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Seminar in Strategic Management

MGMT 6359

STRATEGIC CASE ANALYSIS OF SYSCO 1

TABLE OF CONTENTS

1. Executive Summary ............................................................................................................4

2. Company History ................................................................................................................5

2.1. Background ...................................................................................................................5

2.2. Purpose of this study .....................................................................................................6

3. External Analysis ................................................................................................................6

3.1. General Environment ....................................................................................................6

3.1.1. Demographic Segment ...........................................................................................6

3.1.2. Economic Segment ................................................................................................9

3.1.3. Political and Legal Segment ................................................................................. 12

3.1.4. Socio-Cultural Segment ....................................................................................... 13

3.1.5. Technological Segment ........................................................................................ 13

3.1.6. Global Segment ................................................................................................... 14

3.1.7. Summary of General Environment Analysis ......................................................... 15

3.1.8. Driving Forces ..................................................................................................... 16

3.2. Industry Analysis ........................................................................................................ 18

3.2.1. Description of the Industry ................................................................................... 19

3.2.2. Industry Dominant Economic Features ................................................................. 19

3.2.3. Market Size .......................................................................................................... 20

3.2.4. Market Growth Rate ............................................................................................ 22

3.2.5. Industry Trends .................................................................................................... 23

3.2.6. Five Force Analysis ............................................................................................. 24

3.2.7. Industry Key Success Factor ................................................................................ 31

4. Internal Analysis ............................................................................................................... 32

4.1. Organizational Analysis .............................................................................................. 33

4.1.1. Corporate Mission................................................................................................ 33

4.1.2. Product and Services ............................................................................................ 33

4.1.3. Leadership ........................................................................................................... 34

4.1.4. Organizational Culture ......................................................................................... 34

4.1.5. Structure .............................................................................................................. 35

4.1.6. Strategy ............................................................................................................... 36

4.1.7. Summary of Organizational Analysis ................................................................... 38

4.2. Analysis of Firm Resources......................................................................................... 39


4.2.1. Tangible Resources .............................................................................................. 39

4.2.2. Intangible Resources ............................................................................................ 40

4.2.3. Summary of Firms Resources .............................................................................. 42

4.3. Capabilities ................................................................................................................. 42

4.3.1. Value Chain Analysis........................................................................................... 43

4.3.2. Core Competences and Sustainable Advantages ................................................... 46

4.3.3. Summary of Firms Capabilities ............................................................................ 47

4.4. Financial Analysis ....................................................................................................... 48

4.4.1. Valuation Analysis ............................................................................................... 48

4.4.2. Growth Analysis .................................................................................................. 49

4.4.3. Profitability Analysis ........................................................................................... 50

4.4.4. Financial Strength Analysis .................................................................................. 51

4.4.5. Management Efficiency Analysis ......................................................................... 53

4.4.6. Summary of Financial Analysis ........................................................................... 54

5. Strategic Issues Analysis ................................................................................................... 56

5.1. Critical Challenges ...................................................................................................... 56

5.2. Resources and Capabilities .......................................................................................... 58

5.3. Strengths or Weaknesses Analysis............................................................................... 62

5.4. Opportunities or Threats .............................................................................................. 63

5.5. Summary of Strategic Analysis ................................................................................... 64

6. References ......................................................................................................................... 66

7. APPENDIX A ................................................................................................................... 69


LIST OF FIGURES

Figure 3-1 – Population growth rate of the United States, Canada, Ireland and the world. ...........7

Figure 3-2 – Resident total population (USA), 2010. ...................................................................8

Figure 3-3 – United States – Accomodation and Food Services – Sales of Establisments with

payroll, 2007 by State. ............................................................................................9

Figure 3-4 – Gross Domestic Product growth rate for USA, Canada, Ireland and the world. ...... 10

Figure 3-5 - Gross Domestic Product per capita for USA, Canada, Ireland and the world. ......... 10

Figure 3-6 – Crude Oil Prices .................................................................................................... 11

Figure 3-7 – Inflation for USA, Ireland and Canada .................................................................. 12

Figure 3-8 - Commodity Food and Beverage Price Index .......................................................... 15

Figure 3-9 – Food Manufacturing Production Index .................................................................. 20

Figure 3-10 – Sysco’s sales by customer and product types. ...................................................... 21

Figure 3-11 – Sysco’s revenue from 2002 to 2012. .................................................................... 22

