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SYSCO Corporation

SYSCO Corporation

1390 Enclave Parkway
Houston, Texas 77077-2099
U.S.A.
Telephone: (281) 584-1390
Fax: (281) 584-2721
Web site: http://www.sysco.com

Public Company
Incorporated:
1969
Employees: 47,800
Sales: $30.28 billion (2005)
Stock Exchanges: New York
Ticker Symbol: SYY
NAIC: 422410 General Line Grocery Wholesalers; 422420 Packaged Frozen Food Wholesalers; 422480 Fresh Fruit and Vegetable Wholesalers; 422490 Other Grocery and Related Products Wholesalers

SYSCO Corporation (an acronym for Systems and Services Company) is the largest marketer and distributor of foodservice products in North America, holding a market share of approximately 14 percent. With more than 160 distribution facilities located throughout the contiguous United States and parts of Alaska, Hawaii, and Canada, SYSCO provides food and related products and services to approximately 390,000 restaurants, schools, hospitals, nursing homes, hotels, businesses, and other foodservice customers. Restaurant customers account for fully two-thirds of revenues. The company's line of products includes about 275,000 items, including fresh and frozen meats, seafood, poultry, fully prepared entrees, produce, canned and dry foods, desserts, imported specialties, paper and disposable items, china and silverware, restaurant and kitchen equipment and supplies, and cleaning supplies. Founded in 1969, SYSCO has grown steadily ever since, mainly through dozens of acquisitions of smaller distributors, with double-digit increases in sales and earnings nearly every year.

Founded Through Combination of Ten Distributors

John Baugh was the guiding force behind the founding of SYSCO. Baugh had grown up on a ranch near Waco, Texas, and got his start in the food business through a part-time job at a local A&P grocery store when he was in high school. He eventually founded Zero Foods Company of Houston, a Houston-based food distributor. In 1969 Baugh convinced the owners of eight other small food distributors to combine the nine companies, forming what he hoped to mold into a national foodservice distribution organization, one that would be able to distribute any food despite its regional availability. The other eight original companies were: Frost-Pack Distributing Company (Grand Rapids, Michigan); Global Frozen Foods, Inc. (New York); Houston's Food Service Company (Houston); Louisville Grocery Company (Louisville, Kentucky); Plantation Foods (Miami, Florida); Texas Wholesale Grocery Corporation (Dallas); Thomas Foods, Inc. and its Justrite Food Service, Inc. subsidiary (Cincinnati); and Wicker, Inc. (Dallas). The combined 1969 sales for the nine founding companies were $115 million.

SYSCO went public in 1970 and that year made its first acquisition, of Arrow Food Distributor. In its early years the company grew by acquiring a number of small foodservice distribution companies, carefully chosen for their geographic regions. These acquisitions helped to realize Baugh's early goal of providing uniform service to customers across the country. Throughout the 1970s SYSCO Corporation built many new warehouses to deal with this rapid expansion, later incorporating freezers into its warehouses and adding multi-temperature refrigerated trucks to transport produce and frozen foods.

During the 1970s SYSCO grew steadily except for a brief earnings drop in 1976 caused by a canned food glut and excessive start-up costs due to increasing capacity. One reason for such rapid recovery and regular growth was SYSCO's continuing diversification into new products, such as fish, meat, and fresh produce. In 1976 SYSCO acquired Mid-Central Fish and Frozen Foods Inc., expanding the company's distribution capabilities around the nation. In 1979 SYSCO's sales passed the $1 billion mark for the first time; by 1981 the company was rated as the largest U.S. foodservice distribution company. That year SYSCO set up Compton Foods in Kansas City to purchase meat, and began to supply supermarkets and other institutions with meat and frozen entrees.

1980s: Rapid Growth Through Acquisitions

In 1983 John E. Woodhouse, whom Baugh had hired as chief financial officer in September 1969, became CEO of SYSCO, with Baugh remaining chairman. The following year SYSCO continued its strategy of acquiring its competitors when it purchased three operations of PYA Monarch, then a division of Sara Lee Corporation. One of SYSCO's largest acquisitions occurred in 1988, when the company paid $750 million for CFS Continental, at that time the third largest food distributor in the country, which added 4,500 employees and increased the number of markets SYSCO served to 148 out of the top 150 markets. Although much of the United States and especially Texas experienced hard financial times during the 1980s, as a national company in a relatively recession-proof industry, SYSCO Corporation was not adversely affected.

SYSCO also made several smaller acquisitions of foodservice distributors in the late 1980s, including Olewine's Inc. (Harrisburg, Pennsylvania), which was renamed Sysco Food Services of Central Pennsylvania, Inc.; Lipsey Fish Company, Inc. (Memphis, Tennessee); Hall One Chinese Imports, Inc. (Cleveland); and Fulton Prime Foods, Inc. (Albany, New York). By the end of the decade, sales had reached $6.85 billion, making SYSCO twice as large as its closest competitor in foodservice distribution and second only to McDonald's in the overall foodservice industry. Despite its size and growth (through some 43 acquisitions since its founding), SYSCO accounted for less than 8 percent of overall foodservice distributor volume, a testament to the continuingly fragmented nature of the foodservice distribution industry, and evidence that SYSCO had plenty of room for future growth.

