1. Executive summary
Sysco Corp (SYY) is the leading foodservice distributor in the world, headquartered in Houston, Texas. The company has achieved gradual growth since it was founded in 1969. Some of Sysco’s growth strategies include acquisitions and developing a wide product line. The company generates its revenues through its four major segments; the Broadline, Specialty companies, International, and SYGMA segments. However, the company is in a dynamic and highly competitive foodservice distribution industry. It is therefore fundamental for Sysco to evaluate the external and industry factors that could affect the growth of the company and constantly come up with new strategies to cope with the threats.
This study explores the external environmental factors that have a direct impact on the foodservice distribution industry that could impact the future growth of Sysco. The study also analyses the current competition and driving forces that affect the industry to indicate the current market attractiveness and growth opportunities. The study is important for Sysco by providing insights that can help the company maximize its capabilities and avoid external issues that are beyond Sysco’s control. The analysis is important especially during the ongoing Covid-19 pandemic that has negatively affected the food sector due to restrictions aimed at reducing the spread of the disease.
- Company background
Systems and Services Company, Sysco Corporation (SYY) is an American multinational and a global leader in the marketing and distribution of foods and related products. Sysco is a Fortune 500 company that distributes an array of food products, kitchen equipment, small ware, and tabletops to major restaurants, hotels, nursing homes, education and healthcare facilities, and to other wholesale and retail stores that serve smaller foodservice market. Founded in 1969, Sysco Corp has grown gradually through the acquisition of small distribution companies and it is currently the leader in food distribution with over 330 distribution facilities and a robust international network providing food and related products distribution services to over 90 countries. Majority of the Sysco’s operations are coordinated from the company’s headquarters located in the Energy Corridor in Houston, Texas.
Sysco was founded in 1969 by three co-partners, John Baugh, Herbert Irving, and Harry Rosenthal after the merging of nine small foodservice distributors. Sysco went public in 1970 and began its acquisition process in the same year when the company purchased Arrow Food Distributor (Sysco, 2021). Sysco recorded rapid growth in the subsequent years, as the company acquired several small foodservice distribution companies and built multiple warehouses across North America. The acquisition process was also a way of achieving Baugh’s goal of creating a uniform national foodservice distribution organization that would provide similar distribution of food products and services despite differences in geographical availability.
Currently, Sysco Corp operates under four major business groups; Broadline, Specialty Companies, International, and SYGMA (Sysco, 2021). Broadline OpCos is Sysco’s largest segment that focuses on serving the local market through the distribution of foods and non-food-related products to foodservice sectors, mainly independent and chain restaurant customers, healthcare facilities, government institutions, education institutions, other hospitality outlets, and small foodservice distributors within the local market. Broadline segment locally distributes fresh and canned meat products, dairy products, frozen fruits and vegetables, and canned and dry products to restaurants and other foodservice outlets. Sysco’s Broadline operations account for 77% of the total revenues.
Sysco’s Specialty segment aims at meeting the specific needs of customers within the local market by providing specialized and differentiated foods and suppliers. This segment specializes in the distribution of differentiated products categorized into specialty produce, European imports, supplies on the fly, guest supply, and specialty meat and seafood (Sysco, 2021). The International segment manages the company’s robust international network with operations in over 90 countries. Sysco International Food Group (IFG) is part of the international segment that exports Sysco branded products and specialty products from over 30 US-based restaurant chains. The final group SYGMA, which consists of 16 companies focuses on distributing food and non-food products mainly to chain restaurants. SYGMA is the smallest business unit for Sysco, but it is the second-largest source of revenue for Sysco, contributing 12% of the company’s total revenue.
- Purpose of the study
The purpose of this study is to analyze the external and internal factors that determine the operations of and success factors for Sysco Corporation. Sysco operates in h highly competitive foods distribution industry with all types of players, thus making it essential for the company to implement various strategic steps that can help the company cope with the competition, retain and/or increase the current market share, and achieve its global expansion goals without facing extreme industry challenges. This study will therefore provide key insights on the external forces that determine the growth of the business. The study will also help in determining the way forward that Sysco Corp could implement to retain the current market share and counter the forces brought by key competition.
