Boots the Chemists has gone back to its roots. The last few years have seen a major overhaul of the company's thinking with the entrance of a new chairman and chief executive. It has corrected mistakes such as a brief detour into laser eye treatment and dental services and has decided to concentrate instead on what it is best known for - selling healthcare, beauty and toiletry products.
The company's management admits that it has had most of the "quick wins" available to it and what it must now do is compete for incremental profit gains in a tough sector. But its 2004 annual report proclaims that it is "absolutely up for the battle".
With 1,400 stores in the UK, Boots is a familiar sight on most high streets. It has also begun exploring the potential to sell Boots-branded products overseas by creating "implants" or retail spaces within other companies' stores. It now has 200 of these in the Far East and 32 in the USA.
The company has so far escaped the dramatic swings in fortune experienced by some other high street chains. In 2003/04 it reported sales of £4,475 million, with 40% coming from healthcare products, 45% from beauty and toiletries and 15% from "lifestyle" ranges including baby products, electrical goods, food and seasonal gifts. These days, its main competitors for the bulk of its products are supermarket chains.
Unlike these rivals, Boots is a manufacturer as well as a retailer. Roughly 55% of the products sold in Boots stores carry its own brand, mostly manufactured at its own facilities in the UK and EU, although this really comprises the formulation of products using substances and preparations manufactured by other firms. The remaining 45% of products stocked by Boots are other companies' brands.
As well as re-appraising its brand in product terms, Boots has been reassessing its attitude to corporate social responsibility, arguably catalysed by a Friends of the Earth campaign launched in 2000. The group targeted Boots for refusing to participate in its survey of high street retailers' use of "risky chemicals" in products.
Commenting upon FoE's criticism at the time, Boots' then head of group external affairs remarked: "Given that the use of ingredients in our products complies with all current regulatory requirements, it would not be constructive to get into discussion about specific chemicals" (ENDS Report 307, p 23 ).
Times have changed. Boots' sustainable development manager for chemicals, Stephen Johnson, says that the company is fast getting over its closeted mentality and now appreciates the need to engage with stakeholders. "We were monitoring and acting on these chemicals already, but we felt we were the experts and we did not see the need to talk to anyone outside the company about it," he concedes. "Now we know that we have to."
He cites as examples of Boots' early but invisible precautionary thinking its decision to avoid the use of nonylphenol ethoxylates in the early 1990s and to begin to avoid the use of CFCs in the early 1980s.
In the last few years Boots has hosted representatives of FoE, Greenpeace and WWF, among others, at its head office site in Nottingham to discuss its efforts.
Two years ago it held a meeting in London to gauge the response of its stakeholders - NGOs, government, regulators and investors - to its new chemicals strategy (ENDS Report 339, pp 32-33 ). One demand was for the company to adopt the precautionary principle on its use of chemicals. In response, the company committed to adopt a less radical precautionary "approach" which maintains a watching brief on chemicals deemed to be of concern by the public - usually as a result of NGO campaigns.
While not undertaking to stop using these immediately, Boots has developed a "priority substance list" which is updated quarterly by an internal working group to reflect new science, political priorities and the availability of economically viable alternatives. The company concedes that while it will always examine the science behind any potential risk, it is increasingly aware of the need to take action to assuage public concern even where there appears to be little scientific basis to do so.
The company regards the priority substance list as the "teeth of our chemicals strategy". An updated version is published on its website, stating the chemicals of concern, their use or potential incidental presence in Boots products, what the company's strategy is - ranging from maintaining a watching brief to phase-out - and progress towards its targets (see table).
To be the best by 2009
Boots has a clear goal - to be perceived as the market leader on chemical issues by 2009. Of the "sustainability indicators" adopted by the company, chemicals management is the only one for which Boots is striving to be ahead of the crowd rather than simply keeping up with peers' average performance.
This ambition is underpinned by a strong sense of brand value. As Mr Johnson puts it: "We can't be the best at everything. We feel that as chemist to the nation, at the very least we have to be seen to be getting chemicals management right."
