Supermarkets: ethics under the spotlight
Ethical Consumer looks at the scandals that have shaken up supermarkets and the German discounters causing a stir.
Aldi and Lidl – eroding ethics on the high street?
The holy grail for social and environmental campaigners is markets where companies try to compete against each other on ethics as well as price. In theory, in such circumstances, competition can operate to drive up standards.
With UK supermarkets being targeted by social and environmental groups for nearly 30 years now, we were beginning to glimpse evidence of such competition in the UK supermarket sector. Most often this was amongst the high performers, Co-op and M&S for example, with their announcements of wholly Fairtrade or animal welfare-friendly ranges.
Occasionally it has also surfaced amongst the bigger players with, for example, Sainsbury’s famously advertising the higher ethics of its bananas during a dispute with Tesco over value.  Either way, successive reviews of UK supermarkets have revealed increasingly sophisticated management and reporting systems operating around social and environmental impacts.
Although Aldi and Lidl have been trading in the UK for more than ten years, over the last 18 months or so they have seen significant growth in market share, which has excited commentators into speculation about long term trends. Neither Aldi nor Lidl make much fuss over ethical claims and it is clear from other sectors – like clothing – how price competition can exert a downward pressure on ethics.
Does the rise of no-frills discounters signal a new recession-driven focus on price for British consumers, which leaves no room for distractions like ethics? Or will the need to compete with Aldi and Lidl force UK supermarkets to abandon what little ethical progress they have already made?
There are two main reasons why this analysis does not really stack up.
Ethics running to keep up
Although the big four supermarkets may have developed some eye-catching ethical initiatives, such as Sainsbury’s all-Fairtrade bananas and Tesco’s carbon labelling (now abandoned), they remain businesses with only a weak commitment to address their ethical impacts.
The ‘horsemeat-sold-as-beef’ scandal, which shone a light on the low cost supply chains of Aldi and Lidl, also engulfed Tesco and Asda. In the same way, the issue of slavery on prawn-industry supply ships, revealed in the Guardian this year, drew in not only Aldi but also Tesco, Morrisons and, to its shame, the Co-operative. 
What we see here is a global food system of such size, dynamism and complexity that attempts to maintain ethical standards are, at best, running to keep up. In the ranking of supermarkets above, Aldi and Lidl rank mid-table in a poor-scoring bunch, rather than noticeably behind.
Aldi and Lidl’s growth is not about ethics
It is widely accepted that Aldi and Lidl are growing because of their deep discounts and largely equivalent quality. Indeed, so low are their prices (in some instances 50% of mainstream competition) that it does not look possible to achieve this through stripping out ethics alone. Much is down to a simpler business model.
A smaller range of goods – often popular with consumers baffled by too much choice – makes supply chains simpler. Very few ‘special offers’, simple interiors and displays, little advertising, and few megastores all serve to reduce costs and to shake up a system which had become complacent and not that cheap. Indeed, although a visit to Aldi or Lidl in search of ethical products is a bit like how hunting out niche ethical products used to be in UK supermarkets in the 1990s, they are arguably not much worse than Asda or Morrisons in terms of their range.
They reportedly stock significantly more organic fruit and vegetables in Germany where demand is higher.
Pressure will make a difference
With some notable exceptions, the UK’s food retail sector articulates its (imperfect) ethical policies probably better than anywhere else in the world.  This is largely down to a thriving civil society sector creating pressure on everything from HFCs in fridges to animal welfare.
Until recently, it was common for Aldi and Lidl not to feature in ‘name and shame’ rankings on ethical issues, simply because they were not significant players. This will change. Aldi and Lidl, with their penchant for private labels and little transparency about producers are likely to feel the heat soon.
Economists have been predicting the demise of what they see as a fad for ethics for the last 20 years. They have been consistently proved wrong. In this case, they need to get the recent growth of discounters in perspective. Aldi and Lidl’s combined market share (8.3%) is still well below that of the top ethical performers (the Co-op and Waitrose total 11.5%).