The external analysis aims at exploring the macro environment where the organization operates and the external forces that could influence organization decisions. Sysco operates in a general market with various demographic traits, socio and economic factors, political and legal regulations, changing technology, and effects of globalization. The company decisions can also be influenced by external factors and trends that affect the entire foodservice distribution industry trends and competition. The external analysis comprises of analysis the general environment, industry analysis, and competition analysis.
- General environmental analysis
The general environment comprises all the external factors that can affect the industry and all the forces that are beyond the influence of the organization. Changing trends and forces of the general environment have a significant influence on the ability of the industries and the firms within them to succeed at the local and global market levels. Tracking the forces and trends of the general environment can help the executives determine the level of influence and implications that such forces can have on the industry. Understanding the full picture of the general environment involves analyzing the opportunities and threats available in major segments including demographic, economic, political and legal, technological, socio-cultural, and global segments.
- Demographic segment
The foodservice distribution industry serves every demographic segment in society. However, changes in demographic traits can also have a major influence on the demand and subsequent industry growth. In particular, players in the foodservice industry should be keen on understanding factors psychographic needs of the consumers, population changes, changes in levels of income, and family structures among other factors, as they play a key role in determining buying behaviors and changes in demand for the products and services.
The population growth rate has been dynamic and varies significantly across the global markets. In the US and Canada, the population growth has been decreasing annually since the 1960s, with an increasing number of the aging population and low numbers of young populations. Such trends are as a result of reducing mortality rates and increased life expectancy. Population growth in Canada is mainly attributed to increased immigration. The global working age has also declined significantly since 2012 (The World Bank). Nevertheless, the population with a significant amount of disposable income has increased in the last decade as a result of increasing sources of sustainable income and reputable employment rates.
The family structure has also changed significantly, with an increased possibility of family eat-outs increasing. Further, millennials and generation Z account for the majority of the population, and the majority either in formal employment or self-employed. Millennials and Generation Z are more likely to eat out in a restaurant compared to the older generation that prefers homemade food (Fallon, 2019). Overall, the decreasing population growth is likely to affect the demand for the products and services provided by the foodservice distribution industry in the future. However, the current trends that include income stability and availability of disposable income, likelihood to dine in a restaurant, and family structures indicate a stable market for the industry’s products and services.
- Economic segment
The global economic segment is constantly changing due to changes in indicators that influence market performance and the ability to spend in hotels and restaurants. Economic elements include general decline or growth of the economy, inflation rate, interest rate gross domestic product (GDP), levels of employment and unemployment, and availability of disposable income. The world economy has experienced significant growth since 2009 after major industries were negatively affected by the 2008 economic recession. The world GDP has been increasing gradually at an average rate of 3.8 percent since 2009, especially in countries where Sysco operates. However, the growth rate had once again been affected by the Covid-19 pandemic that had affected the operations within the foodservice distribution industry and the hospitality industry which is the major customer for the industry products and services.
Inflation is also a key indicator that shows whether economies are stable to guarantee potential industry growth. Since 1990, most developed countries such as the United States and Canada have had a controlled inflation rate below 6 percent. Increasing unemployment rates and stable foreign exchange rates as well as the government and international monetary regulations have all contributed to the decreased inflation rate. However economic crises and the current decline in economic growth as a result of the Covid-19 pandemic have destabilized inflation rates with a potential increase in the future. The current unemployment rate that resulted from massive layoffs as a result of the pandemic will also affect the availability of disposable income and purchasing power in the short-term.
- Political/legal segment
The foodservice distribution industry is highly regulated and changes in any political and legal aspect could impact the operations of the firms within the industry. The production and distribution of food products are regulated by the Food and Drugs Administration (FDA) in the United States which is the local market for Sysco’s operations. Other legal bodies such as the Food Safety and Inspection Service agency (FSIS) also regulate the production and distribution of egg, poultry, and meat products. There are legal bodies that inspect and regulate the entry of new food products into the market, to ensure they are safe for human consumption and prevent the commercialization of products with potential risks. The foodservice distribution firms must therefore adhere to the legal aspects such as packaging, labeling, refrigeration, safe distribution, and storage processes, and ensure that the packaging and storage processes adhere to the required hazard analysis and critical control points.
