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Walmart's Sustainability Strategy

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Thomas Sneed

on 18 December 2013

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Transcript of Walmart's Sustainability Strategy

Walmart's Sustainability Strategy (B)

2007 – New business Strategy (recap)
To be supplied by 100 percent by renewable energy
To Create zero waste
To sell products to sustain people and the environment

Walmart's Sustainability Strategy (C)
By 2007 Walmart was sourcing approximately $750 million in seafood annually

Their seafood business was growing by a volume of 25% a year, even though output from global fisheries had declined to 3% of the production levels in the year 1900.

Peter Redmond, VP of Seafood and Deli worried about continuing supply.

The Sustainability Strategy
In 2004, CEO Lee Scott initiated a review of Walmart’s legal and public relations challenges with one focus being on the Environmental Impact.
-Jib Ellison of Blu Skye Sustainability Consulting developed a strategy for Walmart to “profitably reduce environmental impacts” in June of 2004.
-This strategy focused on Walmart obtaining a “license to grow”, which would differentiate itself from competition and cut costs through an environmental strategy.
-Upon approval, Scott hired Blu Skye to perform environmental impact assessment and to launch such an initiative.

Getting Started
• Over the next year, Walmart worked with Blu Skye, Conservation International, and the Environmental Defense Fund to identify which of its products causes the greatest environmental impacts.
The impact assessment was leveraged by the Union of Concerned Scientists (UCS) in five primary areas across 134 product categories:
Greenhouse Gas Emissions
Air Pollution
Water Pollution
Water Use
Land Use
• For each of these product categories and impact areas, UCS estimated an environmental impact score per $1 spent by a consumer.

Walmart then multiplied these scores by 2003 sales to estimate the company’s overall environmental impact for each of the five areas.
This was a rough estimate, but provided a general idea of the overall impact for Walmart.

Sam Walton opened his first store in Rogers, Arkansas. They sold a desired assortment of products at unmatched prices to underserved markets.
By 1985, Wal-Mart had grown to 882 stores, 104,000 associates, and sales of $8.4 billion.

By 2003, Wal-Mart sold in three months what the country's second largest retailer, Home Depot, sells in a year.

As of 2005

84% of Americans had shopped at a Wal-Mart within the past year.
If it were a country it would be the 20th largest in the world (equating GDP to sales).
If it were a city its population would be the 5th largest in the U.S.

Supply Chain Management
“We view Walmart as the best supply chain operator of all times..Their (prices) can be far lower than other retailers’ because they have such an efficient supply chain. The company’s cost of goods is 5 to 10 percent less than that of most of its competitors.” -AMR Research
The Power of Industry
Walmart's purchasing power has increased, and its 60,000-plus suppliers were forced to become more efficient , leaner, focused, and faster
Squeezing supplier margins
Causing layoffs
Employee wages
Health Care Benefits
Working Conditions overseas

Environmental Impact

Biggest private user of electricity in the U.S.
19.1 million metric tons of Carbon Dioxide a year. That is 2.8 million households worth.
Millions of dollars paid annually in air and water pollution fines.

2-8% of consumers stopped shopping at Wal-Mart because of this.

A study performed by Communications Consulting Worldwide claimed that it they cleaned up their reputation their stocks would be worth 8.4 percent more adding $16 billion to the company’s market capitalization.

Motivation to Change
Sustainability Value Networks (SVNs) results:
Cost savings
Increased transparency
Stronger supplier relationships

Lead by, Andy Ruben, VP and Tyler Elm, Senior Director of corporate strategy and business sustainability included the following solutions to link sustainability to business value
Environmental NGO’s (non-profit Organizations)
Government representatives
This new “open network” brought in outsiders who worked collaboratively with Walmart.

Ruben and Elm’s Main Challenges:

Keep sustainability linked to the core business
Sustain enthusiasm and engagement around the strategy
Produce measurable results

As of 2010
Walmart grew by 2,800 stores, to total about 8,800 stores
Present in 15 countries
2 million associates (from 1.6 million)
200 million customers per week
$405B sales
CEO, Scott retired and replaced by Mike Duke

Ruben accepted a new lead position in Walmart’s private brand operations
Opportunity to drive sustainability
Private brand reserved 15% of shelf space
Lead the sustainability with private brand
Compete with lower cost, higher quality and more trusted product

Elm accepted a new position at Walmart leading sustainability as a platform for related diversification.
Elm later left Walmart.
This group was later disbanded

Sustainability was placed under corporate affairs and government relations
Lead by Mr. Leslie Dach.
Commitment to sustainability questioned. Just PR?

