SYSCO CORP-Dominance in the Food Service Industry

SYSCO CORP-Dominance in the Food Service Industry
Name
Institution
ABSTRACT
By June 30 2012, Sysco was serving 185 facilities in the US and abroad. The square footage for both cold storage and dry storage during this period totalled to 13,109 and 12,465 thousand square feet respectively. 83.2% of these square feet were owned by Sysco while the rest belonged to leasing firms. By 15th august 2012, the common stock of Sysco was owned by a recorded 13,529 people. Compared to 2011, the sales for Sysco increased by 7.8%. This follows a previous improvement of sales by 5.6% between 2010 and 2011. The operating income for 2012 was $1.9 billion, down by 2.1% from the 2011 fiscal figures. In the same period, the operating income decreased by 4.5% as compared to sales. These decreasing figures were attributed to Sysco’s Business Transformation Project. During the 2011 to 2012 fiscal period, the gross profit dollars for the company increased, mainly due to increased sales. When it came to net earnings, there was a reduction of 2.6% and this is due to the Business Transformation Project as noted above. As for earnings per share in 2012, there was also a decrease of 2.6% compared to 2011. In 2012, diluted and basic share prices were at $1.90 and $1.91 respectively. There was also a decrease of the share prices in 2011 compared to the previous year. The Business Improvement Project was still the cause of this reduction in price.
MAIN BODY
SYSCO CORP- Dominating the Food Service Industry for 4 Decades
Introduction
Sysco is the major player in the US food service industry where it has thousands of customers in restaurants, schools, hospitals, and other institutions. The restaurant industry has faced some challenges of late but the company has managed to remain relevant in this sector. Even in the last quarter, the company posted some impressive report. (Graph)While Sysco has been the dominant force in this industry, having been in operation for four decades, it could not have survived all those years were it not for its resilience. What makes Sysco so defiant in a market full of ups and downs?
The purpose of this paper is to research on economic performance of SYSCO CORP and outline the major factors that have contributed to this. The factors that will be discussed include competitive advantage, managerial staffing, and a wide market reach.
SYSCO limited is a renowned food distributor in North America. It is the largest company dealing in food service distribution and marketing in the country. The company started in 1969 and since then, it has grown to have branches in 150 major cities in the United States, as well as Canada and Alaska. With so many distribution points, SYSCO is able to serve facilities such as hotels, schools, hospitals, restaurants and many others. Since its inception, the company has enjoyed steady growth, with annual income and sales increase estimate of 20%.
SYSCO traces its emergence from food distributors of the 1960’s in Houston, Texas. John Baugh is hugely created for the birth of SYSCO, from the time he was a part time worker at a ranch in Houston in his high school days. With his Zero Foods Company of Houston, Baugh brought on board eight other food companies owners to form a nine company outfit. The affiliate companies were: Louisville Grocery Company, Texas Wholesale Grocery Corporation, Frost-Pack Distributing Company, Thomas Foods, Plantation Foods, Global Frozen Foods, Inc, Wicker, Inc, Houston’s Food Service Company, and Justrite Food Service, Inc.
The first acquisition for SYSCO came in 1970 in the name of Arrow Food Distributor. When making such acquisitions, the company made a number of considerations, the chief one being geographical position. This was in line with the founder’s aim of giving uniform services across the United States.
The company is listed on the New York stock exchange with a market capitalization of $20.9 billion with about 18% of the market under it; Sysco controls a business worth $235 billion. (Factsheet)
Swot Analysis Of Sysco Corp
Strengths
One of the key drivers of Sysco’s success is its rich leadership which is composed of professionals who have been in the business for more than 17 years. Some of the administrators have even stayed with the company for over 30 years. Since most of these people have risen through the ranks of the company to hold the present positions, they understand the intricate operations of the food service giant.
Sysco draws some of its strength from its payment plan, whereby most of the remuneration is performance-based. This structure ensures that everyone in the firm has a common goal; to ensure the growth of the company. Additionally, the company’s leadership has a clear separation, with the presence of both the board of director’s chairman and Chief Executive Officer (CEO) of the company. When in 2009 the company saw the danger of collision between the two positions, it went ahead to specify roles for each.
Sysco has a well established market in the United States, Canada, Alaska, and also in Ireland. The company supplies food for hospitals, schools, restaurants and many other facilities in these regions. With such a diverse market for its products, the future of Sysco appears to be secure in terms of clientele. The strategies used by Sysco competitors don’t seem to work as efficiently.