1990s: More Acquisitions, SYGMA, and the "Fold-out" Strategy

During the early 1990s, SYSCO made several additional acquisitions, increasing the company's geographic spread still further. Among the more important purchases were the 1990 acquisition of the Oklahoma City-based foodservice distribution business of Scrivner, Inc., which became Sysco Food Service of Oklahoma, Inc.; the 1991 acquisition of four of Scrivner's northeastern U.S. distribution businesses, including that of Jamestown, New York, which became Sysco Food Services-Jamestown; the 1992 acquisition of Philadelphia-based Perloff Brothers, Inc., which operated as Tartan Foods; and the 1993 acquisitions of the St. Louis Division of Clark Foodservice, Inc. (which became Sysco Food Service of St. Louis, Inc.) and of Ritter Food Corporation of Elizabeth, New Jersey (which was renamed Ritter Sysco Food Services, Inc.).

In 1991 SYSCO created a subsidiary called the SYGMA Network, Inc. to consolidate its chain restaurant distribution systems and improve its service to chain restaurants. By 1997 SYGMA consisted of 11 distribution centers serving customers in 37 states, and posted sales of $1.3 billion.

By 1995 Baugh had assumed the title of senior chairman (he retired in late 1997), Woodhouse was chairman, and Bill M. Lindig, who had joined the company in 1970, had become CEO. SYSCO revenues had grown to $12.12 billion, but the company still held less than 10 percent of the foodservice distribution market. That year, Lindig told the Houston Business Journal: "We could grow at 20 percent a year for the next five years and we'd still have only 20 percent of the market." (From 1978 to 1997, the company's compound growth rate was 16.4 percent.)

Also by this time, the company's management structure had grown somewhat unwieldy. SYSCO's operating companies, which by 1995 numbered 58, had always been allowed to function in a largely autonomous manner. This decentralized structure, however, meant that 58 operating company presidents were reporting directly to the corporate staff. With SYSCO expecting to soon have about 75 operating companies, corporate management decided to add four senior vice-presidents of operations, each of whom would have full responsibility for about ten SYSCO operating companies. Nineteen companies would still report directly to corporate headquarters.

In the late 1990s SYSCO slowed its pace of acquisition, although acquisitions were still seen as important for growth in selected new markets, particularly such far-flung areas as Alaska and Canada. In mid-1996 the company purchased Strano Foodservice of Peterborough, Ontario, which gave SYSCO a presence in the Toronto market, while Alaska Fish and Farm, Inc. was bought in early 1997. Beginning in 1995, however, SYSCO added a "fold-out" expansion strategy as an additional method of growth. This strategy involved developing a sales base in markets distant from an existing operation, then building a new distribution center, staffing it with transferred staff, and thereby creating a stand-alone operating company serving a new market. In 1995 SYSCO opened its first distribution center in Connecticut through this program. Over the next four years, "fold-out" operating companies were added in Tampa and Riviera Beach, Florida; Wisconsin; North Carolina; Birmingham, Alabama; and San Diego.

Company Perspectives:

SYSCO's MissionHelping Our Customers Succeed. It's the foundation of the decisions and actions taken by our employees on a daily basis.

Attention to detail, going the extra mile and simply being available for any need enhances the level of service each customer receives, and ultimately benefits customers in their daily endeavors to satisfy their patrons.

We are committed to our customers' success and to helping them achieve their goals. Maintaining outstanding service has become even more important as consumers embrace quality dining experiences as they enjoy meals away from home. Our responsibility is not taken lightlyour customers' success is vital to our success.

SYSCO posted record sales of $14.45 billion in fiscal 1997, along with record net earnings of $302.5 million. Although the company's growth had slowed somewhat in the 1990s as fewer acquisitions were made, the "fold-out" expansion strategy was still keeping SYSCO growing much faster than the foodservice industry as a whole. These trends continued through decade's end as profits reached $362.3 million on revenues of $17.42 billion. New fold-outs were being created about every six months, and several significant acquisitions were completed in 1999. As beef enjoyed a resurgence in popularity, SYSCO bought two leading purveyors of beef, Buckhead Beef Company, based in Atlanta, and Newport Meat Company, headquartered in Irvine, California. Also acquired that year was Doughtie's Foods, based in Portsmouth, Virginia, which was renamed SYSCO Food Services of Hampton Roads, Inc.

Early 2000s and Beyond

Lindig took on the additional role of chairman in 1999 but then retired the following year, when Charles Cotros became SYSCO's fourth CEO and chairman as well. Cotros, who had been the firm's president, had joined SYSCO in 1974. One of Cotros's first tasks was shepherding through one of the company's largest deals, the 2000 purchase of FreshPoint Holdings, one of the biggest distributors of wholesale produce in the United States. Based in Dallas, FreshPoint reaped annual sales of approximately $750 million selling to more than 20,000 customers, including restaurants, hotels, cruise ships, and wholesale grocers.