It is far more likely that, to take a serious market share in the UK, Aldi and Lidl will need to learn that certain standards around ethics are a prerequisite for attracting large numbers of particularly critical consumers. In addition, if the more ethical supermarkets decide to join in this public discourse about the ethics of discounters, then competition as well as campaigning can add to the aggregate pressure for change.
The rise of the discounters and what it means for ethical grocery shopping
Ethical Consumer asks the views of leading ethical certification bodies
Louise Valducci, Fairtrade Foundation
“Aldi and Lidl have both been operating in the UK for more than two decades, but over the last five years their rise has been rapid. Low prices are undoubtedly a key factor.
Yet research suggests UK shoppers care about more than price. A recent Department for Business, Innovation and Skills survey found that retailers’ ethical standards matter ‘a great deal’ or ‘a fair amount’ to half of all UK shoppers.  The Fairtrade Foundation have found that 84% of shoppers would pay more for bananas if the farmers and workers who grew them benefited.6 UK sales of Fairtrade products have also increased year-on-year, growing 12% last year to £1.73 billion.
Although low prices may have enticed customers through their doors, Aldi and Lidl are increasingly promoting quality and ethics as they seek to keep customers they gained during the recession. In October Aldi launched an organic range and Lidl’s current ad campaign, filmed at a farmers’ market, highlights produce quality.
Both offer a small but growing range of Fairtrade products, including some lines of chocolate, tea, coffee, bananas and wine. When Aldi launched Fairtrade roses this year, it boosted volumes of Fairtrade stems sold in the UK by 18%. Producers in Ethiopia and Kenya will benefit by earning a Fairtrade Premium to invest in their businesses and communities. Farmers in Belize, Fiji, Guyana and Jamaica have benefited thanks to the sale of Tate & Lyle Fairtrade sugar in Lidl.
With growing influence comes growing responsibility. The ‘big four’ are slashing prices in a bid to compete with the discounters. As the price wars intensify, there is a risk that ethical commitments might be reconsidered, or suppliers might be squeezed, in a race to sell at the cheapest possible price. But if they champion Fairtrade and other ethical produce, Aldi and Lidl have the opportunity to show that good value for consumers and a fair deal for producers can go hand-in-hand.”
Finn Cottle, Soil Association
“Organic food and drink continues to be an essential part of the range in UK supermarkets: 83% of consumers choose it and they are willing to spend approximately £1.3bn per year on it. 
During the last five years, the organic market has gone from being in a post-recessionary dip to enjoying positive and steady growth, overtaking the performance of non-organic products in many sectors. 13% of consumers actively look for organic  and many more have remained loyal to organic and the benefits it brings. Those retailers who have stayed committed and maintained wide ranges have also experienced good growth throughout.
Waitrose, Sainsbury’s and Tesco have approximately 70% of total organic supermarket sales with an increasing percentage of these purchases made online – now accounting for 14% of all organic sales.
Online retailer Ocado has a 6% share of the organic market, a huge proportion given its size within the grocery market. Ocado’s approach is quite simple: by providing a comprehensive range of choice and guaranteed availability of organic products, it takes more market share each year.
Aldi and Lidl’s share of the organic market is still relatively low in the UK. However, their presence in the organic sector across their stores in other European countries is well established and supported by shoppers. It is only a matter of time before the ranges expand in the UK and the prices decrease.
Organic works well for large retailers as many of their customers who buy organic also buy other premium ranges. Organic shoppers are often better informed about food choices and search out the products with the most trusted supply chains and guaranteed traceability. Post ‘Horsegate’, organic had a major boost in sales which has continued as consumers appear to have re-evaluated their choices since then.
With recovering consumer confidence in the UK and the fact that 29% of UK shoppers are willing to pay extra for products that are ethically produced and kinder to the environment, it would seem that the future looks bright for organic food.”