Furthermore, political factors and the government play a major role in shaping the future of the business and influence factors such as tariffs and international trade relations. Political stability in itself influences the economic stability essential for industry growth. Further, relationships between countries could also impact industry growth. Weak political ties affect trade relations such as imports and exports between the affected countries. For instance, the recent fallout between the US and China and the exit of the United Kingdom from the European Union could affect international trade relations and the exportation of specialty food products. Besides, different countries have different rules and regulations that control operations and investment decisions. Firms in the foodservice distribution industry should therefore be aware of the diverse legal requirements that could affect the operations.
- Social-cultural segment
The social and cultural environment can play a significant role in the success or failure of a business. Multinational companies in the foodservice distribution industry operate in different countries with diverse cultural practices and beliefs, and such factors influence the consumers’ buying decisions. The firms involved in the distribution of foods and related products must study the cultural and social norms of the actual and target markets to understand the needs of the consumers and meet them effectively. Increased education and literacy levels also play a role in influencing consumer protection and consumer awareness. Consumers are becoming more knowledgeable on factors such as pricing, organic versus genetically modified food, and health factors among other issues.
The social values and attitudes of different consumers also affect the success of the businesses. Issues such as religious beliefs, rituals, and lifestyle patterns could affect consumer expectations toward the products and services provided by firms. Changing social issues such as demand for healthier meals and could influence the need for hotels, restaurants, and other food outlets to incorporate a variety of healthier menu items to choose from. Cultural trends such as the growing consumer activism are likely to impact the acceptance of food and related products in existing and target markets. As a result, foodservice distributors will be forced to understand the varied cultural norms and trends and learn to expand their product line to include food items such as vegetables with higher market demand.
- Technological segment
Technology has played a critical role in improving products and services, and in supporting major operations within the food industry, including marketing, inventories, logistics, customer engagement, and management of distribution and sales management. As a result of new technologies, foodservice distributors are able to manage fleets and logistics management to ensure timely delivery, manage sales, and increase automation in product developments, packaging, and storage. Furthermore, most firms in the foodservice distribution industries have warehouses in various geographical locations. Such companies can manage their inventories, maintain customer relations, and monitor marketing and sales with the help of computer systems such as the enterprise resource management.
Furthermore, firms have invested in research and development to come up with new product development ideas and find ways of streamlining the supply chain at the local and international markets. For instance, foodservice distributors have been able to complete transactions through online platforms, thus reducing total lead time. Consumers can also research more on the nutrition values of a food item before making the buying decision. The major drawback that technology has on the industry is that; new technologies bring a challenge to players in the industry as consumers can compare factors such as prices and delivery times over the internet, thus increasing their purchasing power. Firms should also be technological threats such as cybersecurity issues that could put the important company and consumer data at risk. Firms should thus invest in data management and disaster recovery plans as the issue of data privacy and cybercrimes are likely to haunt the industry as new technologies emerge. The foodservice distribution firms such as Sysco should also learn to implement new technologies to keep up with the competition and aid in managing operations and in improving products and services to suit the changing needs of the customers.
- Global segment
Globalization continues to influence global operations for multinational corporations positively and negatively. On the positive side, most firms import specialty food and non-food products from different parts of the world which increases selection options for the local consumers in the United States. Similarly, the firms can introduce locally produced food products to other parts of the world where they operate. However, such trade relations could be affected by issues such as poor acceptance due to cultural differences and price fluctuations. Global issues such as climate change, diseases, labor shortages, and natural calamities could also affect pricing and industry operations that are mainly reliant on the agricultural sector. There are also rising concerns on the level of commitment that the food industry has towards issues such as environmental sustainability. Most customers prefer to be associated with food outlets that consider sustainability as part of their core values.
Firms within the foodservice distribution industry must be up-to-date with the current and future, especially since such issues have a direct impact on the commodity food and beverage pricing index. The prices of raw materials for various food commodities have been on the rise for the last 10 years as a result of issues such as changing weather conditions, and labor markets (World Bank, 2016). This trend portrays a likelihood of a continued increase in food commodity prices. The effort to squeeze the prices to maintain a stable selling price and rising costs of distribution are, therefore, going to affect profit margins for the industry players.
- Summary of general environmental analysis
The general environment analysis highlights some of the external factors that could affect the growth of the foodservice distribution industry in the short and long-run. Demographic analysis shows that decreasing population growth is likely to impact demand for products and services. However, population size also plays a role in determining future demand whereby; millennials and gen Z make up the highest population size, and they are more likely to eat out in major restaurants.
