Assignment 2: Choosing a Distributor
Lori Rodeffer
Strayer University
HTM 250: Purchasing and Cost Control
Dr. Madlyn M. Bonimy
November 30, 2014

Choosing a Distributor
Sysco Inc. is one of the leading distribution companies in the world. They are global leaders in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, and lodging establishments. Equipment and supplies for the foodservice and hospitality industries are also included in their list of products. Operating 193 distribution facilities, this company is able to service approximately 425,000 customers. For Fiscal Year 2013 that ended June 29, 2013, the company sales broke records with more than $44 billion in sales. The history of SYSCO is an extensive one that truly explains how this company was able to build itself up into the largest marketer and distributor of foodservice products in North America. SYSCO provides food and other products and services to 270,000 restaurants, schools, hospitals, nursing homes, hotels, businesses, and other organizations. Their 70 distribution facilities serving more than 150 of the largest cities in the continental United States and parts of Alaska and Canada make this feat possible. The company's 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 which will be covered in more detail later in this paper.
Ever since being founded in 1969, SYSCO has grown at a steady rate; mainly through dozens of achievements of smaller distributors and with annual increases in sales and earnings of 20 percent almost every year. SYSCO INC was founded through an arrangement of ten distributors. John Baugh was the force behind the founding of SYSCO. Baugh having grown up on a ranch near Waco, Texas, got his start in the food business through a part-time job at a local A&P grocery store when he was still in high school. Eventually he founded a Houston-based food distributor; Zero Foods Company of Houston. In 1969 Baugh convinced the owners of eight other small food distributors to combine the nine companies, and form what he hoped to mold into a national foodservice distribution organization. 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 sales of the year to come for the nine founding companies were $115 million.
SYSCO went public in 1970 and that year made its first purchase; Arrow Food Distributor. Early on the company grew by gaining many small foodservice distribution companies, chosen specifically for their geographic regions. Throughout the 1970s SYSCO Corporation built many new warehouses to deal with this fast expansion, later incorporating freezers into its warehouses and adding multi-temperature refrigerated trucks to transport produce and frozen foods. During the 1970s SYSCO continued to grow, slowing only for a brief time when earnings drop in 1976 caused by a canned food excess and unnecessary start-up costs due to increasing capacity. The company quickly recovered because of SYSCOs continuing diversification into new products, such as fish, meat, and fresh produce. In 1976 SYSCO added Mid-Central Fish and Frozen Foods Inc., expanding the company's distribution around the nation. In 1979 SYSCO's sales exceeded $1 billion for the first time; by 1981 the company was rated as the largest foodservice distribution company in the United States. That year SYSCO created Compton Foods in Kansas City to purchase meat, and began to supply supermarkets and other institutions with meat and frozen entrees.
In 1983 John E. Woodhouse, hired by Baugh as chief financial officer in September 1969, became CEO of SYSCO, while Baugh remaining chairman. The following year SYSCO continued its strategy of acquiring its competitors when it purchased three operations of PYA Monarch, then a part of Sara Lee. SYSCO's largest purchase to date occurred in 1988, when the company paid $750 million for CFS Continental, which at the time was the third largest food distributor in the country. This purchase added 4,500 employees and expanded the number of markets SYSCO functioned in to 148 out of the top 150 markets. When most companies in the US and Texas were struggling SYSCO remained a virtually recession-proof industry and SYSCO Corporation was not poorly affected.
In 1991 SYSCO created a minor company called The SYGMA Network, Inc. to fuse its chain restaurant distribution systems and improve its service to those types of restaurants. By 1995 Baugh had took on 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) ("SYSCO Corporation History").
By 1997 SYGMA was made up of 11 distribution centers serving customers in 37 states, and had sales of $1.3 billion.

In the later 1990s SYSCO slowed its purchasing pace, although purchases were still seen as important for growth in selected new markets, especially far away areas such as Alaska and Canada. In mid-1996 the company purchased Strano Foodservice of Peterborough, Ontario, which brought SYSCO into the Toronto market, while Alaska Fish and Farm, Inc. purchased in early 1997 gave them the Alaskan market. 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 far away from an existing operation, then building a new distribution center, staffing it with transferred staff, which in turn created a new stand-alone operating company serving a new market. In 1995 SYSCO opened it’s first-ever distribution center in Connecticut through this program. Over the next four years, "fold-out" companies were added in Tampa, Florida; Wisconsin; North Carolina; Riviera Beach, Florida; Birmingham, Alabama; and San Diego.
