2011 technomic power distributor report: the top 15

2011Technomic Power Distributor Report:The Top 15

$795.00/issue Copyright ©2011

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Published by Technomic Inc.300 South Riverside Plaza

Suite 1200 SouthChicago, IL 60606P: 312-876-0004F: 312-876-1158

www.technomic.com

Top 15 Power Distributors 2011 3

Publisher’s Letter......................................... 4Editor’s Letter.............................................. 5Intro: 2011 Power Distributors.................... 6Profiles: The Top 15

Sysco Corp............................................ 11U.S. Foodservice.................................. 21Performance Food Group.................... 27Gordon Food Service........................... 33Reinhart FoodService........................... 39Maines Paper & Food Service Inc........ 45Services Group of America................... 51Ben E. Keith Foods............................... 55Shamrock Foods Co............................. 61Labatt Food Service.............................. 65Cheney Brothers Inc............................. 69IFH (Institution Food House)................ 75Agar Supply Co. Inc.............................. 79Glazier Foods Company........................ 83Merchants Foodservice........................ 87

Gary KarpProject Publisher/Advisor

Caroline PerkinsProject Director

Dana TanyeriExecutive Editor

Marisela RiosArt Director

TECHNOMIC 2011 POWER DISTRIBUTOR REPORTTHE TOP 15

TABLE OF CONTENTS

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Foodservice distribution, as we all know, is an extremely fragmented industry in terms of the number and type of players, from broadline to systems to specialists. At the same time, share of sales is heavily concentrated at the top, in what we call the Power Distributors - broadline companies with revenues of more than $150 million. We started tracking this group in 2006 to identify and benchmark key performance factors that have propelled them to the top.

In the 2011 Power Distributor tally, there are 35 companies that account for 46% of all North American foodservice distribution sales. When we investigated a little further, we

discovered that the top 15 companies hold a 95% share of all Power Distributor sales. We decided to profile these companies in depth to provide insights on their recent performance and how they run their businesses. We believe it is important for manufacturers and brokers to understand the factors that drive the success of these top-tier companies in order to collaborate better with their trading partners and design distributor programs that will build sales and increase profits.

The 2011 Power Distributor Report: The Top 15 has been made possible through the experience, dedication – and persistence – of our editorial team, Caroline Perkins and Dana Tanyeri, and our art director, Marisela Rios. Thanks to them for all their hard work.

We will continue to track the Power Distributors in our monthly electronic Distributor Intelligence Service Report , as well as in periodic in-depth reports such as this one, to provide you with the latest news and information about these industry leaders. If you have any comments or questions about this Top 15 report, please contact us.

LETTER FROM THE PUBLISHERS

Gary Karp Executive Vice President

Bob Goldin Executive Vice President

Gary Karp Executive Vice President

Bob Goldin Executive Vice President


ABOUT THIS REPORT

The 2011 Power Distributor Report: The Top 15 is designed to give manufacturers and other supply-chain partners a window into foodservice distribution’s most powerful players – their operations, sales, customer segments and key strategic initiatives. Just how powerful are they? As a full group, the 35 Power Distributors (PDs) accounted for 46% of all distribution sales and 71% of total broadline sales in 2010. Within that broader group, The Top 15 companies generated 95% of all PD sales for the year with collective revenues of $93.367 billion.

Inside, we provide a snapshot of the 35 2011 Power Distributors and their performance in 2010, followed by detailed individual profiles of The Top 15. We have profiled each of these top-tier companies to show both their historical successes and to provide insight into how they’re faring and fighting back against the tough economic odds the industry has faced over the past several years. The Power Distributors in general, and The Top 15 in particular, set the standard for other companies to emulate. While some have achieved bigger gains of late than others, all are industry leaders in innovation, technology, cost management and marketing. It is important to the industry to have a measuring stick for success.

METHODOLOGY

The initial listing of the Power Distributors is taken from the annual Top 50 Report compiled by ID Access. Only companies with annual sales in excess of $150 million are included. Once the Top 15 were identified, we gathered data from company representatives and from information publicly available.

Since we published the 2008 Technomic Power Distributors Report, companies have become more focused on sustainability initiatives and well as the “buy local” movement. Virtually all of the Top 15 are focused on helping their customers grow their business through a number of creative solutions-oriented programs. Several report increased emphasis on their own exclusive brand programs. While a few have reduced sales rep numbers, most have invested in these critical keys to growing market share. Whatever the strategy, most of these companies have excelled at increasing their top lines.

We would like to thank all of the distributor executives who assisted us in compiling the data for their profiles. Foodservice distribution is a complex and competitive industry and we appreciate their sharing of information and the time they spent to participate in our project.