The economic segment will also play a critical role in determining future growth for the industry. Major issues such as inflation rates and economic recessions are likely to affect the prices of major food and non-food commodities. Furthermore, the economic effects of Covid-19 are likely to affect major industries as major steps taken to prevent the spread of the virus resulted in the closure of major business operations especially the hotel and hospitality industry which is the main consumer of food distributors. However, the stability of the local and global GDP guarantees market stability for the industry.
The political and legal aspects also continue to influence businesses in the foodservice sector as organizations have to align the operations to meet the legal requirements of the global and regional market segment. Political stability and stable trade relations between countries also enable firms to import specialty products and expand operations in new markets. Companies within the food distribution industry must also be aware that they could be subject to lawsuits if they fail to adhere to the laws and regulation related to food safety, packaging, labeling, storage, transportation, and wage laws set by the national, state, and local governments in various countries of operations.
The social and cultural segment is an emerging issue that directly impacts the operations of the firms within the foodservice distribution industry. This offers firms the opportunity to search for new suppliers that can provide food products that meet the social and cultural needs of the customers. Firms should also be more open in providing necessary information on the food products to meet the concerns of the customers.
Technology is also becoming part of day-to-day business operations while presenting opportunities and threats for the industry. Therefore, businesses should keep up with the evolving technology that can be used to add value and improve product development, sales, marketing, and aid in inventory and logistics control, and improved customer relations. Firms should also be aware that the internet and social media sites play a role in influencing consumer buying behavior, as customers spend most of the reading product reviews and comparing features and prices.
Finally, the global segment offers opportunities to the industry as firms can expand to the global market and import specialty products to increase product offerings for the local consumers. On the negative side, globalization has made global issues such as climate change, wars, and environmental sustainability concerns a problem for everyone and such issues could affect the supply chain and pricing for the food product producers and distributors.
- Industry analysis
Industry analysis encompasses a thorough analysis of the food distribution industry which Sysco is part of, to understand the factors that drive the industry. The analysis takes a look at the market growth, trends, and the level of competition that is likely to affect Sysco’s market share. Understanding the industry will enable Sysco to review its current strategy and determine whether the strategy can help the organization cope with the competition or whether there is a need to change the strategy.
- Description of the industry
The foodservice distribution industry plays a major role in distributing foods and related products to the communities across the United States and the rest of the world. Major foodservice outlets such as restaurants, hotels, education and healthcare institutions, military bases, and retail outlets rely on the firms in the industry to provide fast and efficient delivery of fresh food supplies. According to the International Foodservice Distributors Association (IFDA, 2020), the industry maintains an efficient supply of food and related products to over one million restaurants and other food outlets in the US market. The industry is estimated to make $280 billion annual sales. The industry also contributes $51 billion of the US GDP which is equivalent to 0.25 percent of the total US economy (IFDA, 2020).
The industry operates under three main components; logistics that define transportation media and routes to ensure fast and efficient delivery, transportation infrastructure comprising of the truck fleet, warehouses, and mode transportation modes; and technology aspect that helps in warehouse, logistics inventory, and services management.
The industry has to keep up with the changing market dynamics to ensure efficient service delivery and effectively meet the changing needs of the customers. Firms in the industry should always be aware of the new trends such as the growing need for organic and healthier foods and other changing social and demographic changes, legal issues, and economic factors that could have a direct impact on the industry.
- Industry dominant economic features
The foodservice sectors in the United States have been able to recover gradually since the economic crisis in 2008. The sector has also faced various challenges such as shortages in raw materials as a result of the changing weather conditions and calamities and the increasing costs of production and distribution. The recent outbreak of the Covid-19 pandemic has further worsened operations of the foodservice distribution industry with customers opting to buy from local vendors, cash-and-carry outlets, and online purchases. However, the industry is expected to recover and grow as the pandemic subsides in future, as the market for food and food-related products is always available.
- Market size
The foodservice distribution industry is valued at $280 billion as of 2017. The industry is highly fragmented with approximately 15,000 local and regional distribution centers across the US and Canada (IFDA, 2020). Sysco has the highest market share of approximately 16 percent and an estimated revenue of $52.893B in 2020 (Macrotrends 2021). Sysco revenues are generated from its four main business segments; Broadline which makes up the company’s main operations, the Specialty companies segments, and the International segment that maintains a global customer network. SYGMA on the other hand specializes in distributing food and non-food products to restaurant chains. The second and third largest actors in the industry are the US Foods Corporation and Performance Food Groups with market shares of 10% and 7% respectively.
