STAKEHOLDER ENGAGEMENT 2012

MASSMART

THE impORTAncE of STAkEholdER ENGAGEMENT foR MASSMART

Stakeholder engagement, including formal approaches such as a survey or workshop and less formal discussions, correspondence and site visits, is increasingly becoming a part of mainstream business practice and central to decision-making delivery. It is being used as a means to improve communications, obtain wider community support and buy-in for projects, gather useful data and ideas and enhance corporate reputation. At Massmart, we believe that stakeholder engagement should be at the heart of any sustainable development agenda and as a responsible corporate citizen, various forms of engagement with our internal and external stakeholders is necessary for us to gain an understanding of their needs and expectations.

Through stakeholder engagement, those we do business with, and those whose lives we impact by doing business, are given various platforms to air their views, such as meetings and public seminars to employee helplines to more structured workshops and surveys. Open and ongoing discussions, dialogues and correspondence is encouraged and our stakeholders are invited to voice their opinions on Massmart’s current conduct and policies and also share their ideas on Massmart’s future direction in terms of certain key issues. Massmart is also sensitised to certain issues that we believe require a more focused approach and so more formal forms of engagement are utilised. Stakeholder engagement can reveal emerging issues that Massmart had not previously considered but that stakeholders had identified as being important.

• Energysecurity• Waste• Watersecurity• Education• Healthcare/HIVandAids• Corruption• BBBEE• Jobsecurity• Foodsecurity.

KEy AREAS:OurmEdIArEVIEW

FOCusEdOntHEFOllOWIng

DiScOuRSE AnALySiS

Massmart is very much aware that it is essential for us to have a clear comprehension of the relevant societal priorities that impact the communities in which we operate. Massmart thus conducted web-based research to remain updated on public policy issues and those specifically relevant to the retail industry. For this purpose, in 2011 we employed a Stakeholder Research Manager who is dedicated to investigating and providing guidance on these issues. We also had ongoing engagements with subject-matter experts to assess if we remained current in our focus and were managing their expectations.

In addition, Massmart utilised an in-house tracking tool to research the leading societal issues on social media such as Facebook and Twitter and to search for mentions on other online media. We also engaged our media relations company to conduct research on print media, examining how journalists had reported on the Group. The objective of the media research was to ensure that we continued to be aware of socially relevant issues and align our accountability objectives.

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>>mEcHAniSmS Of STAKEHOLDER EngAgEmEnT

Massmart maintains an open-door-policy with our stakeholders and whilst we utilise more formalised mechanisms of engagement such as workshops and surveys to track our stakeholders’ perceptions and feedback, throughout the year stakeholder engagement takes the form of less formal dialogues and discussions as well as regular correspondence. Site visits also provide us with the opportunity of engaging with stakeholders at their place of work so that we can better understand their businesses.

In 2012, Massmart focused on the following formal mechanisms of engagement to track our stakeholders’ perceptions, gauge emerging issues and learn from their feedback:

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STAKEHOLDER WORKSHOpS

SuRvEySDiScOuRSE AnALySiS

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EnERgy SEcuRiTy, WATER SEcuRiTy AnD WASTEEnvironmentalconcernsreceivedhighmediavisibilityin2012.theissueofenergysecuritywashighlightedincoverageofgovernment’sdecision to lift amoratoriumon shalegasexploration in theKaroo,whichaims tobolster southAfrica’senergysecurity,driveeconomicgrowthandcreate jobs.However, theextractionof thisgasoften involveshydraulicfracturing(fracking),atechniquewhichhasbeencriticisedbyenvironmentalistgroups.Wastewasalsorathertopical,withparticularfocusonAfrica’sunfortunatestatusasadumpingsiteforthecheapelectronicwasteofvariouscorporationsandcountries.thiscanresultinvarioushealthissuestobothpeopleandtheenvironment,suchasleadpoisoning.Finally,numerousreportsonwatersecuritynotedapotentialloomingwatercrisisinsouthAfrica.reportshighlighted thegovernment’sassertions that investment insouthAfrica’swater resourcesneeds todouble in thenext10yearsifthecountryistomeetgrowingdemand.Inaddition,increasedwaterscarcitywillescalatecompetitionbetweenbusinessandlocalcommunities,whichcouldleadtoconflicts.