Figure 3-12 – Five Forces that shape industry competition. ....................................................... 24

Figure 3-13 – Sysco’s Competitive Landscape .......................................................................... 29

Figure 4-1- Michael Porter’s Generic Value Chain .................................................................... 44

LIST OF TABLES

Table 3-1 – Summary of Five Forces Analysis .......................................................................... 30

Table 4-1 – Sysco Growth Rates ............................................................................................... 50

Table 4-2 – Sysco Profit Ratios (http://www.morningstar.com – Oct. 16th

2013) ....................... 51

Table 4-3 – Financial Strength Ratios (Source: http://www.morningstar.com and

http://www.barchart.com) ....................................................................................... 53

Table 4-4 – Management Efficient Ratios ................................................................................. 54

Table 5-1 – Critical Challenges ................................................................................................. 58

Table 5-2 – Strategic Fit Analysis ............................................................................................. 59

Table 5-3 – Sysco’s strengths and weaknesses........................................................................... 63

Table 5-4 - Sysco’s opportunities and threats ............................................................................ 63

Table 5-5 – Main challenges for Sysco ...................................................................................... 64

Table 5-6 – SWOT analysis....................................................................................................... 65


1. EXECUTIVE SUMMARY

Sysco is the largest food distributor in the world. Although this is an important

achievement, the company has even greater challenges ahead to maintain its position as a leader

of its industry. It is fundamental that the company continues to evaluate its strengths and

weaknesses in order to better prepare itself to face threats and opportunities.

This study conducts a thorough analysis on the external and internal environments which

enable the company to know what the possible occurrences in the market are and also how its

strategy is aligned to face them. Several key information were obtained through this study, such

as driving forces, industry key success factors, company’s strategy, resources and capabilities.

Moreover, a comprehensive analysis shows how the company is prepared to handle the

challenges from external and internal environments. The goal is to identify the major challenges

that Sysco will face and evaluate its core competences, which encompasses its resources and

capabilities. The analysis will confront both challenges and core competences to evaluate how

prepared the company is to overcome the possible issues.

Finally, the study presents the strengths, weaknesses, opportunities and threats which will

enable the company to adapt its strategy to face the upcoming challenges. The results of this

study provide a clear insight of the company’s capabilities and how Sysco can address specific

issues to continue on its successful path.


2. COMPANY HISTORY

2.1. Background

Sysco, Systems and Services Company, was founded in 1969 by John Baugh and it

specializes in marketing and distributing foods and related products. Baugh’s first company and

eight other small companies merged in order to form one company: Sysco. The company

quickly became public on March 3rd

, 1970 when the company achieved $115 million in sales.

Sysco with its rapid growth and through several acquisitions has become the world’s largest food

distributor with sales of $44 billion for fiscal year 2013, employing 48,100 employees and

servicing 425,000 customers. The company operates from 193 locations throughout the United

States, Bahamas, Canada and Ireland and it is headquartered in Houston, Texas.

Sysco distributes food and related products and services to approximately 425,000

customers such as restaurants, educational institutions, healthcare, hotels, and other

organizations. Sysco's line of products includes about 400,000 items, including fresh and frozen

meats, seafood, poultry, fruits and vegetables, beverages, dairy foods, canned, dry and baked

foods, and also food related items such as paper and disposable items, chemical and janitorial

products, and medical supplies. Furthermore, Sysco has three operating segments; Broadline,

SYGMA and Specialty Companies in order to meet specific customer requirements.

Sysco is ranked at number sixty five on the fortune 500 list based on total revenue and its

stocks are traded in the New York Exchange under the ticker symbol SYY.


2.2. Purpose of this study

The purpose of this study is to analyze the external and internal environments that affect

Sysco’s business in order to obtain the driving forces and key success factors. These forces and

success factors will then be assessed against company resources and capabilities in order to

understand whether or not the company is prepared to face them. Furthermore, the current

strategy of the company will be assessed to verify if it is currently suited to face the challenges

identified on the driving forces and key success factors. Finally, the critical issues/challenges

will be identified in order to generate recommendations that will prepare the company to

overcome these challenges.

3. EXTERNAL ANALYSIS

The external analysis studies the macro-environment that the organization faces which

can often influence organization decisions. This analysis comprises of a general environmental

analysis and an industry analysis.