SYSCO posted record sales of $14.45 billion in fiscal 1997, along with record net earnings of $302.5 million. Even with the company's growth slowing in the 1990s because fewer purchases 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 team SYSCO was in a great positioned to continue into the new millennium with a market share increase, which stood at about nine percent for the 1996 calendar year. SYSCO INC. has an extensive supply list. There are nine main categories that the supplies belong to and even more sub categories: SYSCO INC. | Sysco Kitchen Supplies-Cookware, Bakeware, Textiles & Apparel, Thermometers, Steam Table Pans, Kitchen Small wares, Pizza Supplies, Baking Supplies, Manual Food Preparation, Knives, Scales, and Food Storage. | Sysco Glassware | Sysco Dinnerware | Sysco Flatware | Sysco Healthcare-Insulated Dinnerware and Disposable Lids | Sysco Dining Room-Bar Supplies, Beverage Service, Table Service, Shakers/Dispensers/Holders, Candles, Menus/Signs, Baskets & Serving Trays, Salad Service, Buffet Display, Buffet Utensils, Chafers, and Linens & Skirting. | Sysco Equipment-Cooking Equipment, Food Warmers & Toasters, Food Preparation Equipment, Shelving, and Storage Transport. | Sysco Sanitation Maintenance-Ware Washing, Floor Maintenance, Floor Mats, Waste Receptacle, Bathrooms, Cleaning Supplies, and Maintenance & Receiving. | Sysco Foods- Dairy, Meat, Organic/ Natural/ Kosher, Pantry, Pantry Frozen, Poultry, Seafood, and Vegetables. | Sysco Safe Child Seating & Tray Stand Options | Sysco International Specialties |
The competing companies offer some of these products to there to their customers however they are not equipped to offer an extensive selection of these products. The largest competitor of SYSCO, US Foods has recently announced that they will be merging with SYSCO INC to create a better foodservice company. US Foods has not yet merged with SYSCO and their list of available products shows the difference between the two companies: SYSCO INC | US Foods | Sysco Kitchen Supplies offer a greater variety of items ranging from extremely high quality to midgrade. The prices are not displayed to people who are not members of their business program, however they are known for their wholesale priced items and better values then buying retail. The focus seems to be focused on becoming a member in order to receive exclusive deals and low prices so there is no pricelist for any of their items. | US Foods Kitchen Supplies are fully displayed on their website. Their catalog includes many of the same items as SYSCO however they do not offer as many variations of each product. The quality is economical to midrange and their price is about triple the cost of a product brought retail that is of the same quality level. They provide comparison tools on their webpage that is open to the public. On the site all prices are provided and even show some discounts available. | Sysco Foods Again do not offer up any prices in their catalogs however they do provide a complete list of the items offered and their ingredients. The origin of the product as well as the quality checks and procedures are listed in the catalog. Discounts are few and far between going through this company. In their catalog they offer recipes along with most of the products for better profitability. | US Foods provide daily and monthly deals and cash discounts to customers providing for excellent value, while still offering quality brands and food products. In their catalog they offer recipes along with most of the products for better profitability. | Sysco Dining Room Includes barware, table service, and beverage service. Many of the items in this section are sold per item rather than in a case or group. This could provide better customization however I don’t see how it would be very cost efficient or give you the greatest value for your money. | US Foods Dining Room has an assortment of china and flatware, including a brand exclusive to them. Glassware from some of the top brands is available in many styles and sizes, and we also offer a wide selection of plastic dinnerware and drinkware for more casual settings. | Sysco Dinnerware includes sets of 6, 12, 24, 36, and 48; the different sizes and styles can give you a good amount of customization if you want to mix and match. They have a large selection of china but also offer a wide variety cook to serve plates and dishes as well as dishware for less formal places like schools and hospitals. The larger case sizes are a great value for larger establishments while the smaller are good for places that don’t need quite as many dishes. | US Foods Dinnerware has been a leading supplier of dinnerware and accessories for over 75 years. They boast reliable products at bargain prices from the leading brands and manufacturers in their extensive selection of plates and flatware. They have sets of mainly 12 and 24. They offer different styles for diners, chic modern and dining china. Dining china is available at lowered prices. If They also provide matching flatware and silverware. | Sysco Sanitation Maintenance section provides an unbelievable amount of supplies. They provide supplies for keeping a restaurant clean and sanitary as well as supplies for hospitals, schools, and any other work environment. They even supply systems to keep food in the best sanitary environment. | US Foods Sanitation Maintenance Has pretty much the basic cleaning and sanitation items that are needed for a restaurant. Nothing elaborate; just the basics. They provide the basic items such as mops, brooms, buckets, mats, and waste bins that a restaurant needs, but they do not go overboard with many different variations of the same product. |
Sysco Quality Assurance Department is the largest and most active in the hospitality industry. It is an ongoing constantly improving program containing a stringent product standard and in-depth evaluation programs. Quality Assurance workers from Sysco work in with suppliers to put into action Food Safety and Quality Assurance Programs that keep product quality consistent, compliance with applicable FDA and USDA regulations, and alignment with Sysco product standards and specifications.