HEAltHCArEAndEduCAtIOn

matters of public concern like healthcare andeducationwerealsoatthecentreofthenewsin2012.the limpopo textbook crisis,whichprompted civilsocietyorganisationstotakethedepartmentofBasicEducationtocourt,highlightedpooradministration.In addition, sobering reports on school facilitiesincluded statistics such as 3,600 south Africanschools having to run without electricity, 2,400operatingwithoutwaterand20,000schoolshavingtodowithoutlibraries,computercentresorsciencelaboratories.

Asfarashealthcarewasconcerned,focuswasplacedon south Africa’s flawed private healthcare modeland the government’s plan for national HealthInsurance (nHI), which calls for more affordablehealthcareforall.HIVandAidswaslargelyreportedonasasocialissuewiththemainthemesdiscussedbeingtheimpactofHIVandAids,theusageofArVs,andHIVandAidsprogrammesintheworkplace.

COrruPtIOnAndBBBEE

Withregardtobusiness,twotopicswhichfeaturedprominently in the media were corruption andbroad-based black economic empowerment(BBBEE). It was highlighted that corruption ingovernment and business is increasingly harmingthe economy and undermining government’sservice delivery obligations. A survey by anti-corruption organisation transparency InternationalrevealedthatmostbribesinsouthAfricaarepaidinordertoavoidproblemswiththeauthorities.reportsonBBBEEstatedthatthisinitiativehadsucceededinimprovingthesustainabilityoftheblackmiddleclassbut had failed to address the structural economicand social inequalities. theActhas fallenvictim totenderabuseand fraudulentclaimsof compliancy,where companies are stating that they are BBBEEcompliant by positioning black individuals in rolesthat give the perception of black ownership. thishasresultedinacall forbetterandmorethoroughregulationaswellassteeperpunishment.

JOBsECurIty

the issue of job security received a fair amountof media visibility due primarily to the proposedlabourBillstoregulateorbanlabourbrokers. theinitiationofthesebillsmayincreasethejobsecurityoftemporaryworkers,buttheycouldalso increaseunemployment levels as the cost of labour willincrease.thelabourunrestintheminingindustryhasalsobeencitedasamajorconcernasmineworkers’jobsareunderthreatasaresultofthesestrikes.

FOOdsECurIty

Finally,thesubjectoffoodsecuritywasmoderatelycoveredbythemedia.thereleaseof theresultsofstatisticssA’sgeneralHouseholdsurveyshowedanimprovement in south African households’ accessto food. meanwhile, reports suggest that foodshortagesarelikelytospiralaspricessurge.Changesin climatic conditions and the growing number ofpeoplewithoutenoughnutritiousfoodalsofeaturedatthetopoftheagendaregardingfoodsecurity.

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SuSTAinAbLE pALm OiL

WORKSHOp

EnviROnmEnTAL SuSTAinAbiLiTy

WORKSHOp

mARinE ADvOcAcyWORKSHOp

STAkehOldeR WORKSHOpS

A key platform for our stakeholders to air their views is through workshops. Massmart uses these forums to discuss important emerging issues and give our stakeholders the opportunity to raise issues which we had not previously identified.

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SOciAL SuSTAinAbiLiTy

WORKSHOp

Palmoilnursery

SuSTAInAble pALm OiL

Palm oil is a product found in many food and non-food products obtained from the fruit of oil palm trees located in tropical areas of the world. because of the rapid expansion and wide-scale use of palm oil, it is currently a high priority in the uS and europe. Palm oil production has been associated with many negative environmental and social issues, especially in Malaysia and Indonesia. These include deforestation, threats to critical habitats for endangered species, burning and air pollution, soil erosion, damage from the use of pesticides and fertilisers and conflicts over land rights.