Additional Changes:
Matt Kistler – Senior VP
Rand Waddoups replaced Elm
Kistler and Waddoups goal was to “institutionalize” the sustainability efforts.

Measured supplier performance on metrics including:
Energy Consumption
Material efficiency
Natural resources
Ethical production

This was to be evaluated and completed by all Tier One suppliers

15 questions: Supplier Sustainability Assessment
Walmart restructured its merchandising organization to put buyers and supply chain people on the same team
Help buyers understand the supply chains
Understand the life cycle of products
Example: Love Earth Jewelry

Buyer turnover brings concerns and benefits
Short term relationships with suppliers (complaint from suppliers)
Allowed buyers to broaden their skills
Don’t let buyers get too comfortable
Suppliers become the constant and expert in the systems

CEO Duke’s New Goal
Eliminate 20 million metric tons of GHG emissions from the global supply chain.
2015 deadline
1.5 times the estimated 5 year growth of Walmart’s carbon footprint
Equivalent to taking 3.8 million cars off the road

Walmart total corporate emissions by 2010 = 20 million metric tons
Scope 1 = direct CHG emissions
Scope 2 = indirect emissions from purchased electricity
Scope 3 = all other indirect emissions

2006 goal to sell 100 CFL bulbs
Met the goal in 9 months
350 million sold by 2010
Helped decrease customer carbon footprint by 20M Metric Tons ( =to scope 1 and scope 2 alone)
Realized they could invest up and down the supply system to get a bigger, faster, cheaper greenhouse gas reduction than they could by investing in their own buildings and fleet.

New 2010 Goal: Reduce Public GHG emission

Drive environmental change through the supply chain and products life cycle.
For example: change labeling on clothing to be cold water wash instead of hot.
Reduce GHG during the products life cycle ( washing and drying)
Pick the top products in category’s to reduce the carbon footprint
Sales data
Pick the big opportunities
Drive environmental change
Other opportunities included soap products, which used palm oil
Linked to deforestation in Indonesia
Use of certified sustainable palm oil reduce GHG by 5M metric tons from 2010 to 2015
Walmart to work with its suppliers to catalyze widespread change through leadership
Supply Star Act of 2010 – Proposed Bill

Modeled on Energy Star Program
Would help consumers identify products made in and environmentally efficient and responsible manner.
Provide tax incentives for using Supply Star products.
Help provied companies financing, technical support, training and other assistance to help them improve their environmental performance and efficiency similar to Walmart.

Globalized its sustainability strategy by 2010
Created a global web network of support to reach multiple countries including China.

All sustainability efforts for China moved to China in 2008
Build an environmentally and socially responsible supply chain
To make Walmart’s stores more sustainable through efficient use of water and energy
To bring Walmart’s customers in China (and around the world) more sustainability products

Course of action in China
Drive improved sustainability in both the business in China and with suppliers and their factories.
Beijing Sustainability Summit.
1,000 largest suppliers
Government stakeholders
NGO stakeholders

Beijing Sustainability Summit Goals
Suppliers responded by becoming actively engaged and responded well to Walmart’s encouragement and incentives.
Measuring Sustainability
Sustainability Index (1)
Sustainability Consortium was a collective of manufacturers, retailers, NGOs, and universities working together to develop the science behind the measurement system.
The Consortium was founded to create transparent and scientifically credible standards index for the measurement of environmental and social impact of consumer products throughout their lifecycle.
3rd party science.
Independent entity from Walmart
Used to help buyers and suppliers have focused innovation.
5 year process

Walmart's Top 20
Time consuming
6 FTE’s – 10 months

Shift in approach within the chemical intensive products network.
First 3 chemical chosen to focus upon created an uproar and confusion.
18 months to deploy GreenWERKS
GreenWERKS was a scoring and weighting tool used to help determine the safety and sustainability of Chemicals.
Every chemical based product was required to be entered into the WERCS database.
Chemicals screened for safety for such chemicals which contain mutagens, carcinogens etc.
Red flag problem items and identify the exact concern.
Protects Proprietary information.
Not supported by an audit or verification process to verify product ingredients.

