Woolworths and Coles dealt some hard lessons on social licence

That’s a worry for their boards and shareholders, given that social licence can significantly influence consumers’ choices.

According to a recent report by investment bank Jarden, 67 per cent of shoppers say social licence is important in determining where they shop.

It has become more important over the past 12 months, especially with younger demographics. About 48 per cent of consumers surveyed by Jarden said they would switch from brands that failed to meet expectations on being socially responsible.

That already appears to be under way, particularly at Woolworths, judging by recent trading updates. Its Australian supermarket sales growth dropped behind that of Coles in January and February, rising just 1.5 per cent compared with 4.9 per cent at Coles, the largest growth gap since 2018.

“Whether we call it social licence or trust or love … I think both supermarkets’ social licence has been challenged – it’s pretty fragile,” says Roy Morgan chief executive Michele Levine.

Levine says the big supermarkets emerged as heroes during the pandemic and built strong net trust, but the environment changed as the cost of living soared, and the major chains did not recognise it as a crisis.

“We had put them on a pedestal, we had made them the most trusted brands in Australia,” Levine says. “They fell off that pedestal when they didn’t adequately deal with the cost-of-living crisis.”

Given its fragility, it would not be surprising if retailers started questioning whether building social licence was worth the effort.

However, Jarden analysts Ben Gilbert and Michaela Jamison say brands, especially retail brands, need social licence to build loyalty, retain customers, lift lifetime customer value and drive longer-term returns.

“Social licence is very important,” Gilbert says. “It should not just be viewed as a risk mitigator, but an opportunity to build brand and build loyalty at a time when consumers have a lot more choice and are cross-shopping more and more.”

“Building brand outside of purely hygiene factors such as price is a real opportunity to differentiate,” Gilbert says, citing the food retailers’ commitments to issues such as stall-free pork and RSPCA-approved chicken.

“Being proactive around this is really important and owning it is a big opportunity,” he says.

By embracing social licence, brands can build customer loyalty and engagement to drive higher sales and returns, and ultimately improve brand value. Increasing customer retention by 5 per cent can lift earnings by between 25 per cent and 95 per cent, according to a study by Bain & Co and the Harvard Business Review.

Promoting and embracing social licence also enables companies to attract and retain the best people, Jarden says, leading to improved productivity and returns. According to a LinkedIn study, 74 per cent of candidates prefer roles where their work matters, and a Deloitte report has found that almost nine in 10 Millennials believe business success should be measured by more than just financial performance.

In recent years, retailers and consumer brands have focused on building social licence by supporting food banks, schools, community groups and animal welfare and environmental groups.

The Jarden report lists 10 areas where brands can build social licence, including committing to zero waste to landfill and net-zero carbon emissions, stewardship of natural resources, sustainable packaging and sourcing, supporting diversity and backing a circular economy.

Many retailers have already embraced these challenges to build social licence. Officeworks, for example, has collected more than 9000 tonnes of unwanted products since 2015 through its Bring it Back program, including pens and markers, printer cartridges, laptops, computers and mobile phones, and has committed to repairing, repurposing and recycling 17,000 tonnes by next year.

JB Hi-Fi and The Good Guys recycle mobile phones, small appliances and batteries, and staff uniforms, and support several charities and community groups through their workplace giving programs.

Super Retail Group, which recycles car batteries and motor oil, has established a circular economy working group and is developing stewardship programs for hard-to-recycle products such as windscreen wipers and car lights.

But Jamison says companies need to guard against accusations of greenwashing, which can undermine trust and social licence.

“There’s a general expectation from stakeholders that companies now have interim net-zero targets,” he says, “but there is an expectation that companies are reducing and not just offsetting”.

Although committing to social causes and setting ambitious sustainability targets can help build social licence, these approaches can backfire if retailers fail to achieve targets or find their positions on social causes, such as the Indigenous Voice to parliament or gay marriage rights, are not shared by staff and customers.

“Sometimes trying to create the image of a perfectly good corporate citizen who has all the right values can really backfire,” Levine says.

Simon Longstaff.  Michael Quelch

Retailers need to understand what consumers are worried about in the current environment and tackle these concerns, she says. “Go right back to basics and start doing what you said you were going to do, which is what the major supermarkets are doing as we speak.”

The concept of social licence has been around for almost 20 years, but The Ethics Centre executive director, Dr Simon Longstaff, believes it falls short of what companies can achieve in their relationships with communities.

Longstaff has urged businesses to follow the lead of companies such as BHP and embrace the concept of social value, which is less transactional than social licence and more about mutual benefit.

“Social licence, like any licence, involves a transaction of sorts, where you pay the fee in order to do certain things you want to do,” Longstaff says.

“[Business leaders] will often say ‘what else do we have to do in terms of the tariff we pay and the commitments we make to the community ... haven’t we paid enough to be able to get on with our business?’

“If you look at it from a social value lens, they’re going to have a much more nuanced approach to a whole set of relationships.”

Retailers should no longer appeal to the tariff or fee they’ve paid to build social licence, and should not point to market logic when it comes to, for example, the prices they pay suppliers.

Rather, they need to build trust and legitimacy by doing what they claim to be doing and by treating all stakeholders consistently and fairly.

“If you’ve got customers who are being treated perfectly fairly and they hear stories about producers being treated unfairly, what they will conclude is this company cannot be trusted because they are only fair in a selective way,” Longstaff says.

“It undoes the good, it makes it seem like their fairness in relation to the customer is an insincere stunt, that it’s about manufacturing a reputation rather than earning it – that blows up in your face.”

Supporting social causes and setting sustainability targets is all well and good, Longstaff says. “But you can do all those things until the cows come home and have it count for nothing if the conduct in which you engage in those key relationships is inconsistent with the very standards you’ve declared you wish to be judged by.”

It seems the bar is only getting higher for retailers.