- Market growth size
The foodservice distribution industry has recorded positive growth for the last decade. The growth rate was however disrupted by the emergence of the Coronavirus pandemic in early 2020 that caused Sysco revenues to drop from $60.114B to $52.839B in 2020, which is a 12.01% decline (Macrotrends, 2021). The industry growth size is uncertain at the moment, prompting key actors in the industry to invent new ways of keeping in touch with the customers and ensure steady business operations.
- Industry trends
Most of the trends that could affect the future growth of the food distribution industry revolve around the demographic, social, and cultural changes in society. One of the trends that are currently raising concerns is the growth of the consumer segment that is more health-conscious and prefers organic and low calories products (Wunderlin, 2018). Understanding the needs of such customers can prompt companies to focus more on providing products with a balanced diet and ensure that the nutrition facts of each commodity are clearly labeled on the packaging materials.
Another notable trend is the increasing food consumer market that is mostly represented by the millennials. The millennials are more likely to eat out, prefer a variety of food choices, and are curious in knowing the source and food preparation process. This trend is coupled with the increased disposable income as the millennials enter the workforce (Fallon, 2019). With the psychosocial traits of the millennials that include curiosity and exploring new cultures through food, actors in the industry must be keen to uphold transparency and ensure a variety of products that this consumer segment can choose from.
Five forces analysis
The five forces analysis is a model that was introduced by Michael Porter to help businesses analyze market attractiveness and competitiveness (Porter, 2008). According to the model, market attractiveness is determined by the existing competition, bargaining power of the suppliers and consumers, threats of new entrants, and threats of substitutes. By gauging the competitive weight of each force, management at Sysco can be able to come up with strategies that can be used to increase competitiveness and also explore profitable opportunities in the industry.
Threat of new entrants
The food distribution industry is a highly attractive sector with limited restrictions as long as the new entrant meets the required legal standards. The cost of starting a business is also minimal, especially for small distributors. New entrants in the industry bring in new methods of doing things and also put pressure on Sysco as new businesses increase competition. This prompts the company to review its pricing strategy, review channels of distribution, and invent new propositions that will attract customers. To cope with the threat of new entrants, Sysco should maximize economies of scale to reduce the costs of production. The company should also invest more in R&D and be more innovative and add new products to their product line to successfully meet the needs of existing and potential customers.
Power of Suppliers
Food wholesalers and distributors rely on various suppliers where they get the raw materials, thus making the bargaining power of the suppliers relatively high. Powerful suppliers, particularly the ones supplying specialty products can utilize their bargaining power and sell their products at a higher price, which consequently affects Sysco’s profit margins. To cope with such threats, Sysco should build an efficient supply chain that incorporates various suppliers. The company should also establish a long-term relationship with dedicated suppliers to minimize instances of raw material shortages.
- Power of Buyers
Consumers play a critical role in determining the success or failure of a business. Buyers in the food distribution industry are highly demanding and have high bargaining power. The changing costs of buyers are low as customers can choose to consume food products that meet their preferences. There is also the availability of a variety of related food products that customers can choose from, and this makes it easy for them to consider several factors such as price, quality, and physical attractiveness. To cope with buyers’ bargaining power, Sysco should invest in marketing strategies that will enable the company to build a large customer base. Sysco should also come up with new products and pricing strategies that meet the needs of the buyers. Finally, the company can come up with innovative ways of differentiating its products to make them more appealing and unique.
- Power of Substitutes
Sysco distributes a wide range of products to individual and chain restaurants and other foodservice outlets in over 90 countries, thus creating a wide range of options that the customers can choose from. Substituting products can be risky for restaurants as it could compromise food safety. The switching costs are also relatively high. Thus, the threat of substitutes is low. However, Sysco can still tackle the threat of substitutes by being more service-oriented and understanding the needs of the customers that could force them to opt for the substitutes.
- Intensity of Rivalry
The intensity of rivalry in the foodservice distribution industry is high due to the stiff competition, and companies have to constantly invent new ideas to remain relevant and improve profit margins. The industry was approximated to have more than 15,000 distribution centers located in various geographic regions in the US (IFDA, 2020). The current rivalry and anticipated future rivalry will affect the company’s profitability in the long-term. Thus, Sysco should implement measures such as product differentiation and look for opportunities in emerging markets to expand market size for their products.
