Wal-Mart Says to Cut Supplier Packaging

Posted 23 September 2006 @ 09:38 am EET     Print     Reprint     E-Mail     Comments

LOS ANGELES (Reuters) - Wal-Mart Stores Inc., fresh from cutting the prices on generic prescription drugs, is now taking on the packaging industry.

The world's largest retailer said on Friday it would push its suppliers to cut the amount of packaging used in products sold through the world's largest retailer by 5 percent under a five-year plan scheduled to begin in 2008.

Wal-Mart, which is under pressure to cut costs as profit margins at its U.S. stores have narrowed, said the move would save it $3.4 billion over the five years. It estimates the move will also cut the amount spent on packaging in the global supply chain by $11 billion in that period as other suppliers and retailers follow suit.

The estimates assume that the retailer's packaging demands represent 3.5 percent of the estimated $465 billion global packaging industry, which has a 2 percent growth rate, said Matt Kistler, vice president of packaging and innovation at Sam's Club, a division of Wal-Mart.

Additionally, Wal-Mart said the move would prevent millions of pounds of trash from reaching landfills and reduce the amount of carbon dioxide that is released into the atmosphere.

"We're finding (cost savings) opportunities throughout the entire supply chain and the entire business system," said Kistler to reporters during a conference call.

Pressed for an example, Kistler said that even reducing the size of a packaging box helped reduce waste, while a smaller box would be easier to handle and store.

The plan was unveiled at the Clinton Global Initiative, a brainstorming summit with some of the world's richest and most influential people. The summit, which is hosted by the former U.S. president in New York, is intended to produce plans to combat illness, poverty, religious and ethnic conflict and climate change.

Wal-Mart, which has 60,000 suppliers, said it would begin to "measure" its suppliers in 2008 and recognize them for using less packaging, utilizing more effective materials and sourcing the materials more efficiently.

The retailer indicated that decisions on which suppliers to use could partly hinge on compliance with the new packaging plan.

"It is going to be factored into our purchasing decisions," said Wal-Mart spokesman David Tovar.

The move comes more than two years after consumer packaged goods companies began to feel pressure from higher raw materials costs, particularly for the plastic many of them use for their packaging.

Some companies, such as Unilever have created concentrated detergents, which get packaged in smaller plastic bottles, a move that saves plastic costs and cuts down on transportation spending, since the bottles weigh less.

Spokesmen for both Procter & Gamble and PepsiCo Inc. said they were already taking steps to reduce packaging waste.

"We are always pleased to work with our customers, including Wal-Mart, as they increase their focus on sustainable efforts like this," said Procter & Gamble's Terry Loftus.

Wal-Mart Watch, a group pushing for reforms to benefit the retailer's workers, urged Wal-Mart to add timelines for its other initiatives such as fuel efficiency for trucks by the end of the year.

"If Wal-Mart delivers on its promises they will be able to shape sustainability policies for all American businesses," said the group's Nu Wexler.

Wal-Mart, which is often criticized for its labor and health-care practices and for driving smaller retailers out of business, on Thursday said it would cut the price of many generic prescription drugs to $4 in Florida and then in other states.