Although palm oil usage is not currently an important issue in South Africa, as we import only 1% of the global palm oil trade, it is of great concern to Walmart, one of our stakeholders. Walmart has committed to sourcing Round Table of Sustainable Palm Oil certified palm oil in its private label products by 2015. Massmart also acknowledges that the palm oil industry is growing due to the plant’s high yield and low cost of production. In light of this fact, Massmart aims to encourage the use, and increase the viable availability of, sustainably certified palm oil in the South African market and its own private label offering.

For these reasons Massmart facilitated a palm oil workshop that brought together relevant stakeholders in the South African palm oil industry. Workshop participants included representatives from nestle, nola and Greenpeace.

Our workshop confirmed that the utilisation of sustainable palm oil represents a relatively minor issue in the context of the South African market, even though it is a high priority for Walmart. however, stakeholders

still believed that Massmart should continue engaging suppliers on their commitments towards sourcing sustainable palm oil. It was also pointed out that involving the entire supply chain in our sustainability efforts was essential.

Workshop participants maintained that setting a goal for sustainable palm oil sourcing would show initiative, but was not essential in the advocacy process. Stakeholders emphasised that Massmart has significant influence as a retailer and we should, therefore, bring stakeholders, including suppliers, customers, and other companies to the table to promote future change.

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mARinE ADvOcAcy

SOciAL SuSTAinAbiLiTy

Massmart also took the initiative to engage stakeholders such as empowerdex, the South African Institute of Race Relations and the black Management Forum on our social responsibility priorities. The topics of concern covered areas such as Massmart’s employee healthcare benefits, employee hIV and Aids benefits, bbbee, socio-economic development, education, nutrition and women’s economic empowerment. Stakeholders maintained that of the issues mentioned, Massmart should focus on employee healthcare benefits, socio-economic development, school nutrition and women’s empowerment as these are areas in which it was felt we could have a lasting impact.

EnviROnmEnTAL SuSTAInAbIlITy

Stakeholders’ key priorities under environmental sustainability included the reduction of waste, climate change, sustainable agriculture and the promotion of environmentally responsible consumerism. Regarding waste reduction, packaging rationalisation was high on the list of stakeholder priorities, as was effective store-level waste management. Stakeholders in this workshop, who included representatives from the World Wildlife Fund, hewlett Packard and Canon, encouraged us to be vigilant of energy usage in stores, and to investigate renewable resources such as solar energy to mitigate our carbon footprint. As a food retailer, stakeholders believed that Massmart could play a significant role in the South African agricultural sector through the adoption of policies that promote sustainable agriculture. They encouraged us to foster emerging farmer pilot projects and align them with land security projects. Stakeholders also emphasised the necessity of training to develop small-scale farmer knowledge of biodiversity and the responsible management thereof.

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engagement with key suppliers and traders. Third-party engagement should also promote collaboration between neighbouring countries such as namibia and Mozambique.

Stakeholders also highlighted the fact that Massmart needs to be fully aware of the species of fish we stock, as well as the fishing gear used to obtain the fish. A key area of concern related to the sourcing practices and policies of seafood traders currently supplying the Group. Seafood traders are not involved in the direct procurement of seafood but rather sell seafood to Massmart as ‘middle men’. As such, more direct engagement with seafood traders is required to identify potential sourcing issues, sensitise traders to the environmental and social impacts of commercial fishing operations and gain insight into the procurement practices currently employed by traders.

engaging with our seafood suppliers was another priority for Massmart in 2012. Our stakeholders had indicated that supplier advocacy should be our primary concern to ensure that responsible environmental and social practices in our supply chain were promoted. In addition, with 85% of the world´s fish stocks being either overexploited or exploited to their full capacity, it is clear that Massmart’s seafood supply chain needs to be carefully monitored (Food and Agriculture Organisation of the united nations).