May 2009: GreenWERKS Released

Used by Walmart to screen 150,000 chemical based products
Able to report 50% of products on shelves contain safe ingredients.
Creating a desire for companies to change.
Business opportunity with Walmart and opportunity to change and make products safer.
No decisions made to share with other retailers yet.

Seafood Update
As of 2010 the seafood SVN had been combined with the food and agriculture network.
Primary goal – transition to 100%MSC certified wild-caught seafood by 2011.
55% of target as of 2009
Noted they are behind primarily due to lack of certification criteria.
Suggests they will likely get to 75-80% of goal.
Quality of fish purchased has increased.

Electronics Update
Biggest challenge continues to be e-waste
Consumer behavior remains a significant barrier.
Continue to look for a solution to satisfy customers.
2008 – 100% RoHS compliant.
Not promoted to customers – difficult to explain
Hard to know if whether suppliers were consistently meeting RoHS requirments
Additionally, when it came to improving energy efficiency, by 2009 all TV manufacturers were making TV’s 30% more energy efficient.
Next focus will be on video games

Textile Network
Walmart no longer buying organic cotton DIRECTLY from farmers.
Working through tier 1 suppliers to drive sustainability improvements.
Sell finished merchandise and not raw materials.
Partner with suppliers to reduce the cost with owning the cotton itself.
Walmart not suited for selling commodities directly to consumer.
Experience here did help Walmart in other areas where they actively buy directly.
One main current activity includes educating and guiding suppliers toward sustainable practices:
Save money and lead to more sustainable process

Challenges Moving Forward
Challenge 1 : Wide Range of Supplier responses to sustainability
Active – want to participate
Agnostic – passive – take it or leave it
Annoyed – don’t see the whole picture
Suppliers who tend to drive sustainability bring the most innovative products
Better quality
Lower cost

Challenge 2: continue to seek validity over settling for reliability
Reliability = doing what worked
Validity = not getting locked into a framework, that will limit ourselves.
Continue to evolve with the business
Remain flexible
Other daily, long-term challenges include
Working cross-functionally with different areas of the business that have competing priorities.

Conclusion (B)
Walmart has made significant progress toward becoming a more environmentally sustainable company.
The team has remained committed to the sustainability strategy
Global climate change and chemicals continue to be an ongoing challenge
Remains to be seen if Walmart will more directly engage in policy development to help advance sustainability at a higher level.

To Address this problem Walmart partnered with the Marine Stewartship Council.

Their goal was to push suppliers to adopt MSC certification so the company could transition to selling only MSC certified wild-caught seafood before 2012.

The MSC was founded in 1997 by Unilever and the World Wildlife Fund based on the UN’s code of conduct.

Cost initially is $50,000 to $500,000 and can take 1-2 years to complete.
An independent MSC certifying agency will audit a fishery to ensure that their products were produced sustainably.

How does this effect suppliers?
The Fishin’ Company, Wal-Mart's largest U.S. supplier of frozen fish fillets embraced the program, but it heavily added time and aggravation without short term profits.
How will they lower cost?
How will they lower cost?

Let's discuss Alaskan wild salmon
Commercial fishing is regulated by the North Pacific Fishery Management Council.

The season can be between 1 week and several months.

This is a highly unstable market.
Prices can fluctuate by 30% a season.
The Fishin’ Companies CEO Manish Kumar estimated that during the season the average price per pound of prepared salmon cost $1.00
Which Scenario is Better for Walmart and their goals?
Current Production
Locally freeze fish.
A full container is shipped to China at $0.15 per pound.
In China half is processable for $.40 per pound
The product is shipped back at $0.15 per pound
So, it costs $17,000 a container to process in China
In China a worker makes $200 a month.

Positives for this Strategy
Cheaper Labor
Multiple types of fish are processed in this facility and are set up to do so.
Able to use containers to optimal levels to lower freight costs
Negatives for This Strategy
Generally, the process is uncontrollable from Walmart's position
A large amount of time and money is spent shipping and processing the fish overseas.
Large amounts of waste in the processing of the fish cost Walmart potential profit.
Double freezing during processing can lower quality.
Process the Salmon in the US.
$0.01 per pound to move the fish into the warehouse.
$0.05 per pound to store
$0.15 per pound in transportation
US worker makes 2000 per month per employee.