LETTER FROM THE EDITORS

Dana TanyeriExecutive Editor

Caroline Perkins Project Director

Dana Tanyeri Executive Editor

Caroline Perkins Project Director

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INTRO

North American Distributor Sales$213 billion in 2010

The 2011 Power Distributors

Technomic Power Distributors (PDs) – defined as foodservice distribution companies with annual calendar-year sales of $150 million or more – account for nearly half (46%) of total North American foodservice distribution industry sales at $98.6 billion. For 2011, 35 companies make up the roster based on 2010 sales performance. They represent companies that range from national and international players to smaller local and distinctly regional firms. Geographically, they span the nation from Connecticut to Hawaii, Minnesota to Texas.

While the number of Power Distributors stands the same this year as last, two changes to the roster were made for 2011. First, CONCO Food Service, No. 15 in 2010 with estimated 2009 sales of $440 million, was acquired early this year by Reinhart FoodService and

is no longer listed. Second, DiCarlo Foodservice, which last year missed the cut-off with 2009 sales of $137 million, achieved solid growth in 2010 to reach sales of $153 million. It joins the PD group this year as No. 35.

Nine of the 2011 PDs tout annual sales of more than $1 billion, while three

have passed the $10 billion threshold. They’re led by Sysco Corp., which, at $38.4 billion in sales is more than twice the size of its closest competitor, U.S. Foodservice. The PD “billionaire’s club” has remained exclusive for the past several years, but may soon welcome two new members: Labatt Food Service and Cheney Brothers Inc. are knocking

Broadline65%

$138.5 billionPower Distributor sales

46%$98.6 billion

Other15%

$31.9 billion

Systems12%

$25.6 billion

Clubs/Cash ‘n’ Carries

8%$17 billion

Power Distributor Sales$98.6 billion in 2010

Other31%

PFG10%

Sysco39%

USF19%

13.6% 13.5% 13.0% 12.9% 12.8%

PerformanceFood Group

ReinhartFoodService

Glazier Foods CheneyBrothers Inc.

MerchantsFoodservice

Top 5 CAGR 2001 – 2010


Rank Company HQ Location2010 Sales(000000)

2009 Sales (000000)

% Change

$ Change

# Dist. Centers

# Active

Accounts1 Sysco Corp. Houston, TX $38,430 $35,776 7% $2,654 180 400,0002 U.S. Foodservice Rosemont, IL 18,900 19,000 -1 -100 78 250,0003 Performance Food Group Richmond, VA 10,300 9,720 6 580 65 100,000+4 Gordon Food Service Grand Rapids, MI 7,700 7,200 7 500 20 N/A5 Reinhart FoodService Rosemont, IL 4,547 4,205 8 342 24 38,0866 Maines Paper & Food Service Conklin, NY 3,050 3,000 2 50 11 10,1377 Services Group Of America Phoenix, AZ 2,600 2,600 0 0 13 N/A8 Ben E. Keith Foods Fort Worth, TX 2,100 1,979 6 121 7 20,000+9 Shamrock Foods Co. Phoenix, AZ 1,800 1,650 9 150 4 16,000+

10 Labatt Food Service San Antonio, TX 922 909 1 13 5 10,20011 Cheney Brothers Inc. Riviera Beach, FL 921 811 14 110 3 17,50012 IFH (Institution Food House) Hickory, NC 575 608 -5 -33 2 5,50013 Agar Supply Co. Inc Taunton, MA 569 553 3 16 1 5,40014 Glazier Foods Houston, TX 541 531 2 10 2 4,30015 Merchants Foodservice Hattiesburg, MS 450 409 10 41 4 7,47016 Perkins Taunton, MA 412 378 9 34 2 10,00017 Nicholas & Company Salt Lake City, UT 408 396 3 12 1 5,00018 Saladino's Fresno, CA 394 373 6 21 2 2,91519 Cash-Wa Distributing Co. Kearney, NE 370 353 5 17 3 N/A20 Fox River Foods Inc. Montgomery, IL 341 311 10 30 1 5,00021 Doerle Food Services Broussard, LA 292 255 15 37 4 2,85122 Wood Fruitticher Grocery Co. Birmingham, AL 290 284 2 6 1 3,50023 C.A. Curtze Co. Erie, PA 279 278 0 1 3 7,85024 BiRite Foodservice Distributors Brisbane, CA 272 285 -5 -13 1 3,00025 Martin Bros. Distributing Co. Cedar Falls, IA 272 248 10 24 1 3,65126 Pate Dawson Co. Goldsboro, NC 271 241 12 30 3 2,00027 Feesers Inc. Harrisburg, PA 222 222 0 0 1 4,00028 HFM Foodservice Honolulu, HI 193 176 10 17 5 1,700