3.1. General Environment

The general environment analysis scans and assesses the external forces and trends that

can impact the organization’s industry and its markets. The data from this analysis assists the

company to prepare and situate themselves in a competitive environment. In order to obtain a full

spectrum of the general environment, several segments of the environment are analyzed such as

demographic, economic, political/legal, socio-cultural, technological and global.

3.1.1. Demographic Segment

The food distribution industry reaches every demographic segment of our society and it is

particular important to evaluate and understand how the demand can be affected by population


growth. Since this industry is highly focused on logistics, it is important to identify what areas of

the population are expected to have growth or reduction. This information assists on planning the

future demand for food, since more businesses such as restaurants, hospitals and other businesses

are expected to be established in these areas.

In the United States, Canada and Ireland, which are the markets for Sysco, the population

growth rate has been decreasing since 1960 as Figure 3-1 shows, except for Ireland which has a

very volatile growth rate since the population is relatively small and rates will tend to have a

higher variation. Also this plot shows that after the financial crisis in 2008, the growth rate in all

countries had a sharp decline which makes perfect sense since people usually postpone their

plans of having new family members until the financial market stabilizes. Moreover, this graph

shows a smooth decline on the world’s population growth rate since 1960. Even though the

growth rate is decreasing the population growth has been increasing by an average of 75 million

people every year, therefore every 14 years the population grows by 1 billion people (World

Population, 2013).

Data source: World Bank, World Development Indicators, Last Updated April 23, 2013

Figure 3-1 – Population growth rate of the United States, Canada, Ireland and the world.


The United States alone is growing by around 2-3 million people every year. These

numbers are very significant and Sysco can benefit from this growth since more restaurants,

hotels, hospitals and other businesses will be established in these markets. The Figure 3-2 shows

the most populated states in the United States which could generate more demand and logistics

efforts for Sysco. However, it is very interesting to compare Figure 3-2 and Figure 3-3 because

some states that have small populations actually are the ones that generate more sales in the

accommodation and food services which correspond to Sysco’s market focus. Note that Nevada

is the 35th state regarding population size and the 5

th state that generates more sales of

accommodation and food services. This is mainly due to the tourism industry in Las Vegas. Also

Florida and California are the states amongst the ones that present very high sales for

accommodation and foods. These graphs can assist Sysco to better situate in these markets that

have a lot of potential to sell food products.

Source: http://www.indexmundi.com/facts/united-states/quick-facts/all-states/population#chart

Figure 3-2 – Resident total population (USA), 2010.

http://www.indexmundi.com/facts/united-states/quick-facts/all-states/population#chart


Source: http://www.indexmundi.com/facts/united-states/quick-facts/all-states/accommodation-and-food-services-sales#chart

Figure 3-3 – United States – Accomodation and Food Services – Sales of Establisments with payroll,

2007 by State.

3.1.2. Economic Segment

The economic segment identifies critical economic factors that can influence the market

performance and influence how much money people spend with food in hotels, restaurants and

several other businesses in the food market.

There are several economic indexes that provide a comprehensive economic situation of

countries where Sysco is located. The Figure 3-4 shows the annual GDP (Gross Domestic

Product) growth rate for the United States, Canada, Ireland and the whole world. Basically these

countries follow the same trends. Ireland is more volatile but still follows the same trend. In 2009

all countries experienced a sharp reduction in GDP with a negative growth rate which shows a

contraction of the economy. Overall the GDP per capita has been increasing since 1999, except

during 2008 and 2009 due to the financial crisis according to Figure 3-5. The world’s GDP per

capita has been gradually increasing every year. Again Ireland shows more volatility and it is

noticeable how its GDP per capita drastically reduced between 2008 and 2009. This data is

important to Sysco and provides a perception that in the event of a crisis, countries like Ireland

http://www.indexmundi.com/facts/united-states/quick-facts/all-states/accommodation-and-food-services-sales#chart


can experience a more severe reduction on consumption due to the contraction of GDP per

capita.


Figure 3-4 – Gross Domestic Product growth rate for USA, Canada, Ireland and the world.


Figure 3-5 - Gross Domestic Product per capita for USA, Canada, Ireland and the world.

Another key economic factor is the gas prices which can greatly increase costs for several

industries and usually affects inflation. The Figure 3-6 provides the oil price behavior along 10


years from August 2003 until August 2013. The oil price depends on several factors such as

political and economic (Roubini & Setser, 2004). Therefore, there is a significant volatility and it

is hard to predict future oil prices. For instance, a crisis or a war in a producing country can

trigger a drastic market reaction and the oil prices can spike and significantly impact several

businesses such as Sysco which relies on gas prices to calculate transportation costs for its

distribution fleet. This graph shows how the price went up between 2006 and 2008 due to

economic growth around the world and suddenly in 2008 when the financial crisis hit the market

the oil prices lost almost 70% of its value.