Our workshop participants for this research included representatives from I&J, the endangered Wildlife Trust and Foodcorp. Stakeholders believed that the best way to ensure that Massmart achieves a balance between environmental sustainability and commerciality in its seafood offerings is through consistent and meaningful

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enAblInG SuSTAInAble

SuPPly & cOnSumERiSm

MInIMISInG OuR EnviROnmEnTAL

FOOTPRInT

ChAMPIOnInG SOciAL EquALiTy

InITIATIVeS

MASSMART’S THREE AccOunTAbiLiTy TheMeS

Workshops are also a forum for stakeholdersto discuss important issues emerging frommassmart’s three accountability themes. In2010, stakeholder feedback indicated thatour communication onmassmart’s corporateaccountability commitment needed to bemore memorable and easy to understand.thus in 2011massmart outlined three broadaccountability themes which we now usein order to communicate our accountabilityinterventionswithgreaterclarity.thesethreeaccountabilitythemesare:

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>>enAble SuSTAInAble SuppLy & cOnSumERiSm

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1.Enablingsustainablesupplyandconsumerism(Fig.1)

Stakeholder feedback on our accountability theme of enabling sustainable supply and consumerism indicated that massmart was heading in the right direction. However, there were some areas that they maintained we needed to focus on. At the forefront of these issues was supplier advocacy in terms of encouraging an environmentally friendly supply chain to our stores, as well as promoting the use of eco-labelling and nutrition-orientated labelling on products displayed on our shelves. Stakeholders also believed that it is massmart’s responsibility to empower customers to make healthy choices by encouraging transparency around product labelling. When asked to indicate what they believed was of highest priority, stakeholders indicated that supplier advocacy, primary packaging rationalisation and eco-label advocacy were the most important issues.

massmart’s second accountability theme is focusedon ways we can minimise the group environmentalfootprint. stakeholders who participated in our 2012workshops believed that massmart needed to focuson reducing our logistics footprint and ensuring thatthelandusedbyourstoreshadminimalimpactonthebiodiversityofsurroundingareas.

Operational issues such as hazardous waste disposaland carbon emissions were also a focal point forstakeholders.Intermsoftheproductsthatourdivisionsstock,stakeholdersfeltthatweneededtofocusonfair-tradeaspects,ensuringthatwehaveacomprehensiveknowledgeofthesourceandmethodsusedtoacquireour products.When asked to provide an indication ofpriority, stakeholders believed that energy efficiencyshouldreceivethemostattention.

CHAmPIOnIngSOciAL EquALiTy iniTiATivES

giventhescaleofmassmart’sbusiness,socialequality is anarea inwhich stakeholders feltwe could have a lasting impact on southAfrican society. Poor education and lackof skills development were of concern tostakeholders as they believed these weresomeof the root causes of inequalitywithinour country. massmart was encouragedto focus our efforts on creating a skillsdevelopmentprogramme,with emphasis oncareerplanning.separatetothis,stakeholdersfeltthatastaffwellnessprogramme,focusingon both mental and physical wellbeing,shouldbeincorporatedasaseparateinitiativefrom our HIV and Aids employee assistanceefforts. Finally, stakeholdersalsomaintainedthatthedemographicofmassmart’sexecutivecommittee should represent that of thecountry inorder tobemore reflectiveof thesocietyinwhichweoperate.

>>MInIMISe The GROuP EnviROmEnTAL fOOTpRinT

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>>ChAMPIOnInG SOciAL EquALiTy InITIATIVeS

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mInImIsIngtHEgrOuP

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mARinE ADvOcAcy

SuRvEy

SuppLiER RELATiOnSHip

SuRvEy

EnviROnmEnTAL SuRvEy

cuSTOmER inTERcEpT

SuRvEy

pALm OiL ADvOcAcy

SuRvEy

EnviROnmEnTAL SuRvEy

SuRvEyS

Engagementwithmassmart’s stakeholders also took theformofvarioussupplierandcustomersurveys,wherewewereable to ascertainopinionsandperspectiveson thepractices of our suppliers in the areas of environmentalsustainability,marineadvocacyandsustainablepalmoil.supplier surveys also give massmart the opportunity tocommunicate to supplierswhatwe expect of them andto advocate massmart’s position and policies. throughthe surveysweare thus also able togaugewhether thepracticesofoursuppliersarealignedwithoursintermsofourthreeaccountabilitythemes.