Positives for This Strategy

Cheaper for transportation and processing
Positive PR due to domestic employment
Negatives for this Strategy
The processing cost for additional types of fish will be added to the production cost for Walmart
Employees will have higher wages
Could have possible delays in processing due to seasonal variations
Farming Fish in Chile
Farmed in Chile at $3.00 a pound and processed near by at $0.50 a pound.
Transportation cost $0.20 a pound.
Stored at the same cost as wild caught

Positives for This Strategy
Can help meet demand with constant supply
Can cheapen the cost to ship more expensive, less quantity, higher quality products.
Processed nearly on site making the fish fresher at freezing
Lower quality
Higher sale value
Process is not controlled by Walmart and will be difficult to gain power from the supplier
Difficult to regulate
Does not fit with Walmart's sustainability strategy.
The same kind of initial costs for adding other species of fish as in the US.
Negatives for This Strategy
Which Strategy is Best for Walmart's Strategy and Finances?
Walmart should choose processing wild caught salmon in the United States.
This is due to the energy efficiency standards and profit maximization goals of the company
Walmart should take on the additional costs due to the potential profit realized in their green strategy and public relation benefits
Why not China Processing?
Energy use is much higher and fish processing causes much waste

Advantages for processing in China does not counterbalance the fact that it goes against their sustainability strategy.
Why not Fish Farming in Chile?
As with China, there are conflicts with the strategy the company is working to enforce.
Fish Farming is not a strategy that fits with "Sustainability".
Potential profits and freshness do not make up for the marketing problem Walmart will face.
Further Justification
Wild caught frozen salmon fillets retailed for $4.50 per pound year round.
Farm raised retailed for $6.00 per pound year round
Pre-tax net profit margins were less than $0.05 per pound on both products.
The perceived benefit for US processing can add to the overall benefits of Wild Caught, US processed fish
Walmart's Sustainability Strategy (A)
In October of 2005, Lee Scott, president and CEO of Walmart articulated a new strategy of sustainability to over 1.6 million of the employees.

He committed Walmart to three aspirational goals:

"To be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain our resources and environment"
Reaching this strategy:
Walmart was receiving many letters from customers about environmental concerns, so, in 1989, Walmart launched a campaign to encourage its suppliers to provide environmentally safe products in recyclable or biodegradable packaging for no additional cost.
"What Walmart has chosen to do, apart from reaping large public relations windfall, is to deploy its clout with vendors to influence them to spend more on R&D to develop safer packaging -- without passing those costs on to Walmart"
-Discount Stores News
"We don't expect to get rich on this... Ours is as selfless a campaign as anything I have worked on."
-David Glass, CEO of Walmart, 1989
Reaction to Walmart's 1989 Initiative
Regardless of their motives, Walmart received goodwill from environmentalists as the first major retailer to speak out in favor of environmentalist policies
However, Walmart's "Green Tag" fiasco all but ended the strategy.
Within a couple of years, the Green Tag labels had been removed completely.
In contrast to the 1989 strategy, the sustainability strategy of 2005 needed to be long-lasting and deeply embedded into the operations of Walmart to meet Scott's ambitious goals.
Next Steps
The next step to implementation of their strategy was to establish sustainability teams to drive environmental change.
Walmart's 14 Sustainable Value Networks
14 Sustainable Value Networks
Walmart executive sponsors were identified for each Network as well as a Network Captain
These Captains were typically senior level managers who were considered top performers.
Importantly, Walmart decided to make sustainability a new responsibility for people in their existing positions instead of creating new jobs or building a separate sustainability-related organization
In this way, sustainability would be considered less of a fringe initiative lead by a disconnected group in the main office.
Aside from Ruben and a small core of administration, no associates were assigned to sustainability on a full time basis
The Supplier Problem
Walmart focused also on influencing its 60,000+ suppliers more efficient, faster, and leaner.
This caused criticism for squeezing supplier profit margins.
Causing suppliers to lay off US workers and close domestic plants to outsource production.
The Retail Issue
Walmart had huge environmental impacts simply because of the scale of their operation
For example, in retail operations, Walmart was the largest private user of electricity in the United States and emitted more than 19.1 million metric tons of carbon dioxide
This is equivalent to 2.8 million households