29 Hawkeye Foodservice Distribution Iowa City, IA 189* 189* 0 0 4 N/A

30 J. Kings Foodservice Professionals Holtsville, NY 187 164 14 23 1 2,400

31 Upper Lakes Foods Inc. Cloquet, MN 181 181 0 0 2 1,36132 Driscoll Foods Clifton, NJ 179 165 8 14 1 4,00033 Van Eerden Foodservice Co. Grand Rapids, MI 177 168 5 9 1 2,02634 City Line Distributors West Haven, CT 160 150 7 10 1 1,75035 Di Carlo Distributors Holtsville, NY 153 137 12 16 1 2,450

TOTAL $98,609 $93,866 5% $4,743

INTRO

*sales figures estimatedSOURCE ID Top 50 & Technomic Power Distributor Survey (percentages are rounded)

2011 POWER DISTRIBUTORS

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on the door with 2010 sales of $922 and $921 million, respectively.

Of the 35 companies, just over one-third operates from a single distribution center. Of the Top 15 Power Distributors, profiles of which follow in this report, only Agar Supply in Taunton, Mass., does all of its business from just one location.

Collective Gain of 5% in 2010

Collectively, the 35 PDs fared better than the industry as a whole in 2010 with a sales increase of 5%. That compares to a 2% decline this same group of distributors suffered in 2009 and to 0.7% real growth for the total foodservice industry in ’10. Together, the PDs added $4.7 billion in volume to reach nearly $100 billion for the year. Sysco Corp., which accounted for 39% of all 2010 Power Distributor sales, added more than half of the $4.7 billion gain. Distributors report that the

vast majority of gains in 2010 were made internally and not through acquisition.

Nine of the 35 companies achieved double-digit sales increases in 2010 (after rounding). Leading the gainers for the year was Doerle Food Services, Broussard, La., which grew 15% to $292 million. Doerle’s gain for the year moves it up five notches in the PD rankings to No. 21. Since 2007, Doerle has grown its volume by 175%. Also showing strong movement in 2010 were J. Kings Foodservice Professionals and Cheney Brothers Inc. Both companies reported gains of approximately 14% for the year.

Seven PD companies reported or are estimated to have had flat or decreased sales for the year. That compares to 19 who showed no sales growth or sales declines for 2009. Of the three national distributors, only U.S. Foodservice showed a slight 2010 decline. Sysco Corp. and Performance Food Group (PFG), both of which showed roughly 5% losses in

2009, came back into positive territory last year. Sysco was up 7% for calendar 2010 while PFG grew its volume by 6%.

Looking Ahead

Asked to give their projections for 2011, many Power Distributor executives said they anticipate moderate to strong growth for the year. As the PD Report went to press, however, unemployment, fuel and commodity prices remained high, the housing market had yet to rebound, credit remained tight – particularly for small businesses such as restaurants – and consumers remained pessimistic about the economy in general and their own financial prospects. The hoped-for recovery had not taken hold in any appreciable way and one result will be another difficult year for foodservice distributors. Given their unlikely gains in the face of these same challenges in 2010, however, we’re confident the Power Distributors will again find ways grow.

Company%

GainDoerle Food Services 15%

J. Kings Foodservice Professionals 14Cheney Brothers Inc. 14Pate Dawson Co. 12

DiCarlo Distributors 12Merchants Foodservice 10Martin Bros. Distributing Co. 10HFM Foodservice 10

Fox River Foods 10

Shamrock Foods Co. 9

Company$

GainSysco Corp. $2,654

Performance Food Group 580 Gordon Food Service 500 Reinhart FoodService 342

Shamrock Foods Co. 150 Ben E. Keith Foods 121 Cheney Brothers Inc. 110 Maines Paper & Food Service 50

Merchants Foodservice 41

Doerle Food Services 37

Top 10 PD % Sales Gains in 2010 Top 10 PD $ Sales Gains in 2010

Company % ChangeFeesers Inc. 0%

Hawkeye Foodservice Distribution 0*Services Group of America 0Upper Lakes Foods 0

U.S. Foodservice -.5BiRite Foodservice -5IFH -5

Flat or Down in 2010

*Technomic estimate


Other5%

The Top 1595%

Biggest Gainers of The Top 15 in 2010(% sales increase)

76%

65%*

60%

60%*

55%*

54%

52%

52%

43%

40%*

35%

35%

20%

13%

9%

Cheney Brothers Inc.

Sysco Corp.

Gordon Food Service

Shamrock Foods Co.

U.S. Foodservice

Reinhart FoodService

Ben E. Keith Foods

Agar Supply Co. Inc.

IFH (Institution Food House)

Services Group of America

Merchants Foodservice

Performance Food Group

Glazier Foods

Labatt Food Service

Maines Paper & Food Service

The Top 15 on the Street(% total street sales)

*Technomic estimate

THE TOP 15

On the following pages, Technomic profiles the Top 15 Power Distributors of 2011. Together, these industry-leading companies had sales of $93.367 billion in 2010, or 95% of all PD sales. They represent 94% of the volume gains made by the full group of 35 Power Distributors last year. The profiles take a look at the key factors that have propelled these companies to the top of the distribution chain.