Early in 2001 SYSCO acquired a group of specialty meat supply operations in Texas, doing business under the names Freedman Food Service and Texas Meat Purveyors, that specialized in supplying fresh meat to upscale restaurants. The acquired businesses generated annual revenues in excess of $200 million. Next, SYSCO spent about $200 million to buy Guest Supply Inc., a New Jersey firm supplying guest-care and housekeeping items to hotels. Guest Supply's sales for fiscal 2000 totaled approximately $366 million. Significantly bolstering its presence north of the border, SYSCO bought Serca Foodservice from Sobey's, Inc. for about $280 million in early 2002. Based in Toronto, with annual sales of $1.4 billion, Serca provided 100,000 food products, as well as foodservice supplies and equipment, to 80,000 customers. SYSCO's Canadian distribution operation now covered the entire nation. In May 2002 the company opened its first niche fold-out: a Buckhead Beef branch that began providing fresh-cut meat to the New York metropolitan area. Broad-line fold-out operations were opened in Sacramento, California; Las Vegas; and Columbia, South Carolina, in 2002. In addition, SYSCO was working to expand the FreshPoint produce brand across North America. Late in the year SYSCO moved into the ethnic food market with the acquisition of St. Paul, Minnesota-based Asian Foods, Inc., the largest Asian food distributor in the United States, with annual revenues of more than $100 million.

At the beginning of 2003 Cotros retired and was succeeded as chairman and CEO by Richard J. Schnieders, who had moved up to president and COO since joining SYSCO in 1982. The company stayed the course under CEO number five, continuing its string of acquisitions, mainly seeking to fill in gaps in its geographic reach in the broad-line distribution sector in North America. In July 2004 SYSCO went further afield when it bought International Food Group Inc., of Plant City, Florida, distributor of supplies to quick-service chain restaurants in Central and South America, the Caribbean, Europe, Asia, and the Middle East. International Food reported 2003 revenues of $77.8 million. By late 2004 SYSCO had consummated 121 acquisitions over the course of its 35-year history.

To improve efficiency, SYSCO launched a national overhaul of its supply chain that included the construction of as many as nine regional redistribution centers over a ten-year period. These regional centers were designed to supply a number of SYSCO operating companies within a certain geographic area. The first, opened in February 2005 in Front Royal, Virginia, was slated to serve 14 broad-line SYSCO companies in the firm's northeast region (which encompassed Virginia, Maryland, Delaware, Pennsylvania, New Jersey, and western New York State). Schnieders called this "the largest strategic project in SYSCO's history." In August 2005 SYSCO announced that it had selected Alachua, Florida, as the site for its second redistribution center, which would serve the Southeast with an anticipated opening in the fall of 2006.

Key Dates:

1969:
John Baugh, owner of Zero Foods Company of Houston, is the guiding force behind the creation of SYSCO Corporation from the combination of nine small food distributors.
1970:
SYSCO goes public and makes its first acquisition, Arrow Food Distributor.
1979:
Revenues surpass $1 billion.
1981:
SYSCO becomes the largest U.S. foodservice distribution company.
1988:
CFS Continental is acquired.
1991:
SYSCO creates a subsidiary called the SYGMA Network, Inc. to consolidate its chain restaurant distribution systems.
1995:
Company launches its "fold-out" expansion strategy as an additional method of growth.
2000:
SYSCO acquires FreshPoint Holdings.
2002:
Canadian operations are vastly enlarged through the purchase of Serca Foodservice.
2005:
The first SYSCO regional redistribution centers open.

By fiscal 2004 SYSCO's steadily rising revenues had reached $29.34 billion, a 12.2 percent increase over the previous year, while earnings rose 16.6 percent, to $907.2 million. Fourth-quarter profits, however, failed to meet Wall Street expectations in part because of a high rate of inflation on the food it bought from suppliers. To control expenses during the next fiscal year, SYSCO cut 1,500 jobs from its payroll late in 2004. SYSCO managed to achieve gains in both sales and earnings for the 29th straight year in fiscal 2005, but the gains were very small, 6 percent for earnings, which totaled $961.5 million, and just 3.2 percent for revenues, which nevertheless passed the $30 billion mark for the first time. SYSCO was likely to keep a close eye on expenses while continuing to emphasize customer service and relying on its strong management team, a team that had been strengthened over the years by a company policy of retaining the managers of acquired firms, to keep the firm moving forward. SYSCO was well-positioned to maintain its record of steady increases in its share of the foodservice distribution sector, which had reached 14 percent by 2005.