Animal supply chains
A lot has happened to shake the market up since we last looked at supermarkets in March 2013. As we went to print then, several supermarkets – Tesco, Aldi, Lidl, Asda and the Co-op – had been found to be selling beef which contained horsemeat. Consumer confidence was knocked and a survey by Which? found that six in ten customers changed their shopping habitats as a result of the horsemeat fiasco. 
Questions have once again been raised about supermarkets cutting corners in supply chains. A report by the Food Standards Agency, released in November 2014, found that eight out of ten fresh chickens (including organic and free-range) sampled from UK supermarkets were contaminated with the potentially lethal food-poisoning bug, campylobacter. Asda was the worst-performing retailer, with 78% of the chickens taken to labs testing positive for campylobacter. It was followed by the Co-op (73%), and then Morrisons, Sainsbury’s and Waitrose, all on 69%. Marks & Spencer showed an incidence of 67% and Tesco fared the ‘best’ at 64%. 
Along with an incidence of bird flu on a duck farm in East Yorkshire and the continuing issue of TB in cattle, these cases indicate that intensive farming practices assist the spread of disease and suffering of animals.
Losing market share
Dented consumer confidence has also left the supermarkets with a new battle of falling sales and market share – a problem all four big retailers (Tesco, Sainsbury’s, Morrisons and Asda) have experienced over the past year.
Some commentators have pointed towards the supermarkets’ increasingly complex offerings and vast ranges of products as reasons why they have experienced a fall in sales. Others have highlighted changing consumer habits, with more people choosing to do their big shops online or visiting convenience stores for smaller, everyday items.
In the UK there are over 50,000 convenience stores, accounting for a fifth of total grocery sales. The vast majority of these sales come from ‘symbol group’ retailers. These are groups usually organised by a wholesaler that are made up of independent businesses that collaborate in joint buying and marketing initiatives. In the UK market these stores include Premier, Best One, Costcutter, Spar UK, Nisa and Musgrave (Londis and Budgens). We have not covered these companies in this report; the fact that they are made up of separate companies would make this problematic.
As well as independently-owned convenience stores there are multiple chains. These include Tesco Express, One Stop (owned by Tesco), Sainsbury’s Local, Little Waitrose, Morrisons M Local, M&S Simple Food, McColls Retail Group and Co-operatives. With the exception of McColls, the parent company of each of these is covered in this report.
The top five items people buy from convenience stores are the staple products, newspapers, snacks, alcohol and tobacco. However, reports suggest that fresh product lines in these stores are growing and improving. 
In this guide, Morrisons, Sainsbury’s, Asda, Tesco, Waitrose, Ocado and Iceland all offer online shopping and delivery.
In July 2014, an investigation by the Guardian revealed that the world’s largest prawn farmer, Thailand-based Charoen Pokphand (CP) Foods, was buying the fishmeal for its farmed prawns from suppliers that used slave labour on fishing boats. Aldi, The Co-operative, Tesco, Asda, and Morrisons were all found to be selling products from the company, which admitted to slavery in its supply chain. There was also one line sold by Iceland which contained a prawn ingredient supplied by a subsidiary of CP Foods.
The Guardian reported that men who had managed to escape from boats had “experienced horrific conditions, including 20-hour shifts, regular beatings, torture, and execution-style killings”. 
Ethical Consumer was shocked to learn that The Co-operative was using CP Foods, especially as it was a Best Buy in our last report on supermarkets. The revelation followed a bad year for the company. It announced that it had debts of £1.5 billion forcing it to sell its farming business, a key part of its identity and ideology.
The extent to which the financial trouble at The Co-op has affected its ethics perhaps remains to be seen. Ethical shoppers remain hopeful that the company will once again show leadership in promoting sustainable practices within the sector.