Source: http://www.indexmundi.com/commodities/?commodity=crude-oil&months=120

Figure 3-6 – Crude Oil Prices

Inflation is an important indicator that shows whether or not the economies are stable.

The Figure 3-7 shows the inflation for the United States, Canada and Ireland. Since 1990, the

countries had the inflation controlled below 6% for Ireland and below 4% for Canada and the

United States. Due to the financial crisis these countries experienced deflation and since then

there is an upward trend for inflation. All these countries are injecting a lot of incentives into the

market in order to try to reduce unemployment rates and to bring the economy back to a healthy

http://www.indexmundi.com/commodities/?commodity=crude-oil&months=120


position. Therefore, these countries are expected to have higher inflation in the upcoming years

while Federal Banks removes these incentives to stabilize the economy.


Figure 3-7 – Inflation for USA, Ireland and Canada

3.1.3. Political and Legal Segment

The food industry is subjected to several regulations which can be national, regional or

local rules, not only for production but also for sales of food products. The Food and Drug

Administration (FDA) in the United States provides the regulation for food safety whereas the

Food Safety and Inspection Service agency (FSIS) is responsible to ensure the safety of poultry,

egg and meat products.

Recently a significant amount of products have been introduced to the market and as well

as organic and genetically modified food (Azadi & Ho, 2010). Even though these are promising

products, there is a potential risk for companies which commercialize these products since most

of them are still being assessed and their effects on human beings are not fully known. Also

countries have different rules for these products and not all of them have the regulations in place

for distribution. It is not recommended to distribute such products before they are all approved

by the competent agencies of each country.


3.1.4. Socio-Cultural Segment

The society, especially in the developed countries, is showing more interest in healthier

foods (Dimitri & Greene, 2002). Hotels, hospitals and restaurants will seek more options to

provide a healthier meal. Several fast-food chains are already incorporating salads, vegetables,

and fruits to their menus. A growing segment of the society is requiring better options and

diversification of healthier foods.

Ultimately, this will change the demand for healthier options and it might require the

food industry to search and develop new suppliers. It is important to build a supply network prior

to competitors since these foods require more efforts to produce and distribute than industrialized

foods.

3.1.5. Technological Segment

Technology is highly embedded into the food industry in several different segments from

production to distribution. In the distribution segment, clients are requiring faster order times and

also simpler ways to handle the whole order process. In order to achieve this, Sysco has to

continue improving the technology to manage their inventories. Warehouses with efficient

climate control, software applications to manage product selection and inventory are a few

examples where technology can make a difference for the company and its clients. It is

important to provide the best solutions to clients in order to enable them to focus on their core

businesses. Faster online applications to place order, payments, and control customers’ accounts

can easily help the company to acquire more clients and create a solid relationship with them.

Furthermore, the distribution of foods can be benefited from technology when better

packaging can be achieved to save and optimize space for distribution. New technologies are

reducing the weight of the packages which are helping companies to save on fuel costs and


increase the number of food packages on a vehicle. Also it is important to follow the new

enhancements on new fleet vehicles which can significantly save fuel and make the

transportation and operation more efficient.

3.1.6. Global Segment

The globalization is still offering challenges and opportunities to the food industry

(McCorriston & Sheldon, 2003). Several products are imported to the United States daily, which

increase the product selection for the internal market. However, this can introduce a challenge

when prices are affected by external uncertainties. Products and commodities such as sugar,

corn, and soy can present some price volatility due to, for instance, an impact on harvests around

the world. They can be affected by climate, labor shortages or strikes which will challenge the

margins on these products.

The Figure 3-8 shows the commodity food and beverage price index. During the last 10

years the trend is upward which means that the price is growing in the long-term. The price more

than double during these last 10 years, even taking into account the sharp drop on the index that

happened during the financial crisis in 2008. Therefore, the pressure to hold the prices for the

consumers until the demand can starts showing signs of growth can squeeze the profit margins

for distribution.