Principal Subsidiaries

Abbott SYSCO Food Services; A.M. Briggs Inc.; Baugh Northeast Co-op, Inc.; Buckhead Beef Company; Buckhead Beef Florida; Buckhead Beef Northeast; Freedman Meats, Inc.; Freshpoint, Inc.; Fulton Provision Company; Guest Supply, Inc.; Hallsmith Sysco Food Services; Hardin's Sysco Food Services, LLC; Lankford Sysco Food Services, LLC; Malcolm Meats; Nobel Sysco Food Services; Pegler Sysco Food Services Company; Robert Orr Sysco Food Services Company, LLC; Robert's Sysco Food Services, Inc.; SYGMA Network, Inc.Columbus Central; SYSCO Asian Foods, Inc.; SYSCO Food Services of Alaska, Inc.; SYSCO Food Services of Albany; SYSCO Food Services of Arizona, Inc.; SYSCO Food Services of Arkansas, LLC; SYSCO Food Services of Atlanta, LLC; SYSCO Food Services of Austin, LP; SYSCO Food Services of Baltimore; SYSCO Food Services of Baraboo; SYSCO Food Services of Central Alabama, Inc.; SYSCO Food Services of Central California, Inc.; SYSCO Food Services of Central Florida, Inc.; SYSCO Food Services of Central Pennsylvania, LLC; SYSCO Food Services of Charlotte, LLC; SYSCO Food Services of Chicago, Inc.; SYSCO Food Services of Cincinnati; SYSCO Food Services of Cleveland, Inc.; SYSCO Food Services of Columbia; SYSCO Food Services of Connecticut; SYSCO Food Services of Dallas, LP; SYSCO Food Services of Detroit, LLC; SYSCO Food Services of Eastern Wisconsin; SYSCO Food Services of Grand Rapids, LLC; SYSCO Food Services of Gulf Coast, Inc.; SYSCO Food Services of Hampton Roads, Inc.; SYSCO Food Services of Houston, LP; SYSCO Food Services of Idaho, Inc.; SYSCO Food Services of Indianapolis, LLC; SYSCO Food Services of Iowa, Inc.; SYSCO Food Services of Jackson; SYSCO Food Services of Jacksonville, Inc.; SYSCO Food Services of Jamestown; SYSCO Food Services of Kansas City, Inc.; SYSCO Food Services of Las Vegas; SYSCO Food Services of Los Angeles, Inc.; SYSCO Food Services of Louisville; SYSCO Food Services of Metro New York; SYSCO Food Services of Minnesota, Inc.; SYSCO Food Services of Montana, Inc.; SYSCO Food Services of New Mexico; SYSCO Food Services of New Orleans, LLC; SYSCO Food Services of Northern New England, Inc.; SYSCO Food Services of Oklahoma, Inc.; SYSCO Food Services of Philadelphia, LLC; SYSCO Food Services of Pittsburgh, Inc.; SYSCO Food Services of Portland, Inc.; SYSCO Food Services of Sacramento, Inc.; SYSCO Food Services of St. Louis, LLC; SYSCO Food Services of San Antonio, LP; SYSCO Food Services of San Diego, Inc.; SYSCO Food Services of San Francisco; SYSCO Food Services of Seattle, Inc.; SYSCO Food Services of South Florida, Inc.; SYSCO Food Services of Southeast Florida, LLC; SYSCO Food Services of Spokane; SYSCO Food Services of Syracuse; SYSCO Food Services of Ventura, Inc.; SYSCO Food Services of Virginia, LLC; SYSCO Food Services of West Coast Florida, Inc.; SYSCO Intermountain Food Services, Inc.; SYSCO Newport Meat Company; Watson Sysco Food Services, Inc.; North Douglas SYSCO Food Services, Inc. (Canada); SYSCO Canada; SYSCO Food Services of Atlantic Canada; SYSCO Food Services of Calgary (Canada); SYSCO Food Services of Central Ontario, Inc. (Canada); SYSCO Food Services of Edmonton (Canada); SYSCO Food Services of Ontario, Inc. (Canada); SYSCO Food Services of Quebec (Canada); SYSCO Food Services of Regina (Canada); SYSCO Food Services of Sturgeon Falls (Canada); SYSCO Food Services of Thunder Bay (Canada); SYSCO Food Services of Toronto (Canada); SYSCO Food Services of Vancouver, Inc. (Canada); SYSCO Food Services of Winnipeg (Canada); SYSCO HRI Supply, LTD. (Canada); SYSCO I & S Foodservices, Inc. (Canada); SYSCO Ontario Produce, Inc. (Canada).

Principal Competitors

U.S. Foodservice, Inc.; Performance Group Company; Gordon Food Service.

Further Reading

Anders, K.T., "SYSCO's Strategy," Supermarket Business, September 1998, p. 182.

Bagamery, Anne, "'Don't Sell Food, Sell Peace of Mind,'" Forbes, October 11, 1982, p. 58.

Civin, Robert, "Sysco: Distribution's $7-Billion Entrepreneur," Institutional Distribution, April 1990.

"Distribution's Multi-Branch Giants," Institutional Distribution, October 1985, p. 169.

Fisher, Daniel, "Little Things Mean a Lot for Giant Sysco," Houston Business Journal, August 18, 1995, p. 24.

Geelhoed, E. Bruce, The Thrill of Success: The Story of SYSCO/Frost-Pack Food Services, Incorporated, Muncie, Ind.: Bureau of Business Research, College of Business and Department of History, Ball State University, 1983, 96 p.

"Great Distributor Organization Study: SYSCO Corporation," Institutional Distribution, June 1980.

Greer, Jim, "First in the Food Chain," Houston Business Journal, April 28, 2000, p. 16A.

, "Sysco Stock Hits Record High, Emerges from Cisco's Shadow," Houston Business Journal, March 5, 2004.

Harrison, Dan, "Sysco Eyes $10 Billion," Institutional Distribution, April 1989, p. 52.

Hassell, Greg, "The Sage of Sysco: Retired Founder Still at Work," Houston Chronicle, July 10, 1998.

, "Sysco's President Will Be Its Next Chief Executive," Houston Chronicle, November 6, 1999.

, "Sysco Will Purchase FreshPoint," Houston Chronicle, January 8, 2000.