- Summary of industry analysis
The analysis indicates that the foodservice industry is a fragmented and highly competitive sector with over 15,000 distribution centers and total annual revenue of $280billion. The industry has experienced major economic constraints that have affected its growth. The current Covid-19 pandemic has, in particular, affected revenue margins of the key players, where Sysco’s annual revenue declined by 12.01% in 2020.
Porter’s five forces also conclude that the industry is highly competitive with high rivalry between the existing firms, a high consumer and suppliers bargaining power, and low threat of substitutes. Since the existing customers are unlikely to shift to new products due to issues such as safety and hazard risk factors, companies should invest in techniques that aid in improving product quality and safety.
- Industry Driving Forces
Industry driving forces include major forces that could cause changes to the industry and competition. They include the external environment factors and changes in the industry that could shift supply and demand for the company’s core products and services. Such forces also influence market entry and exit, industry growth or decline, and strength of the competition.
- Summary of external and industry analysis
The external environment analysis indicates that the foodservice distribution continues to be affected the economic, demographics, social, political and legal, and global segments. Demographic traits such as decreasing population growth and increased number of millennials who opt to eat out guaranteed a stable market for food products. Economic issues such as increased interest rates and inflation are likely to affect product pricing. On the other hand, political stability guarantees a stable economy and possible international global expansion opportunities. However, this aspect also reminds companies to understand different legal requirements for different countries that govern the food sector.
The industry analysis also presents a highly competitive and fragmented industry that is likely to grow gradually despite the current slowdown caused by the pandemic. Porters 5 forces analysis indicates the existence of several threats including the existing rivalry, high consumer bargaining power, high bargaining power of suppliers, and low barriers for new entrants. This could mean that actors in the industry could consider factors such as product differentiation, utilize economies of scale to lower cost, and opt to diversify into the new emerging market with fewer global competitors.
- Key driving forces
Consumer preferences could affect business operations positively or negatively. The current trend where customers prefer healthier food characterized by low fat, sodium, and cholesterol content and instead offer canned products with higher fiber content could force distributors to diversify their product line to offer a wider selection for the customers (Wunderlin, 2018). Furthermore, the need for convenience means that distributors should come up with online platforms where customers can easily place their orders, raise concerns, and get more information on the newly available products and services.
Costs associated with logistics and the rising cost of food
Lowering storage and distribution costs is a critical factor for companies to lower the cost of production. However, increasing fuel prices and utilities such as electricity is making it difficult for the companies to cut on such cost. This could force companies to seek alternative sources of energy to ensure proper refrigeration and fleet operation. Further, the changing weather conditions are likely to negatively affect the availability and prices of raw materials. Such factors could lead to the increased prices of the processed food items. Also, the global population is increasing rapidly and with the expansion of companies such as Sysco in the global market, the demand for food and related products is likely to become more than what the distributors can offer. However, global trading opportunities are likely to be affected by unfavorable trading regulations as the governments try to protect the interests of their local food distributors.
This section highlights the key industry players and their market share. The section also evaluates the strengths, weaknesses, and strategies of the competitors that could affect operations at Sysco.
- Industry competitors
The food distribution industry is highly competitive with significant local and regional distributors that compete directly with Sysco, although Sysco holds the highest market share of 16% (Sysco report, 2020). Customers can also opt to buy produce directly from suppliers, wholesale and retail outlets, grocery stores, and cash and carry outlets. The major rivals of Sysco are US Foods with a market share of 10%, Performance Food Group with a 7% market share, and Gordon Food Service that occupies 3.5% of the US foodservice industry market share (Yahoo Finance, 2021).
- Rivals anticipated strategic moves
US Foods Corporation
Sysco’s biggest competitor, US Foods Corporation is pursuing its expansion plan by acquiring new ventures. For instance, the US Foods entered into an agreement with Services Group of America, Inc. (“SGA”) where the company anticipated buying the SGA and all its group companies as estimated cost $1.8 billion cash. US Foods has also invested widely in e-Commerce tools and mobile services to help in delivering efficient services and improve customer experience.
