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"Could Sainsbury's add value to their business by using an alternative fuel for their HGV fleet?"

Extracts from this document...

Introduction

Contents Page No. 1. Executive Summary.......................................................................................2 1.1 Topic Description 1.2 Title Question 1.3 Objectives 1.4 Recommendation 2. Research Agenda and Assumptions Made........................................................3 2.1 Agenda 2.2 Assumptions 3. Sainsbury's current fuel source and the associated costs..................................4 3.1 Overview of current situation 3.2 Economic costs of using diesel 3.3 Environmental and social costs of using diesel 4. Alternative fuel sources available to Sainsbury's...............................................5 4.1 LPG 4.2 Biodiesel 4.3 Electric Vehicles 4.4 Fuel Cells 5. Why Natural Gas?..........................................................................................7 5.1 Future availability 5.2 Non-financial and financial benefits 5.3 Technical options available 5.4 Government support and incentives 6. Investment Appraisal.....................................................................................9 6.1 Net Present Value 6.2 Payback 6.3 Conclusion 7. Consumer Perception & Brand Image.............................................................11 7.1 Overview 7.2 What proportion of the population is concerned with environmental issues 7.3 Implications for Sainsbury's 7.4 Positive spill over effects 7.5 Actionable 7.6 Evaluation 8. Conclusion..................................................................................................14 9. Appendices.................................................................................................15 10. Bibliography...............................................................................................25 1. Executive Summary 1.1 Topic Description Sainsbury's is a leading UK food retailer with 583 stores across the country1. This investigation will seek to find out whether Sainsbury's can reduce their operating costs by adopting an alternative source of fuel for its Heavy Goods Vehicle (HGV) fleet. In the current economic climate with oil prices hitting a record high of $55/barrel2, Sainsbury's recently announced that their profits had fallen dramatically from �323 million to a loss of �39 million3. Empirical evidence shows that fuel represents 30% of total vehicle operating costs4. Since Sainsbury's HGV fleet is 2,200 strong, there is significant potential to reduce operating costs. In order to give a holistic account of any strategic implications, we will also identify any non-financial benefits that can be gained as a result. 1.2 Title Question "Could Sainsbury's add value to their business by using an alternative fuel for their HGV fleet?" 1.3 Objectives > To look at current types of fuel used by Sainsbury's fleet > To evaluate the impact fuel prices have on Sainsbury's costs > To give a detailed account of the benefits and limitations of using selected alternative fuel sources > To identify an optimal alternative fuel to be used in the medium term (5 years) ...read more.

Middle

An alternative option would be to buy a new fleet equipped with gas engines. Under this approach Natural Gas has the shorter payback period. However the above table shows that this time scale is beyond the scope of this report. 6.3 Conclusion Detailed analysis of the main alternative fuels concludes that for Sainsbury's current HGV fleet Natural Gas would be the optimal fuel to utilise. Although the payback periods for Natural Gas and LPG are the same for converstion, Natural Gas has the highest NPV and therefore is the project which will add greatest value. 7.0 Consumer Perception & Brand Image 7.1 Overview: Sainsbury's could benefit by combining the switch to a more eco-friendly fuel source with a broader strategy to project a more environmentally friendly image. The case for becoming more socially responsible has been extremely well documented. It has been shown that the sustainability of the environment depends on a combined business and governmental effort to 'go green'. This section will aim to give a critical analysis of whether Sainsbury's can positively affect consumer perception and brand image through marketing an 'environmentally friendly' image. A recent study by Grankvist Dahlstrand & Biel (2004) looked at positive and negative labelling with respect to a product's 'friendliness' to the environment, and whether this affected consumer perceptions. The conclusion drawn from their results was as follows: "Individuals who had a weak or no interest in environmental issues were unaffected by labels stating that the product was environmentally friendly or environmentally hazardous. Individuals with an intermediate interest in environmental issues were more affected by a negative label than by a positive label. Individuals with a strong interest in environmental protection were equally affected by the two kinds of labels". These findings are reiterated by Clare D' Souza's study examining the effectiveness of brand perception on environmentally friendly products. D' Souza concludes "Results indicate that consumers were favourably influenced by the presence of environmentally friendly labelling". ...read more.

Conclusion

As such, they are often considered to be the ideal sustainable transport solution * Fuel cell vehicles operate at the highest efficiency when fuelled by pure hydrogen; however there are two problems with this. Firstly, compressed hydrogen requires large storage tanks, which means that it is difficult to store sufficient quantities on board vehicles * The second problem is that there is currently no hydrogen infrastructure to support the refuelling of vehicles * Another option is to use hydrogen-rich liquid such as methanol or reformulated petrol. While these liquid fuels do not require as much storage space on the vehicle, they must be processed onboard to obtain the hydrogen. This not only adds to the weight, cost and complexity of the vehicles, but also leads to carbon dioxide and other emissions * Fuel cells are currently much more expensive to produce than conventional engines. The manufacturing costs need to fall by 10-20 times to be commercially viable OPPORTUNITIES THREATS * Fuel cell vehicles have similar or improved performance as compared to a vehicle with an internal combustion engine and they are not as limited in range as are most battery electric vehicles * This also enables the vehicle to use regenerative braking which can reduce fuel consumption by up to 20% * Manufacturers including Ford, GM, Honda, Toyota, and Peugeot-Citroen have already demonstrated fuel cell vehicles and the New Electric Car (Necar) range of vehicles has been developed by DaimlerChrysler, Ford and Ballard. This partnership aims to make fuel cell cars commercially available by 2010-2012 * For fuel cell vehicles to be truly "zero emission", the hydrogen they run off must be produced using a renewable energy source (for example, wind or solar) * Fuel cell vehicles are not yet commercially available, although most vehicle manufacturers have fuel cell programmes and many believe these vehicles will outsell other vehicle types within 15-20 years 10. ...read more.

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