Jones, Jeanne Lang, "Keeping Sysco on Course," Houston Post, January 8, 1995.

Kreimer, Susan, "Sysco to Expand Presence in Canada," Houston Chronicle, December 6, 2001.

Lawn, John, "Sysco's Strategy: 'Divide and Multiply,'" Foodservice Distributor, January 1995, p. 32.

Loeffelholz, Suzanne, "Voracious Appetite: Sysco's Ability to Digest Its Acquisitions Can Only Mean More Deals Ahead," Financial World, April 18, 1989, p. 72.

Mack, Toni, "V.P.s of Planning Need Not Apply," Forbes, October 25, 1993, p. 84.

Reiter, Jeff, "Sysco and Dairy," Dairy Foods, October 1995, p. 113.

Ruggless, Ron, "John F. Woodhouse," Nation's Restaurant News, January 1995.

Salkin, Stephanie, "Sysco's Schnieders Previews Growth Agenda," ID, May 2002, pp. 17-18.

"SYSCO Corporation: Serving Up Steady Growth," Better Investing, December 2004, pp. 36-38.

"Sysco Corporation: Since 1980," Institutional Distribution, September 15, 1986, p. 60.

"Sysco: Swallowing Up Its Competitors to Grow in Food Distribution," Business Week, August 17, 1981, pp. 116+.

                                  update: David E. Salamie

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SYSCO Corporation

SYSCO Corporation

1390 Enclave Parkway
Houston, Texas 77077-2099
U.S.A.
(281) 584-1390
Fax: (281) 584-2880
Web site: http://www.sysco.com

Public Company
Incorporated:
1969
Employees: 32,000
Sales: $14.45 billion (1997)
Stock Exchanges: New York
Ticker Symbol: SYY
SICs: 5141 Groceries, General Line; 5149 Grocers & Related Products, Not Elsewhere Classified

SYSCO Corporation (an acronym for Systems and Services Company) is the largest marketer and distributor of foodservice products in North America. With 70 distribution facilities serving more than 150 of the largest cities in the continental United States and parts of Alaska and Canada, SYSCO provides food and related products and services to approximately 270,000 restaurants, schools, hospitals, nursing homes, hotels, businesses, and other organizations. The companys line of products includes about 200,000 items, including fresh and frozen meats, seafood, poultry, fruits and vegetables, baked goods, paper and disposable items, chemical and janitorial products, beverages, dairy foods, and medical supplies. Founded in 1969, SYSCO has grown steadily ever sincemainly through dozens of acquisitions of smaller distributorswith annual increases in sales and earnings of 20 percent almost every year.

Founded Through Combination of Ten Distributors

John Baugh was the guiding force behind the founding of SYSCO. Baugh had grown up on a ranch near Waco, Texas, and got his start in the food business through a part-time job at a local A&P grocery store when he was in high school. He eventually founded Zero Foods Company of Houston, a Houston-based food distributor. In 1969 Baugh convinced the owners of eight other small food distributors to combine the nine companies, forming what he hoped to mold into a national foodservice distribution organization, one that would be able to distribute any food despite its regional availability. The other eight original companies were: Frost-Pack Distributing Company (Grand Rapids, Michigan); Global Frozen Foods, Inc. (New York); Houstons Food Service Company (Houston); Louisville Grocery Company (Louisville, Kentucky); Plantation Foods (Miami, Florida); Texas Wholesale Grocery Corporation (Dallas); Thomas Foods, Inc. and its Justrite Food Service, Inc. subsidiary (Cincinnati); and Wicker, Inc. (Dallas). The combined 1969 sales for the nine founding companies were $115 million.

SYSCO went public in 1970 and that year made its first acquisition, of Arrow Food Distributor. In its early years the company grew by acquiring a number of small foodservice distribution companies, carefully chosen for their geographic regions. These acquisitions helped to realize Baughs early goal of providing uniform service to customers across the country. Throughout the 1970s SYSCO Corporation built many new warehouses to deal with this rapid expansion, later incorporating freezers into its warehouses and adding multi-temperature refrigerated trucks to transport produce and frozen foods.

During the 1970s SYSCO grew steadily except for a brief earnings drop in 1976 caused by a canned food glut and excessive start-up costs due to increasing capacity. One reason for such rapid recovery and regular growth was SYSCOs continuing diversification into new products, such as fish, meat, and fresh produce. In 1976 SYSCO acquired Mid-Central Fish and Frozen Foods Inc., expanding the companys distribution capabilities around the nation. In 1979 SYSCOs sales passed the $1 billion mark for the first time; by 1981 the company was rated as the largest U.S. foodservice distribution company. That year SYSCO set up Compton Foods in Kansas City to purchase meat, and began to supply supermarkets and other institutions with meat and frozen entrees.

1980sRapid Growth Through Acquisitions

In 1983 John E. Woodhouse, whom Baugh had hired as chief financial officer in September 1969, became CEO of SYSCO, with Baugh remaining chairman. The following year SYSCO continued its strategy of acquiring its competitors when it purchased three operations of PYA Monarch, then a division of Sara Lee. SYSCOs largest acquisition to date occurred in 1988, when the company paid $750 million for CFS Continental, at that time the third largest food distributor in the country, which added 4,500 employees and increased the number of markets SYSCO served to 148 out of the top 150 markets. Although much of the United States and especially Texas experienced hard financial times during the 1980s, as a national company in a relatively recession-proof industry, SYSCO Corporation was not adversely affected.