massmart continues to focus on intensifying environmentaladvocacy efforts with suppliers which includes surveyingtheir environmental practices. the aim of this research wastoassessthestatusoftheenvironmentalinitiativesofourkeysuppliers and to determine suppliers’ approaches to variousenvironmental dimensions, including product packaging,environmental disclosure, manufacturing and distributionpractices, supply chainmanagement, climate change, waterscarcity andbiodiversity and the ecosystem. the survey alsoinvestigated the extent to which our suppliers’ practices/products have, during the past 12months, been subject toany form of environmental sanction/censure. High-levelresults from the survey indicated that a combined total of44% of respondents had launched environmentally friendlyproductsandhaddevelopedastrongreputationforproducing

environmentally friendly products. Pleasingly,only1%ofsupplierssurveyedthisyearindicatedthat they had been negatively targeted byngOs/activists,comparedwith21%ofour2011respondents. In addition, 32% of our suppliersindicated that they had defined specificenvironmentally-friendly packaging standards,set a definitive timetable for implementingenvironmentally-friendly packaging standards,or had introduced or were pilot-testingenvironmentally-friendly packaging standardsfrom standard products. However, only 15%of respondents indicated that they haveenvironmentallysustainableproductpackagingfor70to100%oftheirproducts.

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SuSTAinAbLE pALm OiL SuRvEy

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mARinE ADvOcAcy SuRvEy

In2012,massmartalsoconductedagroup-wideseafood supplier advocacy survey. the surveyaimed to determine the environmental statusof the fisheries fromwhichmassmart currentlysources seafood and assess their managementpractices and environmental sensitivity. tothis end, the survey considered the followingsustainability dimensions in determiningsupplier environmental sensitivity: fisherymanagement, target stock health, overfishing,by-catch and social responsibility. In addition,the survey investigated the extent to whichsuppliers’ practices/products have, during thepast 12 months, been subject to any form ofenvironmentalsanction/censure.

the results fromour survey indicated that 30%of our seafood suppliers had secured, or werein the process of securing, credible third partycertification; 76% of seafood suppliers hadengagedwith,orpartneredwith, credible thirdparties to identifyopportunities tomitigatetheenvironmental impact of their operations; anda combined total of 85% of suppliers had putprocessesinplacetodealwithby-catch.

Forthissurveyweexaminedthoseprivatelabelsuppliers whowe had identified as companiesthat provide products likely containing palmoil.Outofthe23supplierswhoresponded,nineindicatedthattheyutilisepalmoilasaningredientin the products they supply tomassmart. thisrepresents7%oftotalprivatelabelsuppliers.thesurveyalsofoundthatproductscontainingpalmoilrepresentedapproximately4%oftotalprivatelabeloffering.theresultsofthesurveyconfirmedthe conclusion of our palm oil workshop, thatpalm oil was not yet a high priority issue forsouth Africa. It must be noted, however, thatalthoughthissurveyassessmentcoveredall944products supplied by massmart’s 137 privatelabel suppliers, it was subject to limitationsrelating to a lack of product specification dataandsupplierinformation.