Figure 3-8 - Commodity Food and Beverage Price Index

3.1.7. Summary of General Environment Analysis

The environmental analysis discusses some trends and events that can affect Sysco’s

performance for the next years. Demographics analysis shows that the population growth rate is

decreasing where Sysco is established as well as the world population. Although the growth rate

is decreasing, the population size is still increasing significantly as previously mentioned which

enables Sysco to continue growing in these markets. Also it was presented that even though

some states don’t have the higher population; they have a higher concentration of hotels and

tourism services which can really benefit food services in these areas generating high sales

volume.

In the economy segment, Sysco can expect some pressure of higher food prices due to the

recovery of a significant crisis in North America and Europe. Therefore, Sysco might see some

turbulence in order to keep prices low while suppliers increase their prices due to higher costs of


production as gas, labor and other products are getting more expensive due to higher

consumption and possible greater inflation in the upcoming years.

The socio-cultural segment presents new social trends where there is a crescent interest in

organic and healthier foods. This can offer Sysco some opportunities to develop and search new

suppliers and offer these foods to its customer’s network. In this scenario of new food products,

several countries are researching and offering genetically modified foods which can generate

some risks regarding regulation in the Political/Legal segment for Sysco.

The technology is quickly evolving and companies have to follow new tendencies to

succeed. Mobile applications, inventory management with software assistance, better product

packaging, are some of technology improvements that can add value to customers and make the

company more efficient.

Lastly, the Global segment imposes challenges due to globalization and commercial trade

among different nations. Wars, civil rebellions and any other significant occurrence on the

producing countries can affect supply and also the prices for many food products. The positive

side of globalization is the increased number of products offerings and also due to

competitiveness the prices are not subjected to forces applied by monopolies.

3.1.8. Driving Forces

Driving forces are external forces which have the power to change the company’s

strategy and generate a new challenging scenario for the company’s business. That’s the reason

companies should identify these forces as early as possible in order to prepare and adapt

themselves for the new environment.

Sysco distributes foods related products, therefore they are subjected to food price

variation since they are not manufacturing or producing them. Since Sysco is very well


established in the market and it is the largest world’s food distributor, one of the greatest

concerns for them is how to reach the greatest number of customers while maintaining low costs.

Therefore, the driving forces that can affect Sysco are: customer preferences and the major costs

associated with food prices and transportation costs.

Customer Preferences

Recently the media is emphasizing how important is to consume healthier foods. There

are a lot of discussions about the nutrition facts on the foods, especially on the fast-food

chains products. High content of sodium, fat, cholesterol and sugar on these types of

foods are the reason society is demanding healthier and better product selection.

This trend will force providers such as Sysco to offer less frozen and canned foods, which

will lead to offer fresher and also organic foods due to less pesticides used. The industry

might shift and move toward an infrastructure where producers can offer more organic

and natural foods instead of heavy industrialized foods.

Major costs associated with food prices and transportation costs

Regarding costs, it is known that the developing countries will force the commodities

prices to rise over time. For instance, China and India, which are the most populous

countries in the world and together account for 36% of the world’s population, are

economically growing in a faster pace than developed countries’ economies. This will

bring a huge part of the world’s population into a new level of consumption. If the middle

class of these countries increase, it will mean that a high percentage of the world’s

population will consume more which ultimately will drastically drive the food prices to

rise (Von Braun, 2008). Also countries such as India, China and Brazil export a lot of

their food products and commodities to the United States. Therefore, commercial trading


among these countries can be challenging if these countries create harder trading

regulations in order to protect their own internal markets. These actions can lead to

higher food prices in the United States, especially if the demand for fresher and organic

food increases.

In addition to food prices, fuel costs are hard to predict and very volatile in the world’s

market. Since Sysco is very reliant on fuel prices which are the great part of its

transportation costs, the volatility of fuel prices can drastically harm Sysco’s financial

performance. These costs can force Sysco to develop better and more efficient ways to

distribute food in order to keep prices down and decrease its dependency in fuel prices

which can lead them to change their fleet. For instance, they can replace some gas

powered vehicles with electrical powered vehicles. Also Sysco can be forced to search

and develop new local suppliers in order to be less dependent on foreign suppliers. As

previously discussed in the general environment analysis, it is extremely important to

Sysco to understand the impact of these changes in order to continue to be profitable and

successful in the future.

3.2. Industry Analysis

A thorough analysis within the food distribution industry will be developed in this section

in order to examine several factors which will provide an insightful perspective of the current

environment where Sysco is established. This analysis will enable Sysco to evaluate its current

strategy and how they stand against its main competitors to understand whether or not a change

is needed.