14%

10% 9%

CheneyBrothers Inc.

MerchantsFoodservice

ShamrockFoods

Power Distributor Sales$98.6 billon in 2010

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This Page Intentionally Left Blank


$22,500 $24,700

$27,538 $30,000 $31,400

$33,900 $36,370 $37,850

$35,776 $38,430

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Industry watchers have been paying close attention to Sysco Corp. over the past two years, since the company published its first ever negative sales report in 2009. The No. 1 distributor recovered from a 5% decline in 2009 to an increase of 7% to $38.4 billion in the 2010 calendar year. Part of the increase was due to an extra week in its fiscal reporting year, according to the company’s 10-K Report. Mostly, the rebound was due to Sysco’s focus on cost management across the board.

Since Sysco is the only remaining public company in the industry, its published financial statements are frequently used as a benchmark for other distributors to measure against. Often, its performance metrics are above industry averages and, thus, stand as goals to be reached. In its most recent report, for instance, the gross margin percent was stated as 19.1% and net earnings at 3.2%. The industry average, according to Technomic data, is 17% and 1.8% respectively.

THE SYSCO FAMILY OF BUSINESSES

Sysco has grown exponentially since nine companies joined to form Systems and Services Company in 1969. Sysco Corp., as it become known, went public in 1970 and made its first acquisition that year. John Baugh, who was the driving force behind the formation of Sysco, is credited with envisioning the first distribution company with the potential for national scope and wide geographic coverage needed to serve expanding chain business.

Sysco today has a total of 177 distribution centers, including 95 broadline and 20 SYGMA systems locations. There are also 32 Fresh Point specialty produce distribution centers, 15 Sysco specialty meat companies and 15 Sysco Guest Supply companies.

9% 10% 12% 9% 5% 8% 7% 4% 7%-5%

*Sales figures converted from fiscal year to calendar year.

Sysco Corp.1390 Enclave ParkwayHouston, TX 77077P: 281-584-390www.sysco.comwww.twitter.com/Syscostock

1

10-Year Sales History* CAGR: 5.5%

(000)

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Broadline distribution makes up 81% of sales. The 95 broadline operating companies are spread across North America and, with the 2009 acquisition of Pallas Foods in Newcastle West, Ireland, in Europe as well. Customers include independent operators and smaller and regional chains that are not served by SYGMA. Broadline customers are served by 8,100 outside sales reps, known in the Sysco culture as MAs (marketing associates).

The systems division, SYGMA is dedicated to serving national chains and contributes 14% of total sales. One-third of SYGMA sales are to one customer: the Wendy’s/Arby’s group.

Broadline and SYGMA operating companies in select markets are served by Sysco’s Regional Distribution Centers (RDCs). To date, Sysco has two RDCs in operation with plans for more. Baugh Northeast Co-op, the first RDC, completed in 2005, is located in Front Royal, Va. Baugh South Cooperative,

completed in 2008, serves operating companies in the Southeast from its location in Alachua, Fla.

In addition to its broadline and systems divisions, Sysco operates several specialty companies, which together contribute close to 5% of total sales. These include produce, center of the plate and lodging supplies products.

FreshPoint, Sysco’s fresh produce division, is operated separately from the other businesses and has its own Web site, www.freshpoint.com. FreshPoint launched campaigns at two of its locations within the past year to promote local produce farmers and demonstrate a dedication to supporting local products. The campaigns, called “Eat Southeast Fresh” and “Eat Florida Fresh,” highlight local farms within the locations’ trade areas and include dedicated Web sites (www.eatsoutheastfresh.com and www.eatfloridafresh.com) that provide availability charts for local products,

feature local chefs of the month using those products and “Meet the Farmer” biographies.

The meat specialty division includes a number of companies that have retained their original pre-acquisition names. Among them is Buckhead Beef, www.buckheadbeef.com, which became a Sysco company in 1999. The protein companies provide customers with custom-cut meat, seafood and poultry items.

Sysco’s Guest Supply subsidiary sells lodging-related products, including personal care guest amenities, equipment, housekeeping supplies, room accessories and textiles. It includes Austin Tatem, a personal-care amenity business located in Hong Kong, which supplies U.S.-based customers that have lodging locations in the Asian market.

The company’s International Food Group, based in Plant City, Fla., exports food and nonfood products to customers in more than 100 countries.

MANAGEMENT CHANGES AT CORPORATE HEADQUARTERS

Rick Schneiders, who had been with Sysco a total of 27 years and had steered the company through many growth years, retired as chairman and ceo in 2009. The ceo position was filled by Bill DeLaney, who had been executive vice president and cfo. Manny Fernandez assumed the role of non-executive chairman of the board.