Because of this, Walmart's reputation was deteriorating
Between 2-8% of consumers had stopped shopping at Walmart because of the company's practices
"It's not an environmental strategy, it's a business strategy."
Ruben, Elm, and other members of the core team gave explicit guidance on the focus of the strategy.
The overall objective was to derive economic benefits from improved envionmental and social outcomes.
"It's not philanthropy."
Engage, Explore, Expand
Engagement- look beyond traditional stakeholders to identify and work with broader community of participants
Exploration- analyzing the life cycle of particular products or services and investigating the related environmental issues.
Expand- looking into the value chain to identify which of our business activities are matched to the issues
Operational Changes
A closer focus on three of Walmart's Networks demonstrates how the sustainability strategy was being operationalized
A study conducted in 2006 reported that all species of wild seafood were greatly depleted and predicted to collapse within 50 years
Boats were increasingly having to venture further to find wild fish stocks
In 2000, fisheries burned 13 billion gallons of fuel to catch 80 million tons of fish-roughly 1.2% of global oil consumption.
Primary Initiatives
MSC certification would be pursued first to address the sustainability of wild-caught fish
The company would then get behind the Aquaculture Certification Council standards to address farm-raised fish-late 2006
Cluster Farming
Finding ways to create farming cooperatives in areas such as Thailand where 300 small shrimp farmers may each manage one or two ponds so that standards can realistically be implemented and enforced
Marine Reserves
Working with NGOs to establish no-fishing zones to allow for the repopulation of depleted fisheries
Starting in late 2006
Public Awareness
Making consumers aware of environmental issues in seafood and educating them on sustainable choices.
External Collaboration
Working with external stakeholders, including governmental bodies, on a global scale to promote more sustainable fishing regulations
More About Walmart's Approach to MSC Certification
To get certification, Walmart would have to work through its suppliers to increase the number of fisheries and processing plants with the MSC cert.
The goal was to have these eco labels on their products within 6 months.
In order to accomplish this, the idea was to purchase as much certified fish as possible, as quickly as possible.
More About Walmart's Approach to MSC Certification
Wild seafood suppliers were also instructed to begin working WWF and other experts to begin bringing processes into certification standards.
The Cost
The cost of MSC certification fell directly on the boat operators and processing plants.
Getting through the rigorous process could cost between 50,000 to 500,000 dollars.
Indirect costs were also a factor
This included scaling back fishing if the stocks were depleted.
Operational Benefits
Sustainable fisheries could produce more fish with fewer inputs or less money than fisheries that were unsustainable.
As of Late 2006
Walmart expected to have 30-40% of its total wild-caught fish certified under MSC at no additional cost to them.
This was partly due to consumers not wanting to pay extra for sustainable fish.
No marketing has been initiated at this point to promote MSC certification.
This network was formed to address issues across the company's consumer electronics products.
Walmart had 25 domestic electronic suppliers, while Sam's possessed another 15.
Walmart had the second highest market share in the electronics industry, behind Best Buy.
Primary Initiatives
Materials Innovation
Working on near-term product modifications to reduce environmental impact, energy efficiency, transparency, and elimination of hazardous waste.
Recovery and safe disposal of electronics
Collaborating with external stakeholders and governmental agencies to affect policy and regulation related to electronics.
Green Engineering
Working with suppliers and their R&D functions to rethink how products are designed and manufactured to drive fundamental change in the industry on sustainability issues.
Measuring and monitoring the performance of associates, the network, and suppliers in the area of sustainability.
Training and Education
Informing internal and external stakeholders about changes in the electronics industry and the potential implications and opportunities related to sustainability.
Computers and other electronics accounted for 40% of the lead in landfills even though 80% of the collected e-waste was being exported to developing countries where the toxic components lead to pollution levels that were hundreds of thousands of times greater than those allowed in developed countries.
An electronics buyer for Walmart noticed in a manufacturing facility that a separate line of "Restriction on Hazardous Materials" for Europe (EU standards).
The supplier agreed to supply to Walmart for a guarantee on the order.
Problem with Commitment
Walmart traditionally avoided long term purchasing commitments to avoid the short life span of electronics (every three months).
Obsolete products became e-waste.
50% of computers turned into recycling programs are in good working order
To fit with their strategy, Walmart accepted the risk and purchased 30,000 units
Shortly after this, Walmart requested other manufacturers make RoHS compliant products
Before long, most manufacturers were producing RoHS products for all markets
Progress as of Late 2006
Supplier push back has occurred due to the increased costs
e-waste has yet to show cost savings realization through increased efficiency.
Intellectual property was an area of concern for many suppliers.
In many aspects, this network was ahead of the others due to the interactions with organic cotton suppliers. (2004)
Researchers estimated that conventional cotton crops received more than 25 % of all chemical pesticides used in global agro.
As little as .1% actually reached the insects.
The organic cotton initiative quickly became the top priority for the network.
Organic Cotton in the Supply Chain
Walmart worked with the Organic Trade Association and the Organic Exchange to bring their suppliers' processes into organic compliance.
They adopted the USDA standards to standardize practices across their supplier base globally.
The Global Organic Textile Standards were adopted for processing the cotton.
Third party organizations brought in to certify the processes from farm to factory.
Organic cotton yielded less bales
The cost of certification was extremely high
Crop rotation had to be utilized as an organic substitute for soil fertilizer
Most farmers were only able to produce cotton fiber and not the seed
Cotton seed can be used for everything from feed to food products (a 40-60 split between fiber to seed, normally)
In 2006, Walmart became the largest purchaser of organic cotton.
To increase and secure its supply of organic cotton, Walmart began making long-term commitments to farmers.
Organic cotton cost .20 cents more a pound than conventional cotton (.35-1.10 a pound)
After processing, products cost a premium to consumers, but demand was high and would sell out quickly.
Network Restructuring the Buyer Role
Focused on the customer and understanding what the product assortment should be to best meet the customer's needs
Product Development
Focused on product design and trend execution
Marrying what the buyer says the customer wants with what trends are in the marketplace to help drive the development of the product.
Technical Services and Sourcing
Focused on creating the technical specifications for each product, deciding how to package it, and determining the best sourcing strategy.
Includes supplier negotiations, pricing, and quality.
Planning and Execution
Focused on financial planning and in-store execution.
How to ship the product, quantities, product flow, store layout, etc.
Progress as of Late 2006
The supply side sustainability had made many strides, but reducing the environmental impacts of farming required new development of technologies that did not exist.
Measuring Sustainability
As of late 2006, sustainability metrics and monitoring processes were still under development.
Product Assortment, Pricing, and Communication with Customers
In the past, Walmart had focused narrowly on what its customer's desires.
Now, Walmart needed metrics to drive sustainability into its product assortment and pricing decisions.
This would increase the company's inventory and sourcing costs.
Possible cannibalization of sales of conventional products could result from this new strategy.

