding nearly 170 years ago, Rush has been a national leader in academic medicine. In 2007, Rush was named a “Top-Performing Hospital” by University Health System Consortium (UHC), an alliance of 97 academic medical centers, which placed Rush among the top five medical centers in the nation for the third year in a row. And in the July 2007 U.S.News & World Report, Rush was ranked in more specialties than any other hospital in Illinois.
Rush University is the academic component of Rush University Medical Center. Founded in 1972, the University has expanded from one college and fewer than 100 students to four colleges and over 1,500 students. It includes Rush Medical College, the College of Nursing, the College of Health Sciences, and The Graduate College.

Reported Sustainability Initiatives

• Seeking LEED certification for new facilities;
• Rush Remedy, a grassroots movement, was created by medical students at Rush University Medical Center because they believe medical supply recovery and recycling not only helps the environment, but also helps those in need in other developing countries while significantly reducing hospital costs.  With full support from the Rush Community Services Initiative Program, which is an umbrella for several student-led outreach programs designed to address the social and health care needs of residents in neighboring communities, the students who run Rush Remedy have collected 12,000 pounds of unused medical supplies since January which would otherwise end up in landfill (worth over 200 Million dollars).
• In May, 2008 Rush Oak Park Hospital was honored for its commitment to eliminating mercury and reducing waste and pollution, underscoring efforts to create a healthier environment for patients, staff and the community. The Hospital was one of 50 facilities nationwide to receive the “Partner for Change” award from the Practice Green Health Environmental Excellence Awards in Pittsburgh. The award was presented to facilities that demonstrated that they were working to improve and expand on programs to get rid of mercury, reduce waste and prevent pollution.
• Employee training is provided by the staff and vendors to further cut waste reduction and promote recycling. By arranging to have waste hauled only when the trash compactor is full, the Hospital has reduced pickups by two to three a month. It recycles cardboard and is testing a cardboard bailer for further waste reduction
• The hospital has switched to energy-efficient light bulbs. 
• The hospital uses all environmentally safe green cleaning products throughout on floors, bathrooms and carpets
• The Office of Research Integrity and Regulatory Affairs (ORIRA) at Rush University Medical Center promotes the highest ethical standards in achieving institutional and research goals complying with federal and state laws through their EQuIP (Evaluation Quality Improvement Program) assessing conscious adherence, compliance and progress
• The Rush Community Service Initiatives Program (RCSIP) helps create a network of ongoing community service programs in which Rush medical students volunteer with attending physicians from Rush.  Although student participation in RCSIP is strictly voluntary, and students do not receive academic credit for the involvement, approximately 90 percent of Rush Medical College students volunteer in one or more activities.  The hope is that students exposed to such diverse populations and settings will become more culturally competent as providers, which will serve them well as future physicians.
• Financial counselors provide information regarding Charity Care, Limited Income Program, Self Pay Discounts and Payment Plans
• Many free information resources available to the public, i.e. Library of Rush, Anne Waud Center for Healthy Aging, Cancer Wellness Center, McCormick Education Tech Center specializing in free Alzheimer information for the caregivers.

Summary

Stunningly, healthcare facilities expend about 2x as much energy per square foot than do commercial buildings.  What's more, hospitals themselves generate more than 2 million tons of solid waste per year -- roughly 15 pounds per patient each day.  Rounding out this list of happiness is that hospitals are the 4th largest source of mercury discharge into the environment.  Accordingly, we'd like to think that the healthcare industry would have been first to respond to calls for environmental initiatives designed to increase energy efficiencies and reduce waste.  This has simply not been the case.  Hopefully, a major paradigm shift is about to occur -- or in Rush's case, may already be occurring.

While most of the industry has been slow to respond, Rush appears to be well out of the gates and running now.  And while we see many healthcare institutions undertaking a variety of socially oriented missions around their communities, Rush seems to have embraced the more modern movement of connecting community involvement with true causes that empower people to make a difference.  In this case, the Rush Remedy program not only answers a call to reduce waste and provide well needed medical supplies to people in need, it also empowers the Rush medical students to develop their own initiatives and participate in this very meaningful cause.  Especially in healthcare, going beyond the daily expected job duties is something that we don't always see.  Social responsibility is a necessary component of sustainability and initiatives that connect the products and services to employees and communities is now the norm, even more so where these programs engage employees and other stakeholders to become directly involved.  To this end, the Rush programs have scored big points.

On the environmental front, Rush's commitment to reducing mercury waste garners much credit as well, as does their use of green cleaning products and energy efficient lightbulbs, though these actions are now the norm and should be expected.  Construction of new facilities, though, is tougher to score.  Existing construction may have been designed before most people knew about these standards and we're not sure what, if any, retrofits have been attempted during the process.  Further, though they recently announced approval for yet another structure and have indicated that it will seek LEED certification, the genuineness of this commitment will not be known until we see the final plans and whether the Hospital will seek a Gold/Platinum rating or will rest on the lesser effective general certification.  We also haven't seen any specific initiatives -- other than the aforementioned shift in light bulbs -- to a institution-wide reduction in energy consumption, renewable energy sourcing, water management, or waste initiatives other than the mercury programs discussed above.  The USGBC and the Green Guide for Healthcare have promulgated new standards for the design and operation of healthcare facilities and it will be nice to see Rush continue their trend towards environmental stewardship and social responsibility by embracing and adopting these standards, while continuing to empower employees and patients with a new level of consciousness towards these initiatives in the healthcare industry (including, perhaps, a patient education initiative on everything from unused drug disposal that otherwise contaminates water supplies to healthier patient-side products for more effective home healing and recovery).

The SKAN Factor Sustainability Rating: <.   > (Scale: 0.00 - 1.00)
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