Earnings Statement %Sales 100.0%Cost of Sales 80.9Gross Margin 19.1Operating Expense 13.8Operating Income 5.3Interest Expense 0.3Earnings before Income Tax 5.0Income Tax 1.8

Net Earnings 3.2%Source: Sysco Corp. 10-K

Business Segments(% of sales)

Segment BreakdownRestaurants 62%

Hospitals and nursing homes 11

Hotels and motels 6Schools and colleges 5

Other 16

Broadline 81%

SYGMA14%

Other*5%

Commercial**62%

Non- commercial**

38%

*Other is 8.5% less 1.5% intersegment sales; Other includes specialty produce, custom-cut meat, lodging industry products and a company that distributes to international customers.(Sysco Corp. 10-K)


Kenneth Spitler, who held the posts of president and coo, retired in June of 2010. Spitler, 60, had also been the corporation’s vice chairman. Bill DeLaney, assumed the title and responsibilities as president, in addition to being ceo. Spitler had been with Sysco for 24 years.

Other recent executive-level promotions include Alan Hasty to senior vice president of merchandising; William Day to executive vice president, merchandising and supply chain; James Hope to executive vice president, business transformation; and Twila Day to senior vice president and chief information officer. Chris Kreidler joined the company as executive vice president and cfo.

Hasty began his career at Sysco in 1981 as a marketing associate and has held a number of positions in the company since. Day began his career at Sysco in 1983 as a staff accountant. Hope joined Sysco in 1987 as a financial analyst at corporate headquarters. Ms. Day started as a senior program analyst in 1992. Kreidler came to Sysco from a position as cfo at C&S Wholesale Grocers.

PRODUCT SELECTION DRIVEN BY SUSTAINABILITY, FOOD SAFETY

Sysco-brand products account for 35% of total sales. This share of sales is down from the 46% reported for the 2008 Technomic Power Distributor Report. The remaining share is comprised of manufacturer brands. Sysco carries 400,000 products systemwide.

Sustainability and food safety are keywords for Sysco’s approach to its product portfolio. The company works with suppliers to set food safety and management standards. It conducts social responsibility assessments with international suppliers in locations such as Latin America, China, India and Southeast Asia. To date, 163 suppliers in these regions are enrolled in the program. Other programs, primarily for Sysco-brand products, include:

• Point Source Inspection Process (PSIP): A program to inspect Sysco-brand seafood and other products at point of origin in order to verify quality and food safety.

• Monitoring of fish and seafood suppliers for issues including species control, weight limits, harvesting and handling protocols.

• An Integrated Pest Management program that calls for reductions in the use of pesticides and fertilizers. This covers Sysco-brand canned and frozen fruit, vegetables and potatoes. (See “Sustainability” below.)

• Sysco Corp. partnered with the Produce Marketing Association (PMA) and PrimusLabs.com to provide produce food safety

training to small and local growers across the U.S. A series of regional workshops was launched in 2010 to help growers understand food safety demands and how to implement regulations. Workshops educate growers about food safety standards and how to meet them. Classes are led by PMA experts with the assistance of trained personnel from Sysco and Primus Labs.

• Local programs work with farmers and producers to ensure that they are adhering to Good Agricultural Practices as set by the USDA. They also ascertain whether animals headed for food production are handled in a humane manner as specified by science-based standards.

PROCUREMENT STRATEGY

Sysco purchasing occurs both at the corporate level and at the individual operating company level, but in recent years the company has shifted toward a more centralized, corporate purchasing strategy as part of its Supply Chain Initiative

An in-house department, the Baugh Supply Chain Cooperative Inc. (BSCC), consists of a consolidated procurement

13.9% 14.2% 13.8%

2005 2008 2010

Operating Expenses(% of sales)

OperationsDistribution Centers 95 broadline

32 FreshPoint specialty produce companies15 Sysco specialty meat companies15 Sysco Guest Supply companies20 SYGMA companies1 Asian1 International Food Group2 Regional Distribution Centers

Number of Trucks 8,800

SKUsSystemwide 400,000

Source: Sysco Corp. 10-K

Marketing & Sales 2010

Outside Reps 8,100Other Support Staff 4,100

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program that ensures consistent quality of products that are in the Sysco product portfolio. The BSCC, named for founder John Baugh, covers both manufacturer- and Sysco-brand products and handles all product lines, both food and nonfood. The operating companies are able to purchase national-brand products directly from BSCC suppliers but Sysco-brand products are available only through the program.

Sysco’s National Supply Chain group, also located at headquarters, is dedicated to lowering procurement-related costs and adds to the company’s bottom line by keeping inventory levels low, thus reducing the need for facility expansion.