Even since Sysco was founded back in 1969, it has been involved in 169 mergers, with many more in the offing. Merging is a worldwide trend whereby corporations seek to increase their market reach or diversify their products. Unlike many other major corporations, Sysco has concentrated on smaller outfits within the same line of business to build itself. Being able to draw maximum benefits from mergers is one characteristic that differentiates Sysco from its competitors.
The food industry has many players but Sysco has maintained a strong lead over its rivals. Its strong distribution network all over the country enhances the growth of the company in two ways; increasing the performance and lowering costs. (Data Monitor, 2010) Having a strong distribution market has enabled the company to remain as the market leader for a long time. Therefore, Sysco has a competitive advantage over its rivals in the food service industry. (One Source, 2011)
In summary, Sysco has competitive advantage in the following ways as recorded on Sysco website;
The market is highly fragmented yet Sysco enjoys an 18% share
Sysco has one of the most experienced and skilled sales force in the industry
The brand Sysco is differentiated
Sysco continues to invest into its business
Has a very efficient and knowledgeable customer care sector
In terms of market leadership, this is how Sysco has managed to hold on;
Has been in the food service for 40 years and has been successful all through
Has a wide range of products, totalling to about 400,000 while the branded ones are 40,000
It is the only major food service firm in the United States.
Has emphasised on operational efficiency for all the years.
Weaknesses of the Company
Sysco has penetrated most of the United States and parts of Canada and Europe but it is still to lay its footprints on the world map. Looking at its 2010 revenue, most it (85%) came from the American market while the Canadian market stood at 9 %.( Sysco, 2010) Overreliance on the domestic market could is one drawback that this firm grapples with. The domination of Sysco in America is a big advantage but considering that it is yet to maximise on European and Asian markets, its growth and return rate could be better.
Opportunities
Sysco could benefit a lot if it penetrates the international markets and expand on its United States revenue base. Great opportunities are available in countries such as Japan and Asia, where the potential for returns and growth is big. Sysco has been involved in a number of acquisitions in the past and this has worked so well. The company could apply the same strategy, especially when going into the still untouched markets in Asia and Europe. Apart from strategic acquisitions, the specific health concerns of the consumers provide another opportunity for the growth of the company. Today, many people are wary of chemically treated and manufactured foods. If Sysco could find a way of venturing into organic foods, it could reap from this.
Threats
Sysco, being a large company, has its own share of risks. The company has many clients within and outside the United States. In most of its daily operations, Sysco makes a lot of product transportation, thereby making transportation costs one of the main expenses in the company.
Nowadays, oil prices are ever fluctuating and a business such as Sysco’s is always at risk of being affected by these price uncertainties. To be on the safe side, a company has to use preventive measures. Sysco relies on the forward purchase contracts strategy to stay safe from the effects of fluctuating diesel prices.
As a major company, Sysco is liable to effects of government regulations which are not predictable. Even as it seeks to spread its influence in other countries, it will meet restrictions and regulations.
Still on government regulations, the cost of doing business is high due to minimum wage requirements. Longley (2010) notes that the minimum wage in America is $7.25 per hour and could still increase in the near future.
On competition, Sysco is under the challenge of other established firms for example US Foodservice Inc. and Meadowbrook Meat Company. Although Sysco is a chief distributor for many other firms, it faces competition from other distributors spread across the nation.
Data Analysis
Financial statements
Sysco has been in existence for over 4 decades and in this time, the company has strengthened its grip on the market. In the coming years, expectations are high that the company will continue to do well and remain stable. To measure the financial wealth of any corporation, it is advisable to assess its return on invested capital (ROIC). Two sources, Bloomberg and Morningstar have analysed the financial performance of Sysco and come up with figures. Morningstar found Sysco’s ROIC as 20% in some instances, but the average was slightly over 18.66% for the last ten years. On the other hand, the ROIC calculated by Bloomberg stood at more than 16.5% for the better part of from May 2007 to date.
Sysco seeks to make its operations more efficient in all its sectors. One of its strategies is minimising expenditures to maintain its positive net margin and continuous profitability.
Sysco has managed to concentrate its business in different regions and this helps improve the ratio of operating expenses/revenue. Considering that Sysco already enjoys a huge market share, it is very difficult for another firm to dislodge Sysco off the driving seat. The company has continued operating successfully and profitably for the last few years.
Financial success is also measured along the cash flow line, where Sysco has consistently performed well. Data shows that cash flows for 2009 financial year were quite positive. It was only in 2010 that some few cash challenges were experienced leading to a decline in cash flow. In 2010, Sysco lost $528 million in the form of a payout for deferred taxes. Internal revenue service claimed this money had accrued...