Socially Responsible Investing: Ethical and Very Profitable
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Socially responsible investing has gained a lot of attention over the last couple of years, and for good reason. Some companies allow shareholders to sleep better at night by knowing they are investing in businesses with a positive impact to society as a whole, and they can also be outstandingly profitable from a purely economic perspective. When your conscience and your wallet are pointing in the same direction, investing decisions become a no brainer.
Although Costco (NASDAQ: COST) is usually compared to Wal-Mart´s (NYSE: WM) Sam´s Club, the two companies couldn’t be more dissimilar in their values and strategy. In fact, a 2005 article from The New York Times actually described Costco as “the anti-Wal-Mart” based on the multiple differences among both companies when it comes to issues like labor relations.
While Wal-Mart has been widely criticized because of its insufficient wages, poor working conditions, and low benefits; Costco has chosen a very different approach. Costco's average pay in 2005 was $17 an hour, 42% higher than at Sam's Club according to the New York Times. The same article stated that Costco´s health insurance covered 96% of the company´s workforce, a big contrast versus a coverage rate of only 44% offered by Wal-Mart.
Costco understands that it needs to spend more resources on its employees if it’s going to attract the best talent, keep people motivated, and reduce employee turnover. And this hasn´t just been a positive for employees and for society as a while, investors are reaping the benefits of superior operating and financial performance at the company.
Costco delivered a 5% increase in same store sales during the last quarter, far better than the 1.2% growth rate reported by Wal-Mart for the same quarter. And this was no exception at all; the company has been outgrowing Wal-Mart and other competitors for a long time: revenue has increased at a 9% annually over the last five years at Costco versus a 4.5% growth rate for Wal-Mart in the same period.
Costco makes most of its profits from membership fees while selling its products at zero profit or even at a loss. This generates amazing advantages when it comes to cost competitiveness, which is especially valuable in items like food and fuel. Judging by the membership renewal rates in the area of 85%-90%, customers are quite happy with this business model and the benefits of shopping at Costco.
Even in a tough and extremely competitive business like mass retail, Costco has proven its ability to contemplate the needs of its employees, customers and investors, all at the same time. At the end of the day, it shouldn´t come as a big surprise that happy and productive employees, coupled with a loyal and satisfied customer base provide a big advantage when it comes to generating superior returns for shareholders.
Put your money where your mouth is
McDonald´s (NYSE: MCD) is still the undisputed leader in the fast food business on a global scale, so this heavy-weight champion will continue generating big cash flows and dividends due to its recognizable brand and wide geographical reach. But the company is facing serious headwinds as consumers move towards healthier eating options in detriment of those deliciously fattening hamburgers
Conscious eating is becoming a big thing all over the world due to problems like rising obesity and other health issues, especially when it comes to children, so McDonald´s has been broadening its lines of products to include more salads, wraps, and sandwiches with fewer calories. The company will likely find ways to adapt to changing consumer habits, but for investors looking to capitalize the healthy eating trend, the house of the Big Mac is hardly the best choice.
Chipotle Mexican Grill (NYSE: CMG), on the other hand, has been delivering outstanding growth rates over the last years thanks to the popularity of its “food with integrity” approach to Mexican cuisine, offering higher quality food and better ecological and sustainability standards than traditional fast food chains.
The company has done the opposite of its competitors: while other fast food companies move into highly processed ingredients as they grow in size, Chipotle has been focusing every day more on fresh ingredients for its tacos and burritos. Instead of looking for low cost suppliers, Chipotle has developed its own network of high quality providers of natural and environmentally sustainable food.
This means higher prices and a more complex operation for Chipotle versus other alternatives, but customers seem to be willing to pay a few extra bucks for the superior quality that the company has to offer. Chipotle has been expanding its sales at more than 20% annually over the last five years, even if there is some kind of slowdown in the middle term, the company still has plenty of room for expansion in the US, and international markets are practically untapped, so Chipotle has many years of healthy growth ahead of it.
What´s positive for employees, suppliers, customers, and the society as a whole is in many cases a good thing for shareholders too. It´s not ethical versus profitable anymore, investors can choose to invest in companies making plenty of money while at the same time doing the right thing.
Chipotle's stock has been on an absolute tear since the company went public in 2006. Unfortunately, 2012 hasn’t been kind to Chipotle’s stock, as investors question whether its growth has come to an end. Fool analyst Jason Moser’s premium research report analyzes the burrito maker’s situation and answers the question investors are asking: Can Chipotle still grow? If you own or are considering owning shares in Chipotle, you’ll want to click here now and get started!
Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Costco Wholesale, McDonald's, and Waste Management. The Motley Fool owns shares of Chipotle Mexican Grill, Costco Wholesale, McDonald's, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!