Sysco's diversity is sign of its successful expansion

(This exclusive ID interview with Richard J. Schnieders, president and coo of Sysco, Inc., Houston, was conducted exactly two weeks after the terrorist attacks on America.)

With the traumatized nation still agonizing over the full impact of the deplorable terrorist attacks on America, the reassuring message from at least this industry summit is: patience, business will get better.
"I personally think that in a relatively short period of time we're going to see a move back to normalcy and we will see restaurant traffic improve once again and we will see hotel occupancy improve," observes Richard J. Schnieders, president and coo of Sysco, Inc., the largest foodservice distributorship in North America.
Schnieders is seated in his spacious Houston office as he unfolds in a steady and confident tone his thoughts about the recuperative strength of the foodservice industry. To be sure, the pain will not soon subside and certain segments of the economy, such as the airline industry and tourism, will take longer to recover. Nonetheless, the foodservice industry, which had been experiencing a slowdown before the horrific events of September 11, 2001, will gradually regain its strength, he points out. Schnieders recognizes that prior to this dual calamity consumers had already begun redirecting their disposable income from a national scale to a hometown level.
"The national parks' traffic was down 7-8 percent but the state parks' business was up significantly in a corresponding amount. We may see folks stick a little closer to home but still participate in the foodservice industry to a healthy activity level," he believes.
Business will not come easily in the short term for Sysco, which recorded sales of $21.8 billion in the fiscal year that ended June 30, Schnieders notes, saying that "we'll have our work cut out for ourselves." However he is optimistic in long term.
"We are so geographically dispersed today, we are so customer diverse and product diverse that, although we can't be oblivious to the things that are going on, we certainly think that diversity and dispersion mitigate the impact. We feel good about the industry and we feel good about our business," Schnieders says.
Besides the problems of the airline industry, other segments of Sysco's business are faring better, among them schools, colleges, healthcare, prisons and certain restaurants, Schnieders details. While he concurs with the reported revised industry outlook that now foresees flat growth for 2001 and next year, Schnieders thinks that the industry now is operating in a more normal business climate. According to him, independent operators are the shining stars in this otherwise cloudy forecast. "We find the independent restaurant operator, in general, is able to move more quickly then, perhaps, a chain, which, by definition, has to make decisions in corporate headquarters which have to filter through the corporate structure. Independent operators can change every night, they can change pricing, they can go to fixed-price meals to respond to the marketplace. Many of them have increased their takeout business. You see a lot of flexibility and I am optimistic enough to think that we're going to experience that innovation in the industry and people are going to respond," Schnieders foresees.
In order to boost business, Schnieders offers two suggestions. He believes that the Dine Out for America campaign that was held Thursday, October 11, is a good example of a grassroots project that could have beneficial results.
"Long term, I think that we, as an industry, need to think more about several issues, but in general bolstering the image of the industry in the minds of potential employees," Schnieders says. " I think that the foodservice industry is such an exciting and varied industry and collectively we're not doing a good job of getting the message out."
The broadliner executive urges the foodservice industry to boost the image of the industry in order to attract a new, professional breed of employees and then to provide them with appropriate rewards.
Would consumers return to a revitalized foodservice industry? Schnieders is convinced they would.
"All of the demographic and psychographic trends that we've seen over the past 30-plus years don't change. We still have a two-income household, an aging population. We see new trends popping up in the industry, with generation X and beyond. They're not going to eat at home, they're not going to cook, nor do they know how to cook. This is a new generation that's definitely going to avail itself of foodservice in one form or another. I think that in the long term, it's very, very bright," Schnieders claims.
In Sysco's case, America's leading distributorship has managed to devise a strategic plan that has kept it on a perennial growth path. Sysco posted a 30-percent earnings per share increase in fiscal 2001. The previous fiscal year's financial tallies marked a quarter of a century of uninterrupted sales and earnings increases. Schnieders attributes this enviable track record to Sysco's "improving focus on our customers and customer relationship management." Using a datamining technology, he explains, Sysco has been able to collect "substantial, additional knowledge of our customers with which we were able to more effectively target our activity, whether marketing activities, operational activities or deliveries."
"We're just better today. We know our business better, we know our customers better and we know how to match Sysco with our customers better than we ever have," Schnieders says. This has also allowed Sysco to develop product diversity and penetrate niche markets, such as Italian, Mexican and deli. All of this is expected to contribute to a real sales growth of 6-10 percent, he points out, "and then add to that acquisition growth."
Chairman and ceo Charles H. Cotros, in a recent corporate press release has stated that Sysco has a goal of attaining a 60 percent level of private-brand products and Schnieders says that plateau is reachable. He says that in the marketing-associates or DSR-served business, the Sysco brand accounts for 54-55 percent of the dollar volume but it drops to 40 percent when taking into account the company's entire product mix. Schnieders says that the Sysco private-label brand is a value-added product, which enjoys "acceptance and preference." Based on an independent study, he continues, the Sysco brand has been recognized as No.1 in certain categories.
"We're really dedicated to the product and the reason we've been so successful is that we spend so much time, money and energy on quality assurance. You can't build a brand without quality assurance. And we've done that," he said, adding that Sysco's standards are higher than those of the USDA.
Sysco is also not bashful about its voracious acquisition appetite. While he quoted Cotros as saying that with a 12 percent domestic marketshare, there is ample opportunity for growth in the United States, Schnieders admits that overseas expansion is not beyond its sights. "We are also not ignorant of the fact that we work in a global economy and we have to make sure we understand what's going on around the world. To that point we continue to do research but there are no immediate plans to go to Europe or anywhere else offshore. We continue to do fairly extensive research in terms of the opportunities worldwide, Europe being the obvious one because the demographics there are so close to the U.S.," he explains.
Schnieders says Sysco is continuously looking to acquire specialty meat and produce companies as well as hospitality businesses. He notes that not all of the broadliner's operating companies are covered in those categories so "we'll continue to look for good, solid partners."
Turning to the broad theme of acquisitions in the foodservice industry, Schnieders offers a non-alarmist view of its disruptive effects. He does not see a significant change in the industry do to consolidation nor does he a serious reduction in the number of his competitors. "If 1,000 distributors disappear there will be 900 new ones," he believes.
The company's bullish confidence in an impending upturn in business is substantiated by its recent federal regulatory filing that it expects capital expenditures of $425-$450 million in 2002. The broadliner spent $341 million in fiscal 2001 on facility expansions, fleet additions and other enhancements. "We're continuing to invest in every level of our business, whether its acquisitions, foldouts, technology. In terms of our long-term view and our investment strategies, we haven't changed anything. We're very bullish about business," Schnieders says.


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