Square milk and mulch from old tires

Majestic Rubber Mulch is made from tires from Wal-Mart's auto and lube shop.

Matt Kistler, Wal-Mart's senior vice president for sustainability

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NEW YORK (Fortune) -- Get ready to pour your milk out of a square jug.

Sam's Club, a unit of Wal-Mart Stores (WMT, Fortune 500), sells gallons of milks in square containers in some stores. They come that way so shippers can stack more gallons into a truck, saving money, fuel and greenhouse gases. It turns out that the square milk jugs are easier and quicker to ship, therefore fresher when they hit the shelf.

And so - like concentrated laundry detergent, environmentally-friendly cleaning products and compact fluorescent light bulbs, all of which are being pushed by Wal-Mart - square milk jugs are likely to find their way into tens of millions of American homes.

"We're looking everywhere we can to save energy and eliminate waste," says Matt Kistler, the giant retailer's senior vice president for sustainability.

I interviewed Kistler last week at a conference called Greener By Design, about making and selling green products. He is 42, and a native of East Lansing, Michigan, with an MBA from the Kellogg business school at Northwestern. A former marketing guy, Kistler has led Wal-Mart's sustainability effort since last fall. That job puts him at the nerve center of an ambitious drive to reduce the environmental impact of the consumer products industry.

Some of the push comes from the outside. Companies with "green" products to sell, such as Clorox Co. (CLX, Fortune 500) with its 'Green Works' line of cleaning products, bring them to Wal-Mart. (Kistler says they are selling well.) Other efforts begin inside Wal-Mart, which has learned that by eliminating packaging and waste, it can sell products at even lower prices to its customers.

Kistler told me that the current economic slump will not get in the way of Wal-Mart's sustainability initiative, which has been underway since the fall of 2005. (See The Green Machine at fortune.com.) It has been gathering steam ever since; the company's 1.9 million employees have been encouraged to embrace their own personal sustainability projects, or PSPs, which can include carpooling, recycling, getting more exercise or eating less meat.

"If anything," Kistler said, "I wish we'd started all out efforts years earlier because then we'd be further ahead."

Consider, as an example, a product called Majestic Rubber Mulch that Wal-Mart began selling in March. It's a mulch made from recycled tires - tires from its auto and lube shop that, in the past, would have been be carted away. Now Wal-Mart has eliminated that cost, and turned it into a revenue center by selling the old tires to a company that turns them into what Wal-Mart says is a non-toxic, latex-free mulch that can be used for playgrounds, pools, pond areas or gardens. The mulch nuggets sell from $5.47 for a 20-lb bag.

"We collect a lot of old tires," Kistler said. "We had to find an outlet for them. We are seeing ways to make money from waste."

Packaging has been another key focus. Smaller containers of concentrated laundry detergent save plastic (which comes from oil), water, fuel, shipping cost and shelf space. What's not to like? Those once-familiar oversized jugs of Tide and All are no longer sold at Wal-Mart.

Wal-Mart now asks vendors to rate themselves on a "packaging scorecard" that measures such factors as the ratio of package size to product, whether the package uses recycled material and whether the package can be recycled or otherwise reused. The company is looking at a variety of packaging innovations, ranging from DVD cases made of potatoes to eliminating oversized packages for small, expensive items (like flash drives or print cartridges) by having them dispensed from kiosks or at the checkout counter.

Wal-Mart has learned that consumers are enthusiastic about so-called green products, so long as they don't cost more that conventional alternatives. The company has sold nearly 200 million CFL bulbs, organic cotton has been a hit and buyers in the produce departments are finding ways to buy from nearby farmers if possible.

Buying locally-produced food saves the company shipping costs and reduces its carbon footprint. "The consumer gets a better tasting, fresher item," Kistler says. "It's a win-win-win across the board."

Kistler joined Wal-Mart in 2003, after working at General Foods, Oscar Mayer and Kraft, marketing coffee, meats and cheese. He was asked in 2005 to lead Wal-Mart's packaging network, where he worked with suppliers and nonprofits to come up with a system to reduce and improve packaging. Last fall, he left his job as a marketing executive at Sam's Club to work full-time on sustainability.

He told me that his introduction to the world of green business came in 1999 when, as a marketer of coffee for Kraft, he got a call from the food services company that supplied the dining halls at Yale University. Students there wanted coffee that was certified as fair-trade and environmentally friendly, so Kistler was able to get a Kraft product approved by a nonprofit called the Rainforest Alliance. "My introduction was about fixing a business problem - we had an unhappy customer," he remembered. Becoming more sustainable was good for the business, he said, and the same is true at Wal-Mart. It's become a way to cut costs, save customers money and sell products that are better for them and for the environment.