Walmart needed to promote "Green" products in such a way that carefully avoided describing conventional products as undesirable.

Walmart did not have enough information to yet explain or defend definitively a products environmental and health benefits to consumers.
Supplier Performance Measurement
Walmart was now more dependent on the cooperation of its suppliers more than ever before.
As a result, effective supplier measurement and motivation was essential.
The Package and Product network was in the process of implementing a web-based scorecard that would evaluate each product's packaging against nine metrics which included cubic usage, recycled content, and product to package ratio.
As of 1 February 2007, Walmart's 60,000+ suppliers would be asked to use this evaluation on a year trial.
Beginning in 2008, Walmart would formally use the system.
Textiles Network was close to a similar score metric for their processes.

This scorecard was developed by the packaging network that included EPA, Walmart's suppliers, packaging suppliers, and other stakeholders.
The scorecard was perceived as an important enabler for helping reduce the packaging used by all of its suppliers by 5% between 2008-13.
If achieved, the five-year program is expected to generate $3.4 billion in savings.
Associate Performance Measurement
As of late 2006, decisions regarding how (and if) to measure contributions from associates had been left up to the discretion of the networks' captains.
In most areas of the business, no system for measuring associate involvement in sustainability did not exist.
This meant that individuals were forced to be distinguishing their performance on mostly subjective criteria.

Looking Forward
Ruben and Elm estimated that the profits generated by the strategy's quick wins in the first year were roughly equivalent to the profits of several SuperCenters.
They saw a large amount of opportunities that were still untapped and looked ahead to what could be the greatest environmental and financial benefits.
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