SYSCO also made several smaller acquisitions of foodservice distributors in the late 1980s, including Olewines Inc. (Harrisburg, Pennsylvania), which was renamed Sysco Food Services of Central Pennsylvania, Inc.; Lipsey Fish Company, Inc. (Memphis, Tennessee); Hall One Chinese Imports, Inc. (Cleveland); and Fulton Prime Foods, Inc. (Albany, New York). By the end of the decade, sales had reached $6.85 billion, making SYSCO twice as large as its closest competitor in foodservice distribution and second only to McDonalds in the overall foodservice industry. Despite its size and growth (through some 43 acquisitions since its founding), SYSCO accounted for less than eight percent of overall foodservice distributor volume, a testament to the continuingly fragmented nature of the foodservice distribution industryand evidence that SYSCO had plenty of room for future growth.

1990s and Beyond

During the early 1990s, SYSCO made several additional acquisitions, increasing the companys geographic spread still further. Among the more important purchases were the 1990 acquisition of the Oklahoma City-based foodservice distribution business of Scrivner, Inc., which became Sysco Food Service of Oklahoma, Inc.; the 1991 acquisition of four of Scrivners northeastern U.S. distribution businesses, including that of Jamestown, New York, which became Sysco Food Services-Jamestown; the 1992 acquisition of Philadelphia-based Perloff Brothers, Inc., which operated as Tartan Foods; and the 1993 acquisitions of the St. Louis Division of Clark Foodservice, Inc. (which became Sysco Food Service of St. Louis, Inc.) and of Ritter Food Corporation of Elizabeth, New Jersey (which was renamed Ritter Sysco Food Services, Inc.).

In 1991 SYSCO created a subsidiary called The SYGMA Network, Inc. to consolidate its chain restaurant distribution systems and improve its service to chain restaurants. By 1997 SYGMA consisted of 11 distribution centers serving customers in 37 states, and posted sales of $1.3 billion.

By 1995 Baugh had assumed the title of senior chairman (he retired in late 1997), Woodhouse was chairman, and Bill M. Lindig, who had joined the company in 1970, had become CEO. SYSCO revenues had grown to $12.12 billion, but the company still held less than 10 percent of the foodservice distribution market. That year, Lindig told the Houston Business Journal: We could grow at 20 percent a year for the next five years and wed still have only 20 percent of the market. (From 1978 to 1997, the companys compound growth rate was 16.4 percent.)

Also by this time, the companys management structure had grown somewhat unwieldy. SYSCOs operating companies, which by 1995 numbered 58, had always been allowed to function in a largely autonomous manner. This decentralized structure, however, meant that 58 operating company presidents were reporting directly to the corporate staff. With SYSCO expecting to soon have about 75 operating companies, corporate management decided to add four senior vice-presidents of operations, each of whom would have full responsibility for about 10 SYSCO operating companies. Nineteen companies would still report directly to corporate.

In the later 1990s SYSCO slowed its pace of acquisition, although acquisitions were still seen as important for growth in selected new markets, particularly such far-flung areas as Alaska and Canada. In mid-1996 the company purchased Strano Foodservice of Peterborough, Ontario, which gave SYSCO a presence in the Toronto market, while Alaska Fish and Farm, Inc. was bought in early 1997. Beginning in 1995, however, SYSCO added a fold-out expansion strategy as an additional method of growth. This strategy involved developing a sales base in markets distant from an existing operation, then building a new distribution center, staffing it with transferred staff, and thereby creating a new stand-alone operating company serving a new market. In 1995 SYSCO opened its first-ever brand-new distribution center in Connecticut through this program. Over the next four years, fold-out operating companies were added in Tampa, Florida; Wisconsin; North Carolina; Riviera Beach, Florida; Birmingham, Alabama; and San Diego.

Company Perspectives

As the leading foodservice supplier in North America, SYSCO is well-positioned to anticipate and respond rapidly to customers menu requirements. This may be arranging for products to be custom-tailored to meet an emerging trend in a certain market segment or bringing to market new products that will benefit a broad customer base. Perhaps it is developing easier food preparation methods or creating initiatives and having products developed to address customer concerns. For all of these and more SYSCO is the leading source.

SYSCO posted record sales of $14.45 billion in fiscal 1997, along with record net earnings of $302.5 million. Although the companys growth had slowed somewhat in the 1990s as fewer acquisitions were made, the fold-out expansion strategy was still keeping SYSCO growing much faster than the foodservice industry as a whole. With its attention to customer service and it strong management teama team that had been strengthened over the years by a company policy of retaining the managers of acquired firmsSYSCO was well-positioned to continue into the new millennium with a steady increase in market share, which stood at about nine percent for the 1996 calendar year.