Tesco: fraudulent abuse
In October 2014, the Serious Fraud Office announced that it was to investigate Tesco’s accounts after it found that the company’s first-half profits had been overstated by £263 million. Following the disclosure of the error, Tesco suspended eight senior executives. Reports have suggested that the error is related to its miscalculation of payments made by suppliers to the retailer. Aggressive methods are alleged to have been used too and the company is accused of “deducting money from food producers’ trading accounts without notice or extending its own credit terms unilaterally“. 
The Groceries Code Adjudicator, Christine Tacon, said that it had asked Tesco to examine its behaviour towards suppliers during the company’s internal review. Whether the company will be punished for such activity, however, remains to be seen.
Issues which the Groceries Code was set up to tackle include addressing price wars and ensuring that farmers receive a fair price. Banana farmers have long suffered by the price wars between supermarkets wanting to attract customers.
Sainsbury’s, The Co-op and Waitrose all stock only Fairtrade bananas.
ASDA and Aldi pledged to source 93% of its bananas from Rainforest Alliance-accredited farms by the end of 2016, with the remainder sourced from Fairtrade Foundation farms. Lidl also announced in February 2016 it would make a similar commitment by the end of the year.
It leaves Morrisons and Tesco as the only major UK supermarkets yet to commit to sustainable banana sourcing through either the Rainforest Foundation or Fairtrade Foundation. A spokeswoman for Tesco said it was working closely with its suppliers to ensure employment standards improved across its banana supply chain.
Campaign group Banana Link said that “big question marks” remain over Rainforest Alliance labour standards verification and the lack of a minimum price for growers. Spokesperson for Banana Link, Alistair Smith said:
“Rainforest Alliance certification is better than nothing but not by that much,” he added. “The big attraction for retailers is of course the easy consumer message on frogs and trees - but this should be no cover for the more difficult task of making serious environmental social and economic improvements to a very damaging and genetically vulnerable monoculture.”
Fairtrade Foundation are running a campaign against ASDA and Tesco to get them to stock more Fairtrade bananas. Michael Gidney, Fairtrade Foundation CEO said of the ASDA pledge:
"Only Fairtrade includes the payment of Fairtrade prices and additional premiums for small farmers and workers to invest in their own development. In 2014, over 181,000 emails were sent to Asda and Tesco asking them to increase availability of Fairtrade bananas in their stores. In Asda’s case, they were asking for it to be increased beyond the current 7%. We’re disappointed that public demand is still unheeded."
Aldi UK is owned by Aldi Süd – a separate company from Aldi Nord – which has stores in Ireland, Hungary, Switzerland, Australia, Austria, and Slovenia. The company name derives from Albrecht Discounts, which comes from the surname of two brothers who took over the business from their mother in 1948.
Aldi receives a middle rating forits animal testing policy having banned animal testing for its own-brand cosmetic products in 1992 and for detergents and cleaning products in 2005. But it still stocks other brands that have been animal-tested.
Asda is owned by Walmart and received a best rating for supply chain management. However, a recent report by Eat Drink Politics, ‘Walmart’s Hunger Games’, linked its business practices to the hunger of its workers. The report found that most workers earned less than $25,000 per year which meant they were likely to be food insecure. The movement said it aimed to get higher wages for Walmart workers and highlight their poverty and food insecurity.
The Co-operative was found to be one of CP Foods’ customers, which admitted to slavery in its prawn supply chain. The Co-op stated that it was already working to understand “working conditions beyond the processing level”. However, the company had supposedly already been “working with” CP Foods since February 2013,1 after environmentally unsustainable fish food was exposed by the television programme Hugh’s Fish Fight. 
On slavery in the same supply chain nearly a year and a half later, the company stated: “The serious issue of human trafficking on fishing boats is challenging to address and requires a partnership” in which it claimed to be engaged. Ethical Consumer decided against withdrawing the Co-op’s Best Buy status as a result of this slavery story; rather, we will be keeping a close eye on how the company addresses the issue going forward.
