By Smita Chandra Thomas
Gung Ho! Pizza (GHP) is a successful pizza chain founded in Beijing in 2010 by New Zealand natives and co-owners, Jade Gray and John O’Loghlen. It is an SME (small-to-medium enterprise) that has recently graduated from start-up to growth mode. GHP has three retail stores open in Beijing and more on the way, as well as the first franchise store expected by the end of 2015.
GHP was already on the path of sustainability when they hired me as Sustainability Advisor in 2013 to focus on Energy Efficiency in their retail stores. In fact, GHP has incorporated Sustainability as one of the core tenets of its approach to business since inception and executed on it in collaboration with a local sustainability consulting firm We Impact and designer Coro Urdaneta, enterprising people that I had the pleasure of working with. GHP is committed to the ‘three pillars of sustainability’ or the ‘triple bottom-line’ that consists of the 3P’s: People, Planet, and Profit (a term the readers of 3P would be familiar with). The founders were inspired by Yvon Chouinard, the founder of Patagonia, an outdoor clothing and gear company that is a global leader in environmental responsibility. When outlining their business plan in 2009, they decided to be the “Patagonia of Pizza”.
Why did GHP choose to embrace sustainability? And what makes them stay the course?
(Hint: It’s good for business!)
The simple act of living and breathing in Beijing is a constant reminder of the impacts that air pollution has on the eastern seaboard of China, with worldwide effects. But it is not easy to find reliable data on the sources of the pollution or ways to mitigate it. Here are some lesser known facts: The sources of pollution include electricity generation, use of petroleum in transportation, water pollution from overuse and from disposal of hazardous materials, and pollution from waste. For example, 70 percent of China’s electricity came from coal in 2011. By comparison, coal accounts for less than 40 percent of electricity production in the U.S.; while natural gas, which burns much cleaner, accounts for close to 30 percent of U.S. electricity. In China, the use of natural gas for electricity generation was only four percent in 2011. Hydro-electricity and nuclear electricity – the other relatively clean sources of electricity strictly speaking in terms of air pollution – currently play a relatively minor role in China. Given this current mix of sources for electricity generation in China, it is important to pay attention to reducing electricity usage. But given the inevitable rise in demand for resources in the rapidly developing nation of China, the best place to focus currently is on reducing the energy intensity per unit of GDP
Energy intensity of businesses can be reduced by “greening” the energy-consuming operating systems (mostly invisible to customers), such as the water heating systems, ventilation, air conditioning, plugged-in equipment and lighting systems; the choices made in water-consumption; transportation of personnel and delivery services; and minimizing the production of waste. These back-of-the-house systems incur the highest operating expenses as well as cause the long-term environmental impacts. Operational Efficiency has been a requirement of China’s Three Star building standards first published in 2006, and most recently updated in 2013. (The LEED program (Leadership in Energy and Environmental Design) of the US Green Building Council added this requirement in 2009).
Operational efficiency results in direct economic benefits in China, because energy is a large variable cost for most businesses in China. Unlike the U.S., where operational energy expenses tend to be lower than the fixed costs of labor, operational energy expenses can be the dominating financial factor for a business in China while labor costs are relatively economical. For example, the hourly cost of labor is roughly four times cheaper in Beijing compared to the U.S. average. On the other hand, commercial electricity is roughly twice as expensive in Beijing compared to the U.S. average. Commercial electricity at GHP’s Sanlitun location in Beijing costs about 20 US cents per kWh (1.2 RMB per kWh). In contrast, the average cost of electricity to commercial customers in the U.S. is about 10 cents per kWh, which equates to about 0.6 RMB per kWh. This high variable business cost of electricity in Beijing provides a prime opportunity and makes a compelling business case to invest in energy efficiency.
GHP therefore embarked on a path of sustainability for both environmental and business reasons. In a relatively immature market for efficiency products and services in China, GHP faced a lack of local resources and standardized commissioning services geared towards small and medium businesses. On the other hand, opportunities existed in finding local, and even handcrafted solutions which might be unfeasible in a more developed country.
When the first store renovation project was complete, I requested an interview with Jade Gray, the owner in charge of store operations and my lead client on the project. Among other things, I wanted to understand how GHP valued the costs versus benefits of the project, and their sustainability efforts in general.
Gray says of the efficiency upgrades:
I completely believe it’s not a waste of money. Although it is difficult to measure exact benefits, because there are so many parts to it, we have had both direct benefits and what I would call ‘soft’ benefits. First, speaking of direct benefits, the most obvious benefit is where we were wasting resources earlier. Laura [Xiao, the in-house environmental manager] helped identify potential areas for savings in utilities – energy, water, waste. For example, we discovered that 20-30 percent of the power in one retail store was being used by an extraction fan. We realized we didn’t need that on all day but only during rush hour. We cut that off, and saw savings of thousands of RMBs. Then by blocking draft at our doors and windows, we saved 10-20 percent on heating costs. Not running the tap while washing hands, not using paper towels… As we built this green culture of no-waste that Laura was really driving, we saved a lot on utilities. This was the direct response from the green initiative.
An indirect benefit has been savings on employee retention. They [the employees] have really taken the green initiative to heart. It has become everybody’s passion, as long as we are driving it of course. Employees have said on numerous occasions that they really believe in what they are doing. They feel good about their company, they feel good about their job. We are absolutely saving on retention.
Another big impact on P&L [profit and loss] would be marketing impact. It was never our intention to use our green initiative as a marketing tool; but our social programs generated PR [Public Relations (media interest)]. We have created a media profile that we wouldn’t normally be able to afford. We are trying to spread the word about our business, so we welcome that attention. As a small company in China, we have to find ways to make noise in a very large market; you really have to create a buzz. We take the media attention responsibly, but it’s been great for business. Now more and more people are coming to us to learn about our green initiative.
Gung Ho! Pizza illustrates an example of a business that has purposefully integrated sustainability into its business in China and reaped tangible rewards not only in terms of environmental benefits, but also economic returns, improved employee retention, and public relations.
Do you have any stories of opportunities and barriers you may have seen for small businesses in developing countries?
Smita Chandra Thomas is a U.S.-based sustainability consultant and a LEED AP. She spent the last two years in Beijing where she did freelance consulting, learned Mandarin, and blogged. Ms. Thomas has been focused on enabling energy efficiency in buildings through building science for lesser waste, greater economy, better health, and a sustainable environment for future generations. Ms. Thomas currently runs her private consulting practice Energy Shrink in Washington DC. She can be reached at firstname.lastname@example.org.