3.2.1. Description of the Industry

The food distribution industry is responsible to provide food products and related services

to customers such as restaurants, educational facilities, lodging establishments, hospitals among

other foodservice customers. There are several challenges within this industry, since customers

require fast and reliable delivery and fresh products with as many varieties as possible.

This industry is comprised of three main components: 1) Transportation infrastructure,

which encompasses vehicles fleet, roads, airport, railroads and etc… 2) Technology, which is

applicable to warehouses, storage, and climate controlled facilities. 3) Logistics in order to define

better and faster routes and transportation media to ensure the products will be delivered on time.

New customer’s preferences require flexibility and adaptability for the companies in this

industry. For instance, nowadays customers are keen to consume more healthy foods such as

organic fruits and vegetables, foods with less sodium and other harmful ingredients. Therefore, it

is essential to follow consumers’ trends in order to have the right product selection to offer.

3.2.2. Industry Dominant Economic Features

The United States food sector has been recovering from the financial crisis which led to

significant volatility and instability for food commodities prices and also for foodservices

businesses such as restaurants. Therefore, during this time, margins and profits for these

businesses were negatively affected. Also recent drought conditions in some producing states

worsened the price issue.

Recently due to the recovery of the economy in the United States, the foodservice

businesses are expecting to grow. In 2012, the food industry grew 3.7% in manufacturing output

while beverages increased 3.8%. Continuing the same trend in 2013, this industry is expected to

grow by 2% (Food Industry Outlook, 2013). The Figure 3-9 shows the behavior of food


manufacturing production index and it is clear when the crisis hit the market, then there was a

period where the index was almost flat during 2009 to 2011 and since 2012 the production index

has been sharply growing. This means that the distribution market can expect to grow since more

food is being produced and businesses such as restaurants are expecting to add more units into

the market (Dayton Business Journal, 2013).

Source: (Food Industry Outlook, 2013)

Figure 3-9 – Food Manufacturing Production Index

In addition to market growth the major food distributors are actively merging and

acquiring several other small companies. Sysco and US Foods are the main companies that are

doing mergers and acquisitions in order to increase their market shares.

3.2.3. Market Size

The food service market in the United States is valued around $235 billion dollars in

2013. Sysco is the leader distributor in the United States with 17.5% of the market which

generates revenue around $42 and $44 billion in 2012 and 2013 respectively (Sysco, 2013). The


second largest food distributor and main competitor of Sysco is US Foods which generated

revenue of $20 billion in 2012 and has 8.5% of market share. Sysco is divided in three operating

segments: 1) Broadline which is comprised of 95 companies distributing a full line of food

products and corresponds to 81% of Sysco’s sales; 2) SYGMA which has 17 companies

distributing a full line of non-food products and corresponds to 13% of Sysco’s sales; 3)

Specialty companies which provides specialized and differentiated food products and generates

6% of Sysco’s sales (Sysco, 2013). The Figure 3-10 shows the distribution of sales by customer

type and product type (Russell, 2013).

This market is very fragmented and presents a huge opportunity for Sysco to acquire

more market share since the two largest distributors combined have only 26% of the market.

Both Sysco and US Foods have been acquiring and merging several companies in order to grow

their businesses and market share.

Source: http://investors.sysco.com/files/doc_downloads/FactSheet_4Q13_FINAL.pdf

Figure 3-10 – Sysco’s sales by customer and product types.

http://investors.sysco.com/files/doc_downloads/FactSheet_4Q13_FINAL.pdf


3.2.4. Market Growth Rate

The food distribution industry has been growing at an average of 5% a year since 1980

(The Castle Focus Fund, 2012). This is expected to continue for the next years and it is aligned

with Sysco’s 2013 revenue of $44 billion which is around 5% of growth compared to 2012.

Some volatility can occur and markets can react to either direction as occurred during

2008 to 2010. Although the food industry tends to react smoother compared to other industries

since people need food to survive, and what can occur is a shift on product selection which can

hurt premium products sales in favor of cheaper products.

Overall, the market is expecting to go upward as the economy signals are favorable to

the foodservice industry. The Figure 3-11 shows the revenue performance of Sysco during the

last 10 years. It is clear that after a drop during 2008 and 2009, there is an upward trend which is

expected to continue on the next years.

Source: Data retrieved from Sysco’s financial statements.

Figure 3-11 – Sysco’s revenue from 2002 to 2012.