An additional impetus is given by Boots' ranking in a 2001 survey as the most trusted high street name on social and community issues. But being a trusted brand brings its dangers and Boots has chosen an increasingly complex area in which to make its mark.
Public concern about chemicals is rising. At the same time disputes abound on the validity of research on the risks posed by chemicals, even where data are available. There are increasing arguments over the need for, and feasibility of, substitution of higher risk chemicals, even where a precautionary approach is being adopted.
"There are a number of external agendas, which often result in a polarisation of views, which can broadly be summarised as optimism from the chemical industry and pessimism from pressure groups. Retailers sit somewhere in the middle," Mr Johnson concludes.
But they also sit on the frontline. NGOs have fine-tuned their ability to use the most sensitive consumer brands as pawns in strategic battles to achieve withdrawal of substances further up the supply chain. Confirming the potency of such campaigns, Mr Johnson says: "It is very difficult for a health and beauty retailer to market products when there is a campaign group in our stores suggesting that the products we are selling contain risky chemicals."
Trust is a limited commodity, he observes. "We might get away with making an odd mistake, but if a company keeps making mistakes we will inevitably lose the trust of our customers and they will shop elsewhere."
Boots also feels it has a duty to use its substantial clout to try to influence other firms' thinking on chemicals. Nearly half of the products in its stores are made by other firms. Given the commercial implications, Boots has held back from asking such firms about the substances they use, beyond general commercial due diligence enquiries. But it hopes to begin to approach them with questions in the near future.
Along comes REACH
Boots views the proposed REACH regime as a potentially valuable tool. If it is credible and effective, it should increase consumer confidence in chemicals. In January, Boots joined several other household names in calling on EU legislators to ensure that REACH responds to the needs of downstream users of chemicals, especially retailers (see p 30 ).
The company hopes that its expertise and experience in managing chemical risks will mean that REACH brings few unmanageable surprises for it.
For instance, it predicts that it is unlikely to find that any of the substances used in significant quantities in its preparations will be labelled as a "substance of very high concern" under the legislation. This would mean that it would require specific legal authorisation to be placed on the market. Meanwhile, if it turns out that any of the minor substances used is an "authorisation chemical" then the company should be in a position to substitute it quickly.
Boots' scientific adviser on legislation Tony Gettins says he welcomes the requirement for suppliers to pass information to their professional customers on the risks posed by chemicals and how to manage them. He believes that this will give power to retailers to request such information if it is not made available.
In the past, the company has sought to obtain as much information as possible from its suppliers but is used to having to make repeated attempts to obtain an adequate response. Some suppliers have insisted that they have the data but that they are confidential, others have submitted incomplete information while a few have even refused initially to pass down safety data sheets, saying they are commercially confidential.
"It can take you an awful long time to get suppliers to tell you even what you already know," Dr Gettins observes. Boots believes that its own manufacturing expertise puts it at an advantage over competitors. "We can make better educated guesses than the others about manufacturing processes, product ingredients and properties."
The task of managing data on the properties of chemicals and preparations is never-ending. Boots has 30,000 own-brand products and up to 5,000 suppliers supplying Boots brand and other brand products. It uses anything up to 5,500 raw materials. Each product is comprised of multiple ingredients, each of which usually has its own - frequently complex - supply chain (see schematic diagram of shampoo).
Moreover, like that of other retailers, the company's product portfolio is highly dynamic. It estimates that on average it changes six products every day. On top of this, there is a need to keep data files constantly updated with new scientific developments.
Whether REACH will make this job any easier depends on how it is enforced, says Dr Gettins. "We believe that we already have all the legislation we need to make sure that we fulfil our obligations to our customers, but we would like more support from our suppliers.
"But those suppliers that we believe are most guilty of overstepping the mark [in terms of having adequate risk assessment data] are least likely to comply with REACH anyway." He concluded: "REACH will establish ground rules but it does need to be managed and enforced. The European Chemicals Agency needs to take a strong hand."
Boots has begun to approach its first tier suppliers to ask about their preparations for REACH. They have uncovered a variable level of readiness. Some still believe that the regime will not see the light of day, while others are waiting to see what shape it will take before acting. A few are beginning to prepare already.