Principal Subsidiaries

Arrow-Sysco Food Services, Inc.; Baraboo-Sysco Food Services; Cochran/Sysco Food Services; Deaktor/Sysco Food Services; Hallsmith-Sysco Food Services; Hardins-Sysco Food Services, Inc.; Lankford-Sysco Food Services, Inc.; Maine/ Sysco, Inc.; Major-Sysco Food Services, Inc.; Mid-Central/ Sysco Food Services, Inc.; Miesel/Sysco Food Service Company; Nobel/Sysco Food Services Co. Albuquerque; Nobel/ Sysco Food Services Co. Denver; Robert Orr-Sysco Food Services Co.; Pegler-Sysco Food Services Company; Ritter Sysco Food Services, Inc.; Smelkinson Sysco Food Services, Inc.; Strano Sysco Foodservice Limited (Canada); The SYGMA Network, Inc.; Sysco Food Services-Albany; Sysco Food Services of Arizona, Inc.; Sysco Food Services of Arkansas, Inc.; Sysco Food Services of Atlanta, Inc.; Sysco Food Services of Austin, Inc.; Sysco Food Services of Beaumont, Inc.; Sysco Food Services of Central Alabama, Inc.; Sysco Food Services of Central Florida, Inc.; Sysco Food Services of Central Pennsylvania, Inc.; Sysco Food Services of Charlotte, Inc.; Sysco Food Services-Chicago, Inc.; Sysco Food Services/Cincinnati; Sysco Food Services of Cleveland, Inc.; Sysco Food Services of Connecticut; Sysco Food Services of Dallas, Inc.; Sysco Food Services of Eastern Wisconsin; Sysco Food Services of Grand Rapids, Inc.; Sysco Food Services-Horseheads; Sysco Food Services of Houston, Inc.; Sysco Food Services of Idaho, Inc.; Sysco Food Services of Indianapolis, Inc.; Sysco Food Services of Iowa, Inc.; Sysco Food Services-Jacksonville, Inc.; Sysco Food Services-Jamestown; Sysco Food Services of Los Angeles, Inc.; Sysco Food Services of Minnesota, Inc.; Sysco Food Services of Montana, Inc.; Sysco Food Services of Oklahoma, Inc.; Sysco Food Services of Philadelphia, Inc.; Sysco Food Services of Portland, Inc.; Sysco Food Services of St. Louis, Inc.; Sysco Food Services of San Antonio, Inc.; Sysco Food Services of San Diego, Inc.; Sysco Food Services of San Francisco, Inc.; Sysco Food Services of Seattle, Inc.; Sysco Food Services of South Florida, Inc.; Sysco Food Services of Southeast Florida, Inc.; Sysco Food Services-Syracuse; Sysco Food Services of Virginia, Inc.; Sysco Food Services-West Coast Florida, Inc.; Sysco Intermountain Food Services, Inc.; Sysco/ Konings Wholesale (Canada); Sysco/Louisville Food Services Co.

Further Reading

Bagamery, Anne, Dont Sell Food, Sell Peace of Mind, Forbes, October 11, 1982, p. 58.

Civin, Robert, Sysco: Distributions $7-Billion Entrepreneur, Institutional Distribution, April 1990.

Distributions Multi-Branch Giants, Institutional Distribution, October 1985, p. 169.

Fisher, Daniel, Little Things Mean a Lot for Giant Sysco, Houston Business Journal, August 18, 1995, p. 24.

Geelhoed, E. Bruce, The Thrill of Success: The Story of SYSCO/Frost-Pack Food Services, Incorporated, Muncie, Ind.: Bureau of Business Research, College of Business and Department of History, Ball State University, 1983.

Great Distributor Organization Study: SYSCO Corporation, Institutional Distribution, June 1980.

Harrison, Dan, Sysco Eyes $10 Billion, Institutional Distribution, April 1989, p. 52.

Jones, Jeanne Lang, Keeping Sysco on Course, Houston Post, January 8, 1995.

Lawn, John, Syscos Strategy: Divide and Multiply, Foodservice Distributor, January 1995, p. 32.

Loeffelholz, Suzanne, Voracious Appetite: Syscos Ability to Digest Its Acquisitions Can Only Mean More Deals Ahead, Financial World, April 18, 1989, p. 72.

Mack, Toni, V.P.s of Planning Need Not Apply, Forbes, October 25, 1993, p. 84.

Reiter, Jeff, Sysco and Dairy, Dairy Foods, October 1995, p. 113.

Ruggless, Ron, John F. Woodhouse, Nations Restaurant News, January 1995.

Sysco Corporation: Since 1980, Institutional Distribution, September 15, 1986, p. 60.

updated by David E. Salamie

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Sysco Corporation

Sysco Corporation

1390 Enclave Parkway
Houston, Texas 77077-2027
U.S.A.
(713) 584-1390

Public Company
Incorporated:
1970
Employees: 18,700
Sales: $6.9 billion (1989)
Stock Index: New York

The Sysco Corporation (an acronym for Systems and Services Company) is the largest marketer and distributor of food-service products in the United States. With 89 distribution facilities serving nearly 150 of the largest cities in the continental United States, SYSCO provides products and services to approximately 225,000 institutions. The company provides foodfresh produce, meat, and canned and dried foodto restaurants of all sizes and styles, hotels and motels, universities, convenience stores, airlines, and other organizations. It also supplies frozen foods to supermarkets, and supplies all of these institutions with nonfood products such as paper goods, janitorial supplies, cutlery, and chinaware.