The group is the overseer of Sysco’s redistribution initiative, a key strategic differentiator. Now in its sixth year, the redistribution project will be expanded to include two additional RDCs in geographic regions not currently served. The third will be constructed in Hamlet, Ind., on land the company purchased in 2007. To be known as Sysco’s Midwest Cooperative Redistribution Center, the 700,000-square-foot facility will supply products to operating companies throughout the Midwest.

A fourth Sysco redistribution center is planned for a location South of Dallas in Ennis, Texas. A total of 257 acres of land was purchased in 2010 for what is expected to be a 1-million-plus-square-foot facility with rail service. As of press time, construction had not yet begun.

CUSTOMER SOLUTIONS

Sysco offers a broad range of services and programs to help support its 400,000 active customer accounts. These range from value-added consulting to business resources.

Business Reviews. Each operating company conducts business reviews with key customers. Reviews are conducted in the demo kitchen of the distribution center in order to work with chefs and managers away from their own work challenges. Sysco sales and culinary staff provide tips and guidance on menus, waitstaff training, financials, and operations in both the front- and the back-of-the-house. Reviews not only help customers grow their businesses, they build loyalty to Sysco as their primary distributor.

Sysco iCare. This suite of business resources provides customers with affordable access to a wide range of services. These include:

• Operational Services, including point of sale systems, inventory control, background music and others.

• Marketing Services. These range from direct mail campaigns to menu design.

• Repairs and Maintenance Center. Assistance with HVAC, janitorial, equipment and security needs is available.

• Local Services. Connections to local services are listed by state or region.

• Green Services. These businesses help operators find ways to have minimum impact on the environment and reduce their carbon footprint.

eNutrition. A Web-based service, eNutrition provides all the nutritional information needed to analyze, scale and print recipes for use in any type of operation.

Market Reports. Operators can keep track of commodity market shifts in these reports provided to Sysco by the American Restaurant Association.

ChefEx. Sysco’s program provides artisan and gourmet products for chefs across the country, shipped directly from manufacturers. Both food and nonfood items are ordered through www.chefex.com.

BATTLING INCREASING FUEL EXPENSES

Just how serious an impact the fuel situation has had on the industry is delineated in a section in Sysco’s most recent 10-K called “Fuel Price Risk.” With a company the size of Sysco, fuel price variations can amount to millions of dollars, however percentage-wise the effect is still significant on any distributor. As the section points out, fuel price increases have an impact in three areas. One is the negative impact on consumer confidence and discretionary spending, which directly affects food-away-from-home sales.

Second and third are the costs added to purchasing and sales, respectively. Sysco reports that in 2010 fuel costs for outbound freight were 0.6% of the costs of sales. These were less than similar costs in 2009 by $71.8 million, when they were 0.8% of sales. The

Category Share of SalesCanned and dry 19%Fresh and frozen meats 18Frozen fruits, vegetables, other

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Dairy products 11Poultry 10Fresh produce 8Paper and disposables 8Seafood 5Beverage products 4Janitorial products 2Equipment and smallwares 2

Medical <1

Total 100%Source: Sysco Corp. 10-K

Share of Brands(% of sales)

Active Accounts 400,000

Manufacturerbrands

65%

Sysco brands

35%


Marketing & Sales 2010

Outside Reps 8,100Other sales support staff 4,100

company expects fuel costs in 2011 to increase by $10 million to $20 million or even higher. This projection is exclusive of any fuel surcharges levied on customer orders.

SUSTAINABILITY INITIATIVES ARE GLOBAL

Sysco has a 2010 Sustainability Report on its Web site that reports on global programs. One is located in Guatemala, where Sysco is working with Oxfam and a local supplier to provide 3,480 small broccoli farmers with the opportunity to further process products in a new freezing facility.

A message from DeLaney notes that the company looks for initiatives that qualify for grants or rebates that will help to reduce the amount of capital investment needed for the purchase of eco-friendly equipment.

Sysco works with the Sustainable Food Laboratory, Oxfam and the World Wildlife Fund in its green efforts. The Sustainable Food Laboratory is made up of 90 plus members. The organization’s goal is to create and maintain a sustainable food and agriculture system that is not only safe but it is affordable and also sustains business growth.

The report also discusses Sysco’s work to control the use of pesticides. All 75 suppliers of Sysco-brand fruit, vegetable and potato products, both canned and frozen, are required to participate in the Integrated Pest Management (IPM) program. In addition to using fewer pesticides, the program recycles and reuses organic matter, thus reducing the need for fertilizer.

Sysco recently received the International IPM award for achievement as well as the EPA’s Pesticide Environmental Stewardship Program Champion Award.

Another green initiative is involvement in Design for the Environment (DfE), an EPA program that focuses on chemical products and technologies. The goal is to find alternatives for products that harm the environment. Sysco received the highest-level Champion Award

from the Safe Detergents Stewardship Initiative that is part of DfE.

