Sustainers leave laggards trailing behind
competitors by up to 23 per cent and are set to continue to do so,
suggests a recent report on the global food retail industry by
Innovest Strategic Value Advisors.
Sustainability leaders substantially outperform industry competitors by up to 23 per cent and are set to continue to do so, suggests a recent report on the global food retail industry by Innovest Strategic Value Advisors, a company analysing non-traditional sources of investment risk.
The report analysed a total of 27 global competitors in the sector. Companies from the US, UK, Europe, and Japan were benchmarked based on their strategies to improve performance, reduce risk, and to develop new business opportunities. The report then aimed to assess a wide spectrum of key industry trends and market activity associated with social, environmental, and corporate governance issues and their impacts on corporate bottom line and share price.
'Sustainability' leaders in the food retail sector substantially out-performed their industry competitors over a three-year period, according to the report. Companies with above-average Innovest ratings, including the three leaders, J. Sainsbury's, Boots and Tesco, outperformed companies with below-average ratings as a group by approximately 22.3 per cent over three years from June 2000 to June 2003.
Even in the current business environment, which has been quite poor for the sector overall in recent years, leaders posted positive results over three years with total returns averaging 7.4 per cent as a group over the past three years while laggards had average returns of -4.3 per cent, commented Innovest.
The food retail analysis was conducted in tandem with analysis of the food products industry, both of which have been at the forefront of global news recently with international trade issues over genetically modified organisms (GMOs) in the EU and the potential growth in litigation related to health issues and food.
Coming on the heels of the multi-billion dollar costs of the tobacco and asbestos claims, the report suggests these two issues alone will have financial and reputational repercussions on companies competing in the industry for the next several years. Adding that those firms who have received higher ratings from Innovest are those best positioned to respond to these issues, with their investors poised to reap the benefits.
According to the report, best-practice companies in the sector have enhanced their performance through a number of measures, including providing increasing amounts of information to consumers in the face of changing demands, engaging with regulatory bodies and global organisations to create valuable stakeholder relations, and instituting corporate codes of conduct to operationalise ethics throughout their organisations.
They are also said to have lower exposure to regulatory risk, a greater capacity to manage complex stakeholder relations (consumer demands such as non-GMOs in Europe or organic and locally grown produce), superior supply chain management to address energy costs and distribution issues, and more proactive product development strategies that include healthier product offerings. This expertise translates into greater value added for customers through increased choice, reduction in labour interruptions and enhanced brand reputation, notes Innovest.
"With growing concern about food safety and production methods among consumers, as well as increasing cost pressures from environmental factors, companies with superior sustainability performance are likely to out-perform their competitors by even larger margins going forward," said Isabel Pilkington, an analyst at Innovest and the lead author of the new report.
A related report on 25 food products companies is also available which suggests substantial outperformance by sustainability leaders in that sector as well.
For further information visit the company's website at www.innovest.com.
