Loftin, William

English

Research Papers in Economics

CHANGING STRUCTURE OF FOOD DISTRIBUTION
(Food Processing, Distribution, Retailing)
Moderatoc R. Handy, USDA-ERS, Washington, D.C.
The Structure of the Food Service Sector:
The Sysco Experience
by
William Loftin
Director, Sysco Brand Marketing
Sysco - Food Services
Houston, TX
Good afternoon! It’s not only a pleasure
to be here, but I believe it’s important to be
here as well. The food service industry has seen
many changes and opportunities in recent years.
And because of that, it’s critical that we com-
municate openly in forums such as this,
Today, all over America, people will eat
millions of meals that are not prepared at home.
They’ll eat in five-star restaurants, cafeterias,
mess halls, and quick-serve restaurants. They’ll
eat on airplanes and in prison dining halls.
They’ll eat in hospitals and convalescent homes,
at company snack bars and sporting event con-
cession stands. And whether their meals are
special events in themselves or simply basic
nourishment, the food service distributor will
play a very important role--bridging the gap
between the food producer and the consumer.
As business and industry go, food service
distribution is a newcomer. It’s still in its form-
ative years with a promising future. And Sysco
is positioned to share in that future!
As consumers we spent more than $190
billion for food prepared away from home in
1986. And we will spend even more in the
future. Over the next five years, food service
industry sales are expected to grow by nearly 3
percent annually, as consumers continue to
direct more and more of their dollars to food
prepared away from home. Some projections
for 1990 indicate that nearly 50 percent of food
dollars will be spent on meals prepared outside
the home.
Providing food, supplies, equipment and
consulting services to those who prepare these
meals is the business of food service distribu-
tion.
Distribution is simple, yet it’s complex.
It’s competitive and diverse. One thing is cer-
tain--the business of distribution is dynamic
and continually evolving to meet a broad range
of customer needs, These words--competitive,
dynamic and evolving--all describe this coun-
try’s 85 billion dollar national food service dis-
tribution world--the distributor’s total market
opportunity,
As an industry, food service distribution
is not easily defined, primarily because there
are so many and diverse distributors, and there
are so many different approaches by the
approximately 3,500 food service distributors
throughout the nation. In the United States, the
top ten food service distributors are full-line,
broad market, generalist companies delivering
product to customers in a wide geographical
area.
In addition to the generalists, there are
food service distributor specialists. These com-
panies may sell to limited-menu, multi-unit
Journal of Food Distribution Research February 89/page 17chains like pizza restaurants or delis and restrict
the number of products they handle. Or they
may specialize in one product line to many
market segments like a supplies and equipment
distributor or a produce distributor.
Variations on these themes are numerous
and account for tremendous diversity. Yet
together they represent a massive vibrant in-
dustry which satisfies the need for an ongoing
dependable supply of food and related products,
so critical to the success of any food service
operation.
The food service distribution industry is
currently undergoing a classic consolidation.
Acquisitions by the top five generalists are de-
creasing the number of distributors in the
marketplace. This consolidation also decreases
the number of members in CO-OPpurchasing
groups.
Sysco has played its part in this consolida-
tion process. Sysco, which reported revenues in
excess of $4 billion in our fiscal year which
ended July 2, 1988, agreed to acquire
CFS/Continental, the nation’s third largest food
service distributor on June 6, 1988. This
acquisition creates an organization that will
market and distribute to customers throughout
the entire contiguous 48 states with projected
sales of nearly $7 billion in 1989. Today, there
are only five organizations providing food ser-
vice distribution in our country which have
annual sales volumes in excess of $1 billion.
Although more than twice the size of our lead-
ing competitors, Sysco’sestimated market share
is only 7 percent. The top 50 distributors cur-
rently account for only 18 percent of the mar-
ket.
Now I would like to discuss our procure-
ment program and why we market our Sysco
brand.
We are very proud of the group of pro-
fessional quality assurance, merchandising and
marketing staff members that we have
assembled. They are among the best in the
industry and they are dedicated professionals
who add to the profitability of Sysco corpora-
tion. In 1981 Sysco made a major commitment
to the development of a program for product
procurement and marketing. At that time our
staff resources and, therefore, our ability to
develop profitable programs were limited. In
the spring and early summer of 1981 an
organization called Compton Foods Association
was formed. This organization was created to
provide real strength to Sysco procurement.
Prior to the founding of Compton Foods in
1981, the Sysco management team had wrestled
with a dilemma. All of our major competitors
were in the manufacturing business. Most of
their efforts centered around the marketing of
their manufactured products which, of course,
offered them opportunities for profit from both
distribution and manufacturing.
At Sysco we are, and always have been,
dedicated to our customers. Sysco was con-