Sysco seeks to lower the cost of handling cases at its RDCs. It has switched a significant portion of inbound freight to rail delivery and attempts to have the rest shipped in full truckloads to reduce the number of trucks on the road.

In its newly-opened 285,000-square-foot facility in North Houston, Sysco is using hydrogen fuel cell technology to power 72 pallet trucks and 26 forklifts.

The company also helps its customers to find ways to reduce energy consumption and waste by offering sustainable nonfoods products, particularly chemicals.

CHARITABLE GIVING ADDRESSES HUNGER

Sysco focuses a good deal of its charitable giving on fighting hunger. Share Our Strength, the national not-for-profit organization dedicated to eradicating childhood hunger, is the primary recipient. Sysco has been the official foodservice distributor for the organization’s Taste of the Nation fundraising events for the past several years.

Dine Out America is another recipient of funds. It conducts a hunger-relief program that asks local restaurants across the nation to donate proceeds for two weeks to help fight childhood hunger. In addition to corporate programs, individual Sysco distribution centers also donate to food banks and to local nonprofit groups.

KEY INITIATIVES INCLUDE EXPANSION, ACQUISITIONS

In fiscal 2010, Sysco reports that it spent $594.6 million on modernization of existing or construction of new distribution centers. This followed similar investments of $464.6 million in 2009 and $506.0 million in 2008. The company expects to invest $700 million to $750 million this year on its facilities.

That includes expansion or new building occurring at Canadian locations

in Winnepeg, Manitoba, Toronto and Ontario and U.S. locations in Philadelphia, Austin and San Antonio, and North Houston, Texas. Sysco also purchased 50 acres of land in Schertz, Northeast of San Antonio, to build a new distribution facility. Once the 635,000-square-foot complex is complete, Sysco will close two existing distribution centers, one in San Antonio and one Round Rock, Texas, consolidating them into the new center, expected to open late this year.

In the spring of 2011, land was purchased in Plympton, Mass., for the building of a distribution center to replace its 30-year-old Norton facility. The purchase cost the company $5.7 million. The property will house a 650,000-square-foot facility.

While relatively quiet on the acquisition front during the recession, the company recently resumed some activity in this area. According to its recent 10-K, Sysco paid cash of $29.3 million for acquisitions during its 2010 fiscal year, including a broadline distributor in Syracuse, N.Y., a produce distributor in Atlanta and a seafood distributor in Edmonton, Alberta.

Sysco also acquired Lincoln Poultry & Egg Co., a broadliner located in Lincoln, Neb., in the summer of 2010. Lincoln’s customer base included 800 locations throughout central U.S. Sysco reports a major expansion plan is in the works there. The $19-million project will include the addition of 180,000 square feet of refrigerated, frozen and dock space.

In spring of this year, Sysco made another broadline acquisition, that of Goldberg & Solovy Foods, a Top 50 broadliner with specialization in protein. Based in Vernon, Calif., the company had reported 2010 sales of $140 million and delivered to customers throughout southern California.

Sysco’s Canadian division picked up broadliner Bedell’s Foodservice Distributors in Dover Centre, Ontario, last year, as well. Bedell’s ships more than 5,000 food and service items to hotels, restaurants and institutions throughout southwestern Ontario. It

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operates from distribution centers in Essex and London, Ontario, in addition to Dover Centre headquarters.

OTHER BUSINESS

This spring, SYGMA signed a supply-chain distribution agreement to distribute proprietary mixes, ingredients and supplies to Krispy Kreme franchise and company-owned units in the eastern U.S. Sysco’s subsidiary, International Food Group, will export Krispy Kreme goods to the 20 foreign countries in its distribution territories.

The Buckhead Beef division announced that it would build an $8 million, 24,000-square-foot meat cutting and distribution center in Charlotte, N.C.

Sysco closed a distribution center, Sysco Foods of Central Ohio, in June of 2010. The center’s operations were consolidated into Sysco’s Cincinnati, Cleveland or Detroit locations. Sysco subsidiaries SYGMA Network and SYGMA Columbus were not affected by the consolidation.

BUSINESS TRANSFORMATION MOVING FOWARD

The largest and potentially most impactful initiative underway at Sysco is what the company calls its Business Transformation Project. It’s designed to streamline operations, standardize business practices and increase transparency across its operating companies and distribution centers through an integrated software Enterprise Resource Planning (ERP)

system. Ultimately, the five-year, $9 million project will enable centralized management of back-office functions that currently are duplicated at each operating company.

To facilitate the transformation, a shared business services center has been established in the Houston suburb of Cypress, Texas, where administrative activities such as accounting and financial functions will be centralized and standardized for all North American business units. That facility, which opened late last year with some 50 employees could eventual employ up to 1,800 people.