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3.2.5. Industry Trends

One of the major trends identified on the food industry is the growth of organic and

healthy foods. Nowadays people are more aware of the benefits of a balanced diet with less

sodium, fat and cholesterol which can improve consumers’ health. It is becoming more important

to understand the nutrition facts labeled on the food products. The consumers want to know what

they are actually eating in order to manage their health better. Therefore, healthy/natural and

organic foods are expected to keep getting consumer interests and sales are likely to grow.

According to the Organic Trade Association (OTA’s) 2012 Organic Industry Survey, the

sales of organic food and beverages in the United States have grown from $1 billion in 1990 to

$29.22 billion in 2011. While the food sector grows around 5% every year, the organic foods are

growing by 9.5% showing that this market has a high growth potential since organic foods have

higher price than conventional foods . Moreover, organic foods represent only 4.2% of all food

sales in the United States which means that there is a huge market to be conquered for organic

foods. Also the same survey expects organic foods to continue to grow by 9% or more every year

(Organic Trade Association, 2012).

It is extremely important for Sysco to adapt to this new scenario where natural and

organic foods will continue to grow and therefore, Sysco has to develop its suppliers to increase

products output, adapt its fleet and warehouses to store these new products in order to meet

demand requirements.

Another significant trend in the United States is the urban farms. These urban farms can

be established in several places such as community land, small size lots, rooftop gardens and

etc… Several of these farms are being created in the United States. The greatest benefit is the

reduction on transportation which can significantly affect food costs. These farms are located


inside the urban area which facilitates distribution. Farmers markets have been experiencing a

large growth during the last decade (Singleton, 2012). The United States Department of

Agriculture (USDA) reports that this market grew from 1,755 in 1994 to 7,175 farmer markets.

3.2.6. Five Force Analysis

Michael Porter introduced a model which is largely used in order to assess the

attractiveness of the industry. It is important to understand these forces since they directly affect

the company’s profitability and competitiveness in the market. This model is presented on

Figure 3-12 which shows competitive forces in five different areas: Threat of new entrants;

power of suppliers; power of buyers; power of substitutes and intensity of rivalry (Porter, The

five competitive forces that shape strategy, 2008).

Source: Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 86(1),

78-93.

Figure 3-12 – Five Forces that shape industry competition.


3.2.6.1. Threat of New Entrants

New entrants can jeopardize profits of the companies that are already in the market.

Considering that the market will not experience any drastic surge in demand, it means that new

entrants can absorb part of the demand which will lead to decrease sales of the established

companies.

In the food distribution service there are a lot of competition and the industry is already

very fragmented. As already mentioned the largest company, Sysco, has only 17.5% of the

market and the second largest has around 8.5%. Therefore, the competition is fierce and the

margins are very low. This industry requires huge upfront investments in warehouses,

transportation fleet, inventory management, technology and also regulation compliance in the

food distribution business. Logistics in big territorial states like Texas is not a simple task for

medium and small companies. There is a large territory to cover with distribution centers and

warehouses that need a significant amount of investments and business knowledge to perform

these tasks efficiently.

Even though Sysco has only 17.5% of the market, its revenue is approximately $44

billion and combining Sysco’s economies of scale power, the scenario for new entrants is not

favorable. Therefore, the threat of new entrants for Sysco is very low.

3.2.6.2. Power of Suppliers

The food distribution industry relies on a very large supplier network. Sysco and its

partnerships with suppliers can distribute around 400,000 different products (Sysco, 2013).

Therefore, Sysco has built a large group of suppliers which compete with each other for better

prices. Suppliers which provide products, such as perishable items, don’t have much bargain

power since there is no brand recognition involved and they are treated as commodities.


However, some suppliers can have high bargain power in case they have some

characteristics such as uniqueness, better quality, perform better than others or brand recognition.

For such products, suppliers can dictate the prices but they will position their products in the

high end segment differentiating them and customers are expected to pay more for these

products.

Sysco has a large customer base and therefore Sysco suppliers have more market

penetration if they choose Sysco as the distributor of their products. If the product is easily

substituted by another product, suppliers will be interested in provide a good price in order to

keep Sysco as a client. Moreover, suppliers cannot neglect the fact that Sysco has a very large

distribution network where it can reach several businesses and can help them to expand further

their brands.