cerned that were we to pursue manufacturing
and food processing opportunities we would lose
our focus on our primary business. The
Compton Foods program was undertaken to
develop total quality and consistency as well as
to properly price and market the products under
our Sysco label, now our Sysco brand.
The first project undertaken by the fledg-
ling organization was the management of the
Sysco frozen potato program. French fried
potatoes is a large category and, therefore, an
important one to many of our customers.
The program’s inception (under the old
Sysco label program managed by our manufac-
turers) in 1977 began with three million pounds
of product; for the first fiscal year of 1981
under Compton we achieve 8MM pounds of
product. In the coming fiscal year we are pro-
jecting slightly over 120MM pounds of product.
We believe that this growth demonstrates the
effectiveness of proper management and devel-
opment of a branded program. Today, Sysco
brand potatoes are the leading new brand of
potatoes in the food service market.
Between 1981and 1987Compton operated
as a separate operating company with a number
of office locations. In 1987 Sysco had the
opportunity to acquire a new building in
Houston, Texas on a very favorable basis and
with sufficient space to house all of our Sysco
personnel. At that time it was decided to move
the entire procurement organization and the
corporate offices and integrate them into our
corporate programs. This step was a natural
evolution of growth and development of Sysco
brand programs.
Not only do we now have the advantage
of having our key staff under one roof to foster
better communication, but we were able to
eliminate some duplication of efforts and to
reduce the total staff in our procurement area
by 20 percent.
Today approximately one-third of all the
products marketed by Sysco companies are mar-
February 89/page 18 Journal of Food Distribution Researchketed under Sysco brand. Slightly less than half
of all products marketed by Sysco companies are
part of procurement managed programs. This
includes not only Sysco brand, but a number of
nationally branded programs such as volume
incentive and growth programs with selected
major national brands.
Our Sysco quality assurance department
has responsibilities from establishing standards
to monitoring quality. The latter is what we
think is the more important item. Sysco quality
assurance operates with complete autonomy of
action.
While our commitment to quality assur-
ance staffing is significant, our approach is still
Sysco conservative. Wherever possible part-
time contract personnel are used for plant work.
Wefind a retired USDA person or plant quality
assurance manager to be both highly qualified
and highly motivated. Sysco enjoys the benefit
of their experience as well as the economy of
this approach.
Whether product evaluation takes place
in our own labs or on site in food processing
plants, our quality assurance group is constantly
striving for the consistency and quality for
which our various labels or Sysco brand has
become known.
The labeling concept is applied to numer-
ous products. The consistent use of the Sysco
logo at a 45 degree slant repeated across the
band has become the leading Sysco food service
brand in America.
As we move into the future, Sysco will
continual y introduce new programs and prod-
ucts while further enhancing the market pene-
tration of existing products,
Sysco Supreme Fry-on is such a product
that is now two years old. This premium frying
oil competes in a position no other distributor
private label has ever attempted. Dramatic
results with Sysco’shealth oriented long distance
frying oil have been notable. Today this is the
number one brand of premium frying oil sold
by sySCO.
No other category epitomizes the success
more than does Sysco poultry, As mentioned
earlier, only about one-third of SYSCO’S sales are
Sysco brand products. In the large and growing
poultry products category, over 75 percent of
total Sysco sales are under Sysco brands. Today,
Sysco sells over 85MM pounds of Sysco brand
turkey, chicken and other poultry products.
Sysco also has a custom product--Imperial
cleaned and cored lettuce. The product is
already trimmed, cored, and specially packed so
as to offer our customers real value. The Sysco
produce program began in 1983. At that time
produce was sold by several Sysco companies
but constituted less than 1 percent of Sysco
sales. Today produce is approaching 5 percent
of Sysco food service sales. And we are this
nation’s largest purchaser of produce.
Sysco imports started in May of 1983. At
that time we were able to bring in a qualified,
experienced, international manager. Since then
we have built a staff of professionals around
him.
Today Sysco imports products from some
29 countries, a total of 350 products, and redis-
tributes through two European redistribution
centers and two U.S. centers. The European
redistribution centers allow Sysco companies to
bring container loads directly to their dock with
multiple products. As an alternative they can
pull in straight container loads of product or
pull product through our Baltimore, Maryland,
in-transit warehouse.
Today, over two thousand containers of
product a year are sold through this program.
Whether it’s red meat, produce, canned
goods, or frozen desserts, chemical products or
pates, it is our goal to position Sysco as the
leading source to the food service industry,
Journal of Food Distribution Research February 89/page 19

THE STRUCTURE OF THE FOOD SERVICE SECTOR: THE SYSCO EXPERIENCE

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