Performance Food Group Company (PFGC)
PFGC is the third-largest food and related products distributor in the United States with an estimated market share of 7%. The company has a strong presence in the Southwest, Eastern seaboard, and the Midwest. Performance Food Group Company competes directly with Sysco in distributing food and food-related products to individual and chain restaurants, education and healthcare institutions, food outlets, and other outlets across the American market. PFGC stresses on the triple–bottom line approach as the most effective strategy to grow. The company also aims at acquiring new ventures to expand the current market share.
- Summary of Competition Analysis
The analysis shows that Sysco operates in a market that is highly competitive fragmented, and subject to forces including the bargaining power of suppliers and consumers. The industry is also dominated by strong actors such as the US Food Corporation and Performance Food Group Company that threaten to shrink Sysco’s market share. The analysis also indicates that majority of competitors are likely to affect the market share of Sysco’s Broadline segment that is the main source of revenue for the company, while SYGMA and specialty companies segments have lower threats of substitutes. While the industry is highly attractive with available market and high profits, actors in the industry must be vigilant in terms of resources and capabilities to cope with competition and withstand industry threats.
- Industry Key success factors
The analysis has highlighted that the foodservice distribution industry is fragmented, dynamic, and highly competitive. Companies within the industry should thus utilize key success factors to succeed.
Economies of scale
One of the industry’s key success factors is through utilizing the benefits of economies of scale. As a result of the high number of players, companies must be prepared to share the market and expect a low profit margin. However, utilizing economies of scale can help to generate mass production at reduced costs and also lower distribution by utilizing larger fleets, thus enabling companies to offer competitive prices for their products and services.
Strong Supply chain
Further, building a stronger supply chain can help companies to manage their distribution networks at minimal costs to reduce the risks. A strong supply chain could include establishing a strong relationship with diverse suppliers, having a strong logistics and distribution network, and improving customer relationship management.
Finally, the analysis shows that acquisition is a key success factor that most industry players have used and continue to use to grow and expand their market presence. As compared to building a business from scratch, acquiring an already established enterprise guarantees the company of an existing market share and customers. The move is also less expensive as the company is likely to incur less marketing expenses and instead focus on more important aspects such as product diversification.
No time to work with samples? Order from an essay writer here and get a paper in no time!
Fallon, C. (2019.). The Future of Foodservice Distribution: Trends and Strategies behind the Rapidly Growing Industry. LIDD. https://cdn2.hubspot.net/hubfs/2694811/LIDD%20eBooks/LIDD-Future%20of%20Foodservice-En.pdf
Kalish, I. (March 2021). Weekly Global Economic Update. Deloitte Insights. https://www2.deloitte.com/us/en/insights/economy/global-economic-outlook/weekly-update.html
Macrotrends (2021). Sysco Revenue 2006-2020 | SYY. https://www.macrotrends.net/stocks/charts/SYY/sysco/revenue
Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 86(1), 78-93.
Sysco (2021). The Sysco’s Story. https://www.sysco.com/About/Company-Profile/The-Sysco-Story.html
Sysco (2020). 2020 Annual Report. Form 10-K. https://investors.sysco.com/~/media/Files/S/Sysco-IR/documents/annual-reports/Sysco_2020-Annual-Report_Web%20_FINAL.pdf
The International Foodservice Distributors Association (2020). A Comprehensive Economic Impact Study of the U.S. Foodservice Distribution Industry. IFDA. https://www.ifdaonline.org/news-insights/research-insights/reports/foodservice-distribution-industry-economic-impact/ifda-economic-impact-study-final.aspx
US Foods (2018). US Foods Holding Corp Form 10-K. https://www.annualreports.com/HostedData/AnnualReportArchive/u/NYSE_USFD_2018.pdf
Yahoo Finance (2021). Sysco Corporation (SYY). https://finance.yahoo.com/quote/SYY/profile?p=SYY
Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2011). Crafting and executing strategy: The quest for competitive advantage: concepts and cases. McGraw-Hill-Irwin.
Wunderlin, A. (May 2018). Foodservice Distributors Adapt to Consumer Trends. Food Logistics. https://www.foodlogistics.com/transportation/3pl-4pl/article/21002407/foodservice-distributors-adapt-to-consumer-trends
World Bank (2016). Development Goals in an Era of Demographic Change: Global Monitoring Report 2015/2016. The World Bank. http://pubdocs.worldbank.org/en/503001444058224597/Global-Monitoring-Report-2015.pdf