The Sysco Corporation has been growing steadily since its founding in 1969. John Baugh, a Houston-based distributor, formed SYSCO by pooling nine small food distributors. Baughs goal was to provide a national food service able to distribute any food despite its regional availability. Since that time, SYSCO has grown to become the leader in food distribution, with annual sales well above $6 billion. SYSCOs phenomenal growth has coincided with the boom in Americas interest in eating out. But the companys success can be credited to more than luck. In the 20 years after it was founded, SYSCO made more than 43 major acquisitions and saw an annual increase in sales and earnings of 20% nearly every year.

SYSCO went public in 1970 and that year made its first acquisition, of Arrow Food Distributor. In its early years the company grew by acquiring a number of small distribution companies, carefully chosen for their geographic regions. These acquisitions helped to realize Baughs early goal of providing uniform service to customers across the country. Throughout the 1970s the Sysco Corporation built many new warehouses to deal with this rapid expansion, later incorporating freezers into its warehouses and adding refrigerated trucks to transport produce and frozen foods.

During the 1970s SYSCO grew steadily except for a brief earnings drop in 1976 caused by a canned food glut and excessive startup costs due to increasing capacity. One reason for such rapid recovery and regular growth was SYSCOs continuing diversification into new products like fish, meat, and frozen entrees. In 1976 SYSCO acquired Mid-Central Fish and Frozen Foods Inc. and began providing frozen foods to supermarkets around the nation. In 1979 SYSCOs sales passed the $1 billion mark for the first time; by 1981 the company was rated as the largest U.S. food-service company. That year SYSCO set up Compton Foods in Kansas City to purchase meat, and began to supply supermarkets and other institutions with meat and frozen entrees.

In 1984 the Sysco Corporation continued its policy of acquiring its competitors when it purchased three operations of PYA Monarch, then a division of Sara Lee. SYSCOs largest acquisition to date occurred in 1988, when the company bought CFS Continental, at that time the third-largest food distributor in the country, which added 4,500 employees and brought the market it served to 148 out of the top 150 markets. Although much of the United States and especially Texas experienced hard financial times during the 1980s, as a national company in a relatively recession-proof industry, the Sysco Corporation was not adversely affected.

Through diversification and with each acquisition, SYSCO has continued to increase its market throughout the 1980s, even providing food for fast-food chains. There is plenty of room for growth, however, since the top 50 food distributors account for less than 20% of the available market. The Sysco Corporation is likely to maintain its growth in the food-distribution market as it continues to anticipate and supply consumer needs.

Principal Subsidiaries:

Allied-Sysco Food Services, Inc.; Arrow-Sysco Food Services, Inc.; Baraboo-Sysco Food Services, Inc.; Bell/Sysco Food Services, Inc.; Cochran/Sysco Food Services.; Deaktor/Sysco Food Services Co.; DiPaolo/Sysco Food Services, Inc.; Food Service Specialists, Inc; Glencoe-Sysco Food Services Co.; Global Sysco; Grants-Sysco Food Services, Inc.; HFP-Sysco Food Services, Inc.; Hallsmith-Sysco Food Services; Hardins-Sysco Food Services, Inc.; Sysco/Konings Wholesale; Koon-Sysco Food Services, Inc.; Lankford-Sysco Food Services, Inc.; Maine/Sysco, Inc.; Major-Sysco Food Services, Inc.; Mid-Central/Sysco Food Services, Inc.; Miesel/Sysco Food Service Co.; New York Tea-Sysco Food Service Co.; Nobel/Sysco Food Services Co.; Robert Orr-Sysco Food Services Co.; Olewines/Sysco Food Services Co.; Pegler-Sysco Food Services Co.; Select-Sysco Foods, Inc.; Sugar Food Corp.; The SYGMA Network, Inc.; Sysco/Avard Continental Food Services, Inc.; Sysco/Continental Food Services of Indianapolis, Inc.; Sysco/Continental Food Services of Los Angeles, Inc.; Sysco/Continental Food Services of Minnesota, Inc.; Sysco/Continental Food Services of Pittsburgh, Inc.; Sysco/Continental Food Services of Portland, Inc.; Sysco/Continental Food Services of Seattle, Inc.; Sysco/Continental Institutional Food Services, Inc.; Sysco/Continental Keil Food Services, Inc.; Sysco/Continental Mulberry Food Services, Inc.; Sysco/Continental Smelkinson Food Services, Inc.; Sysco Food Services of Austin; Sysco Food Services of Atlanta, Inc.; Sysco Food Services of Beaumont, Inc.; Sysco Food Services of Central Florida, Inc.; Sysco Food Services of Chicago Inc.; Sysco Food Services, Inc.; Sysco Food Services of Iowa, Inc.; Sysco Food Services-San Antonio; Sysco Food Services of South Florida, Inc.; Sysco Food Systems, Inc.; Sysco/Frost-Pack Food Services, Inc.; Sysco Frosted Foods, Inc.; Sysco/General Food Services, Inc.; Sysco Intermountain Food Services; Sysco/Louisville Food Services Co.; Sysco Military Distribution Division; Sysco/Rome Food Service, Inc.; Theimer-Sysco Food Services; Thomas/Sysco Food Services; Vogel/Sysco Food Service, Inc.

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