Big Food Must Invest In Social Responsibility To Thrive, Experts Say

Major food companies are increasingly making big moves aimed at proving their good corporate citizenship to consumers who demand more transparency, responsibility and benevolence from the firms that produce and sell their food, a shift experts say will only accelerate in coming years.

In August alone, the world’s largest food company by revenue, Nestle SA (VTX:NESN), imposed an extensive regime of strict new animal-welfare safeguards on its 7,300 meat, poultry, egg and dairy suppliers, as NPR noted, and the cereal giant Kellogg Co. (NYSE:K) announced plans to require its vast international network of suppliers to permanently reduce their greenhouse-gas emissions, as Reuters pointed out. Earlier, both Wal-Mart Stores Inc. (NYSE:WMT) and the Target Corp. (NYSE:TGT) added extensive new lines of organic products to their stores’ shelves.

A decade ago, the moves this month would have been perceived as bold examples of forward-looking leadership by two of the world’s best-known food brands. But in 2014 hardly anyone batted an eye, as perceptions of corporate social responsibility have evolved: What was seen as progressive became first de rigueur and then almost commonplace.

The trend is one that has swept most of the world’s largest multinational corporations in recent years, but food-industry leaders are being forced to the forefront of the revolution by a legion of newly committed consumers who are taking their dollars to smaller companies more in tune with their values.

The shift in tastes is likely inexorable and permanent, and shareholders are putting pressure on boards and executives to invest in meaningful changes that will bolster their companies’ reputations as good stewards while actually lessening their negative impacts on the environment, communities and animals, according to Beth Rusert, senior vice president at the St. Louis-based corporate-reputation-management firm Standing Partnership.

The potential downside of ignoring the importance of instituting better practices is indicated in a May study by PricewaterhouseCoopers LLP that found that 80 percent of investors polled said they considered issues of sustainability when evaluating investments over the preceding year. That jibes with a paper by Dr. Thomas Ngniatedema, a business professor at Michigan’s Kettering University, who found “a relationship between environmentally conscious corporate operations and financial performance” exists among the top 500 publicly traded companies in the U.S.

“When [a companies is] not listening to what ... stakeholders are saying, it has a direct impact on the company’s reputation, which then carries over into purchase patterns, investments, and retainment and hiring of employees. There’s so much of a domino effect,” Rusert said. “Those organizations who listen, have conversations with their stakeholders and really engage with them on a regular basis, are going to be much more successful than those that think they have the answers.”

The growing need for major food companies to take meaningful action to improve their environmental policies, provide healthy options and ensure they are not exploiting workers to retain their market share represents “a relatively fundamental cultural shift” that firms need to factor into their strategies for the future, according to Leslie Pascaud, executive vice president of sustainable branding innovation at the New York-based global marketing consultancy Added Value. Consumers are more informed and aware of such issues than they have ever been, and customer flight can kick in overnight based on a single negative news story or viral meme, she said.

Given the hypersensitive environment, Pascaud said it’s key that companies’ corporate social-responsibility initiatives are proactive and produce verifiable results, assuming they don’t want to end up like the McDonald’s Corp. (NYSE:MCD): It has yet to fully overcome the stain on its image left by the blockbuster 2004 documentary “Super Size Me,” the 2012 so-called pink slime controversy and other scandals.

“McDonald’s has taken massive steps to clean up their supply chain, but there’s a huge lag, and the consumer perception of McDonald’s is still Big Mac and ‘Where did that beef come from?’ and ‘You can put the fries out and they don’t mold for weeks,’” Pascaud said. “That’s what stands out in people’s minds, and it takes more and more time for these big companies to rebrand themselves.”

The explosion in interest in corporate social responsibility on the part of everyone, from families looking to cook healthy meals to investors such as multibillionaire Virgin Group Ltd. founder Richard Branson -- who is issuing loans to innovative food entrepreneurs via his Virgin StartUp funding venture -- can be traced to a number of factors that overlap to create a metastasizing movement unlikely to lose strength, industry observers say.

The influence of the Internet in general and social media in particular is one of the most-cited reasons for the booming interest in food-production practices, as people have more access than ever to up-to-the-minute news reports, information sources and grass-roots campaigns that can expose and spread allegations of corporate malfeasance or oversight with remarkable speed.

“Social media has allowed for far greater awareness of issues related to animal welfare, the environment and their connection to personal and global health,” said Maria Katrien Heslin, adjunct professor at the Indiana University School of Journalism and owner of the Bloomington-based communications-consulting firm Independent George LLC. “Facts and images about what were until relatively recently considered fringe practices such as veganism or not wearing fur or what were considered little-known, marginal investigations into places such as slaughterhouses can now be learned about by millions of people instantly.”

Boycotts and petitions against major companies can gain hundreds of thousands of online supporters in just a couple of days, and firms are often limited in their ability to effectively counter such crusades.

This spread of awareness and information has already driven many European consumers to expect real responsibility on the parts of the companies that feed them, and that paradigm is swiftly making its way across the Atlantic, according to Rob Straughan, associate dean of the Williams School of Commerce, Economics, and Politics at Washington and Lee University in Lexington, Va.

“In many of the most attractive international markets, consumers have come to expect reasonable behavior from the firms with which they do business,” Straughan said via email. “It is no longer something firms may choose to do, but rather something they must do to compete. Europe is further along on this than the U.S. market, but even in the U.S., it is nearing the new normal.”

Kelly Keenan Trumpbour, founder of the Baltimore-based crowdfunding and investment firm See Jane Invest, said she is the “target consumer” of sustainable, environmentally sound food producers. And that, she said, is why she has signed on as lead investor of Hip Chick Farms, a frozen chicken company in Sebastopol, Calif., that exemplifies the principles she wants the companies who produce the products she consumes to follow.

“My sense is that the major companies realize that investors like me are backing the smaller, socially responsible companies, and that is a threat. Just because they are small now doesn’t mean they will stay that way. To stay competitive, the bigger companies will have to pivot,” Trumpbour said via email.

“Many of the bigger companies also have to defend themselves against a history of questionable practices, whereas companies like Hip Chick Farms entered the market specifically to offer quality products with a socially and environmentally friendly mission,” she said. “Before they made the first entry on a spreadsheet, they were sourcing sustainable options. As an investor and as a consumer, I like that.”