SuppLiER RELATiOnSHip SuRvEyAsthesecondlargestdistributorofconsumergoodsinAfrica,theleadingwholesalerofbasicfoods,aswellastheleadingretailerofgeneralmerchandise,liquorandhomeimprovementequipment/supplies,massmartsourcesgoodsandservices fromaround9,000activesuppliers.theoverall researchgoalof thissurveywastoestimatesuppliers’experienceof,andsatisfactionwith,ourconduct, thecommercialvalueoffered throughour supplychainand thequalityofoursupplierrelations.thesurveyfocusedonninekeyareas:

Efficiencyofthemassmartdistributionchannel Cost-effectiveness of the massmart distributionchannel

massmart’sstewardshipofsuppliers’brands massmart’sresponsivenesstomarketopportunitiestooptimisesalesofsuppliers’products

Operationsandpointofsale Constructivenessofprocurementnegotiationswithmassmartbuyers

Ethicspractisedbymassmartbuyers Overallrelationshipquality the impact of Walmart on the relationship withmassmart.

theoverallrelationshipaveragescorewas70.8%,whichis a decrease when compared to the score of 73.6%achieved in our 2011 survey. there was a noticeabledeclining trend in scores with the exception beingmassmart’sresponsivenesstomarketopportunitiesandtheconstructivenessofprocurementnegotiations,whichincreasedby0.21%and0.15%respectively.

Overall,massmart is seenasaveryprofessional,ethicalandfairplayer,butalsoatoughnegotiatorthatcanbeexpensive to do business with. notwithstanding someproblems, most respondents viewed their businessrelationshipwithmassmart as positive, with only 2.6%indicatinganegativerelationship.

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>>cuSTOmER inTERcEpT

SuRvEy

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Asecondaryresearchgoalwastomeasurethespecificviews or intentions of our customers, with regardto the customers’ preferences for environmentallyfriendly products, their expectations of how thefinancial position in the household would changewithinthenextsixmonthsandtheironlineshoppingbehaviour.

the results showed that massmart’s customersremainhighlysatisfiedwiththeirexperienceat thevarious massmart stores. Only one dimension ofcustomersatisfactionscoredlowerthanfouronthefivepointscale;thatofstaff’sknowledgeofprivatelabelproducts.thisdimensionwasalsoratedlowestin2011.

the highest-scored dimension of customersatisfactionwas customers’ intended return to thestoreswheretheyhadbeeninterviewed,indicatinghigh levelsof customer loyalty. till point efficiencywithregardtoaccuratescanningofprices,andtheavailability of products, contributed second andthirdmosttotheoverallcustomersatisfactionscorefor2012

• Availabilityofproducts• Competitive pricing, compared to otherretailers

• Clearlymarkedproducts• tillpointefficiency• Helpfulnessofstaff• staffknowledgeofprivatelabelproducts• Overallshoppingexperience• Customerloyalty.

massmartusestheinterceptsurveyasamechanismto track customer satisfaction and enable us torespond to customers’material concerns or issues.Customers, as a key strategic stakeholder, not onlyhave thepower to impact individual brands’ profitmargins, but also to influence our reputation as acorporate citizen. In 2012 massmart interviewed8,000 customers throughout south Africa, in sixweeks.

the main research goal of our customer interceptsurvey was to measure customer satisfaction atmassmart stores across the country and compareit to last year’s results. more specifically, customersatisfactionwasmeasuredintermsofthefollowingaspects:

STAKEHOLDERS HELping SHApE

THE fuTuRE Of mASSmART

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Words by Sarah Beswick | Designed by Inklings Design StudioPage11

the feedback which massmart received fromour focused areas of engagement including ourdiscourseanalysis,oursurveysandourworkshopsindicated that our accountability endeavoursare aligned with stakeholder concerns. We canconclude,therefore,thatweareontherighttrackin terms of our corporate accountability themes.stakeholdersdid,however,identifysomeemergingissues which massmart had not previouslyconsideredtopical.

Because successful stakeholder engagementrequires a commitment to actively engage withstakeholders on an ongoing basis, listen to them

and then respond to their concerns in amutuallybeneficial way, we will continue to have opendialoguesanddiscussionsandendeavourtofurtherinvestigateissuesinthefuture.

Whileweusedthemechanismsofworkshopsandsurveys formuchof our stakeholder engagementin 2012, we will also consider other methods ofgauging stakeholder opinion and input in 2013.In the next year, massmart hopes to increaseengagementwithstakeholdersinareasofwomen’sempowerment, responsible product labelling andethicalsourcingpractices.