Sysco Company Payment and Performance agreement is as follows:
Payment is due at the physical location of the Sysco Company that provides this credit application or at such other address as Sysco may designate in writing from times to time. If customer does not pay or perform on time, all amounts owed, less any unearned charges, become immediately due and payable in full. Subject to any legal limits, Customer agrees to pay; (a)Interest of the lesser of (i) 1.5% per month and (ii) the highest non-usurious rate permitted by applicable law on past due amounts from date due until paid; which rate shall apply to post judgment interest also; (b)all costs of collection (e.g. attorney’s fees and expenses); and (c) a $35 fee for each returned item (whether check or ACH) that is dishonored for any reason, or such greater amount allowed by law. In each instant, all charges and fees, and Sysco’s rights and remedies, are subject to and automatically constrained by applicable law ("Terms, Conditions, and Security Agreement").
The main objective of the payment policy is to protect the interest of Sysco Company, the Customer, as well as provide a clear cut guide for the payment process. The cost of late payments varies depending on the situation however within this company it seems that the main late payment penalties used match up with two of the penalties mentioned in Purchasing: Selection and Procurement for the Hospitality Industry 8th Edition. According to Feinstein & Stefanelli hospitality operations can be subject to cost and fees when making late payments. Sysco explains in their payment agreement that customers will be subject to legal difficulties and interest or penalty charges.
The bill paying process used by Sysco seems to mainly be Invoices on Account. This of course would mean that any supplier working with Sysco would have to know how to work with invoices properly and prepared to be paid at any time within the 45 day credit period. Many Hospitality Operations in present day use credit card payments because of their convenient. By paying with credit card companies are able to make quick payments, keep track of paper work on orders much faster, and lower the overall cost of business. US Foods offers most if not all of their products online and can be brought using a credit card. Another company, UniPro Food Services, uses Invoices on Account like Sysco.
The differences are pretty obvious as soon as you begin navigating their sites. Buying becomes a chore and a whole greater process when going through Sysco and UniPros’ websites. With both of these companies you must first become a member signing up with your business information and an account number. Then you must go through a large catalog picking order numbers of the products you want. They create a bill for your account, you receive the invoice upon delivery of your items and you are required to pay by the end of the credit period. US Foods system is much different. All you must do is go through the site, or your local US Foods location, choose your items and checkout. You pay with a credit card when your checkout and receive a copy of the list of items you ordered. From reviewing the differences in each payment process I find that Credit Card Payments are much easier. You pay as soon as you choose your items and there is little chance of not having the money to pay at the end of the credit period to pay for your supplies.
Sysco list of available products and services are very extensive and include a great deal of notable brands. The restaurant I previously mentioned In Assignment 1 was Red Robin. They are famous for their burgers, shakes, French fries, and fresh tasting products. I feel that Sysco Inc. would make a great distributing company for Red Robin restaurants if they are not already so. Because Sysco looks for suppliers who are able to provide long-term contracts I feel Red Robins would benefit by being able to provide the same quality product rather than continually changing product and not really knowing what goes into it. The importance of proper storage and overall sanitation of their supplier’s facilities is a big part of Sysco quality standards. Keeping the standards for suppliers’ facilities high enables Sysco to provide great products of high quality to their customers and that is just another reason why Red Robins would benefit greatly from having Sysco as their distributor. Another reason why Sysco would be a great distributor for Red Robins would be because Sysco is a One-Stop shop in a way. Because Sysco has acquired such a great number of suppliers and other companies it is now able to provide many of the items need for the food service industry. In turn that would give Red Robin a great deal of products from one place and maybe even give them greater discounts.
In closing Sysco Inc. has worked hard to create the ideal distribution company that is able to cater to the needs of many hospitality operations around the world. Their payment is not the most ideal however they do make up for it with their wide selection of food items, equipment, and supplies. They have a history of good business practices and would able to provide a unique full experience to many in the restaurant industry as well as many other fields.

Refererences Feinstein, A. H., & Stefanelli, J. M. (2011). The Optimal Payment Policy. Purchasing: Selection and Procurement for the Hospitality Industry 8th Edition. (pp. 211,212, 213, 214). Hoboken: John Wiley & Sons, Incorporated.
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