In a news release about the initiative last May, Jim Hope, executive vice president of business transformation at Sysco, said, “This is more than an IT project – it truly is a business

transformation. Using the power of SAP as the foundation for our transformation, Sysco intends to improve productivity, retain and expand business with existing customers, and understand where market opportunities lie so we can do a better job attracting and pursuing new business.”

Initial implementation is complete and pilot testing is now underway in Sysco’s Arkansas operating company. The company reported recently that the testing period to date had revealed some issues with the system that need resolution and that the testing will thus be extended, with rollout to be phased in more slowly than originally planned and delayed overall by several months to a year.

Key Personnel Chairman of the Board Manny FernandezPresident & CEO William DeLaneyEVP &CFO Chris KeidlerEVP Foodservice Operations Larry Pulliam

EVP U.S. Foodservice Operations Michael GreenEVP Merchandising and Supply Chain Bill DayEVP Business Transformation Jim HopeSVP, Controller and Chief Accounting Officer

Mitch Elmer

SVP and Chief Information Officer Twila DaySVP Sysco Business Services Kirk DrummondSVP Merchandising Alan HastySVP Human Resources Paul Moskowitz

Sysco corporate headquarters in Houston.


Proprietary Brands

Northeast and Mid-Atlantic Locations

1 Halfmoon, NY2 Jessup, MD3 Norton, MA4 Harrisburg, PA5 Rocky Hill, CT6 Pocomoke, MD7 Suffolk, VA8 Louisville, KY9 Jersey City, NJ

10 Westbrook, ME11 Philadelphia, PA12 Harmony, PA13 Warners, NY14 Harrisonburg, VA15 Westborough, MA16 Harrisburg, PA17 Washington, DC

18 South Plainfield, NJ19 Hartford, CT20 Monmouth Junction, NJ21 Front Royal, VA (RDC)

❶ = Headquarters = Specialty = Broadline = Systems

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West, Southwest and Alaska Locations

1 Houston, TX2 Cypress, TX3 Anchorage, AK4 Tolleson, AZ5 Round Rock, TX6 Modesto, CA7 Lewisville, TX8 Denver, CO9 Longview, TX

10 Boise, ID11 West Jordan, UT12 Las Vegas, NV13 Walnut, CA14 Billings, MT15 Albuquerque, NM16 Norman, OK17 Wilsonville, OR

18 Pleasant Grove, CA19 San Antonio, TX20 Poway, CA,21 Fremont, CA22 Kent, WA23 Post Falls, ID24 Oxnard, CA25 Lubbock, TX26 Arlington, TX27 The Colony, TX28 Lakewood, CO29 Stockton, CA30 Pryor, OK31 Clackamas, OR32 Lancaster, CA33 Dallas, TX34 Portland, OR

35 Irvine, CA36 Chandler, AZ37 Turlock, CA38 San Francisco, CA39 City of Industry, CA


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Upper Midwest Locations

1 St. Paul, MN2 Baraboo, WI3 Lincoln, IL4 Des Plaines, IL5 Cincinnati, OH6 Cleveland, OH 7 Canton, MI8 Jackson, WI9 Grand Rapids, MI

10 Indianapolis, IN11 Ankeny, IA12 Olathe, KS13 Lincoln, NE14 St. Paul, MN15 Fargo, ND16 St. Charles, MO17 Dublin, OH

18 Columbus, OH19 Monroe, MI20 Danville, IL21 Kansas City, KS22 Bensenville, IL23 Northwood, OH ❶

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Southeast and Gulf Locations

1 Little Rock, AR2 College Park, GA3 Calera, AL4 Ocoee, FL5 Concord, NC6 Columbia, SC7 Geneva, AL8 Jackson, MS9 Jacksonville, FL

10 Knoxville, TN11 Memphis, TN12 Nashville, TN13 Harahan, LA14 Selma, NC15 Medley, FL16 Riviera Beach, FL17 Palmetto, FL

18 Charlotte, NC19 Orlando, FL20 Newnan, GA21 Auburndale, FL22 Lowell, AR23 Forest Park, GA24 Pompano Beach, FL25 Savannah, GA26 Fort Myers, FL27 Tampa, FL28 Winter Park, FL29 Alachua, FL (RDC)30 Atlanta, GA


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18 Winnipeg, MB

19 Etobicoke, ON20 Vancouver, BC

Canadian Locations

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1 Calgary, AB

2 Toronto, ON3 Peterborough, ON4 Edmonton, AB5 Kelowna, BC6 Kingston, ON7 Lakeside, NS8 Milton, ON9 Moncton, NB

10 Dieppe, NB11 Montreal, QC12 Regina, SK13 Mount Pearl, NF14 Thunder Bay, ON15 Mississauga, ON16 Port Coquitlam, BC17 Victoria, BC


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2011 technomic power distributor report: the top 15

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