For preparations made using substances manufactured within the EU, Boots strongly supports the idea of data-sharing. It argues that it makes no sense for several smaller firms to have to submit registration data when a larger EU manufacturer of the same substance may already have submitted the same and more data for registration.
The firm strongly supports the joint proposal from the UK and Hungarian governments for companies to have to share data and/or allow access to their data in return for compensation so as to achieve one registration package per substance (ENDS Report 356, pp 42-43 ).
Boots has submitted position papers calling for a complementary system of "letters of access" which would mean that it could "share" the data produced by manufacturers for their substances without even having to see it, which would protect their commercial confidentiality. Dr Gettins suggests that compensation could even be organised on a "royalty basis" linked to the tonnage of the chemical used by a company for its preparations.
Dr Gettins' best guess is that some 20% of chemicals may be withdrawn under REACH on economic rather than safety grounds. Depending on the final text of the proposal, he says, this could "affect all of our products or none".
He is also concerned that the relatively short timescales for registering chemicals may prove to be unworkable in practice, which again may have implications for substance availability.
Boots has lobbied legislators to minimise bureaucracy and make better use of existing risk assessment data. It has even proposed a "weight of evidence" approach where, if several studies point to the same conclusion, this is accepted even if there is doubt over them individually.
Nevertheless, the company says it would be surprised if it lost any product ranges or even products as a result of REACH, although some may need to be reformulated. One reason for its confidence is its broad knowledge of substances and preparations.
It has no particular commitment to any one chemical and has a broader inventory than most companies.
Boots will have a duty to ensure that its suppliers are aware of any uses of substances that they have not covered in their registration and chemical safety assessments. Dr Gettins points to cases in the past of suppliers being prepared to sell chemicals to Boots that would not be advisable for the intended applications. In these instances Boots has carried out research and rejected substances where necessary.
He said the company would be fastidious about making sure that all suppliers had covered the intended applications in the registration packages for their substances. "We would push information back up the supply chain," he said. "We would make sure that suppliers could not hide behind ignorance."
Effective information flow up and down the supply chain is one of Boots' key lobbying points under REACH.
Another issue is its handling of substances contained in articles. The company believes it is less exposed to this section of the legislation than, say, clothing retailers, because it regards the vast majority of its products as consumables which it says would not be regarded as articles, but as preparations.
However, there are many uncertainties. There are no clear definitions under REACH of what an article is nor how to comply with the thresholds set in the legislation. In common with other retailers it believes that this section of REACH is unworkable.
Boots has maintained constant contact with both UK and EU legislators to make sure that they are aware of its concerns regarding REACH - and its support. In addition, Mr Johnson chairs groups addressing chemicals issues for trade bodies such as the British Retail Consortium and Eurocommerce, while the company itself belongs to the joint BRC/CIA's supply chain leadership group. Being influential in the political debate on chemicals is an integral part of the company's strategy to be a market leader.
Boots as importer
Alongside its roles as a downstream user and a retailer, Boots also has a major issue to handle under REACH as a substantial importer of preparations which it then markets under its own brand. Under REACH, it will become responsible for registering each of the substances within the preparations it imports once their levels reach the tonnage thresholds specified in the proposed legislation.
The detailed test data required for substance registration are in a different league to the risk management information that Boots collects as a customer. Despite its in-house chemicals expertise, the company says it would be unfeasible for it to derive registration data for the substances in its preparations.
Around one third of Boots' suppliers are currently based outside the EU. The company expects to increasingly source preparations from suppliers in China and the Far East that have made substantial investments in modern cosmetics and toiletries manufacturing facilities. These suppliers will be under no obligation to provide data for registration of their substances under REACH.
Nevertheless, Dr Gettins says Boots would encourage its non-EU suppliers to buy in to the REACH process. It would also consider specifying that only those substances that are REACH compliant be used in its preparations, or switching to more cooperative suppliers if some refused to play ball.
How far such strategies could go before hitting cost obstacles remains to be seen.