Frozen food specialist Iceland received a worst rating for environmental reporting and for its supply chain management system. During the horsemeat scandal the FSIA found trace amounts of horse DNA in Iceland beef burgers. This is well below the threshold level of 1% which the UK FSA applies as indicative of contamination or adulteration. Following the original publication of this report however, Iceland have contacted us and asked that we make the following correction: "However Iceland subsequently tested samples of burgers from the same production batch to the same tolerances used by the FSAI and no evidence of any horse DNA was found whatsoever. Since then, according to the company, over 2,000 tests of Iceland beef products have been carried out and no trace of horse meat or DNA has ever been found. We accept that no actual horsemeat was found in any Iceland beefburgers and apologise for any misunderstanding."
Sainsbury’s is one of the world’s largest retailers of Fairtrade products, with conversions of their own label bananas, ground and roast coffee, tea and sugar to Fairtrade. Despite this, it only receives a middle rating for supply chain management.
The company has been targeted by Palestinian solidarity activists for selling produce from illegal Israeli settlements in the West Bank. In a joint venture with Dansk Supermarked, it opened its first Netto in Leeds in November 2014.
Based in Neckarsulm in southern Germany, Lidl is owned by Germany’s third-richest man, Dieter Schwarz, son of the company’s founder Josef Schwarz. It is a member of EuroCommerce, a free trade lobby group which is in favour of the Transatlantic Trade and Investment partnership (TTIP). In a position paper in June 2014 called ‘TTIP: A good deal for Europe’, it stated: “EuroCommerce encourages the EU to seek the closest possible economic integration and regulatory cooperation with the US.”
Ocado is the world’s largest dedicated online grocery supermarket. The company was founded in 2000 by three former Goldman Sachs bankers, with John Lewis as one of its original backers. John Lewis no longer holds any shares in the company but has an agreement with it to allow it to sell Waitrose-branded products. In 2013 Ocado entered into a deal with Morrisons to provide logistics support to help the supermarket launch its online shopping.
M&S receives a best rating for environmental reporting and supply chain management. The company has recently been praised by the Environmental Justice Foundation (EJF) for its renewed pledge not to use cotton from Uzbekistan. However it lost its Environmental Investigation Agency (EIA) leader status for stalling on plans to make all fridges HFC-free. It has also been criticised recently for selling products from other brands which contain GM soya or corn.
John Lewis, the owner of Waitrose, is the largest employee-owned business in the UK. However it only receives a middle rating for its supply chain management policy and therefore misses out on being a Best Buy. In its latest Corporate Social Responsibility report it stated that it would increase sales of UK-made products by 15% by 2015-2016.
Morrisons, the UK’s fourth biggest supermarket, has been struggling recently. It was one of the companies found to be a customer of CP Foods (see under The Cooperative), and stated: “We are concerned by the findings of the investigation. Our ethical trading policy forbids the use of forced labour by suppliers and their suppliers.”
See our in-depth company profile of Tesco.
5 ‘Public views on ethical retail’, Department for Business, Innovation and Skills, June 2014
6 ICM online omnibus: nationally representative sample of 2,000 GB adults aged 18+, Feb 2014
7 Nielsen Homescan Year to 15/5/14 2 British Journal of Nutrition, 112, issue 05, September 2014, pp794-811
8 ‘Horsemeat Scandal Dents Trust in Food Industry’, Which? 13Th March 2013
9 etail survey on levels of campylobacter in chicken published, Food Standards Agency, 27th November 2014
11 The Local Shop Report 2014, The Association of Convenience Stores
14 Supermarket giants in Thailand for prawn slavery talks, Guardian, 30th July 2014
15 ‘Tesco’s ‘bullying’ at the heart of accounting scandal’, The Times, 24th September 2014
This product guide is part of a Special Report on Supermarkets. See what's in the rest of the report.