Overall, the power of suppliers is low due to Sysco’s large supplier network and low

dependency on a single supplier. However, some products and brands can exert some pressure on

Sysco due to its uniqueness, brand recognition and customer preferences which might affect

profits in this segment in case end customers don’t want to absorb the cost. This is expect to

occur on a small product selection and will not significantly affect Sysco’s profitability.

3.2.6.3. Power of Buyers

Customers can drive prices higher and lower depending on their demand. Some

commodities prices are volatile and prices change every day, such as sugar, corn and etc… But

prices for consumer cannot vary every day and therefore margins can vary either way.

Sysco is in the middle of the chain between end-consumers and producers. The company

has to balance the forces from both sides where the producer might want to increase prices and


the end-consumer might want a lower price. If both things happen at the same time, Sysco

profitability can be significantly affected.

There are more than 16,500 distributors to compete in this market, therefore buyers can

easily switch food distributors (Sysco Corporation, 2010). Many local and regional distributors

are present in this market which is very fragmented and highly competitive with very low

margins.

The threat of buyers is considered to be high since customers can easily select another

distributor which is readily available. Sysco has an advantage due to its economies of scales

which can enable Sysco to spread its costs on large number of products. Therefore, it is

fundamental to keep this advantage since there are many alternatives of different distributors. If

Sysco loses this advantage and/or quality of distribution service decreases, a high number of

customers can switch to other distributors.

A significant event happened to Sysco recently (Nguyen, et al., 2013). The poor storage

of products, which could have caused a severe impact on consumer’s health, can damage the

company’s image and position. If a large number of customers switch to another distributor due

to poor operational management, it can change customer confidence on Sysco as preferred

distributor and ultimately it will drastically affect company’s profitability.

3.2.6.4. Power of Substitutes

As previously mentioned, Sysco distributes around 400,000 products; therefore it

provides a huge selection and options for a diverse product line. Customers can choose different

products based on preference or price. The largest customers for Sysco are the ones in the

restaurant businesses which correspond to 61% of Sysco’s revenue according to Figure 3-10.

These restaurants cannot substitute their products often without compromising quality. The


customers of the restaurants expect the same or better quality each time they consume the food.

If a restaurant changes the product because of the price and the quality of their food decrease,

most likely they will lose clients. Especially chain restaurants, it is particularly difficult for them

because they have to offer the same quality and same food in several restaurants.

The threats can happen when businesses such as restaurants demands specific products.

For instance, organic foods which are experiencing a growing demand during recent years. Sysco

is aware and made all the necessary arrangements to offer these products which can substitute

non-organic foods. If Sysco doesn’t meet customers’ needs, they can lose customers which will

affect profitability. As long as Sysco offers a large selection of products and follows new trends

reaching several segments, the power of substitutes tends to remain moderate.

3.2.6.5. Intensity of Rivalry

One of the best indicators to show if an industry is highly competitive is the profit

margins. Sysco has a profit margin between 2 and 2.5%. This is a very low margin and shows

how this industry is competitive. If Sysco increases the price, it will most likely lose customers.

Therefore, due to this intense and competitive scenario with low margins and high competition,

profits can be affected which makes the intensity of rivalry very high.

3.2.6.5.1. Industry Competitors

The major competitors of Sysco are US Foods with 9% of market share, Performance

Food Group (PFG) with 5% of market share and Gordon Food Service (GFS) with 3.5% of

market share (Sysco Corporation, 2010). It is important to note that 58% of the market is

distributed for 16,490 distributors as shown on Figure 3-13.


Figure 3-13 – Sysco’s Competitive Landscape

3.2.6.5.2. Rivals Anticipated Strategic Moves

The largest competitor for Sysco is US Foods, which is continuously acquiring new

companies in order to increase its market share. Since this industry has a lot of small players,

competitors such as US Foods can easily acquire them and expands its businesses.

Sysco has to be vigilant in this market and also take advantage of opportunities to acquire

other companies in order to expand or maintain its market share. This will demand large

investments and this is particularly challenging since the economy is still in recovery mode and

businesses such as restaurants are still yet to recover.

3.2.6.6. Summary of Five Forces Analysis

In order to evaluate the industry competitive attractiveness, it is important to analyze its

business segments. This will allow Sysco’s to evaluate each business unit and how they stand

against competitors. As previously mentioned Sysco is divided into three business segments:

Broadline, SYGMA and Specialty Companies.

The table below shows the summary of the five force analysis for each business unit in a

short-term and long-term perspective.


Competitive Forces Broadline SYGMA

Specialty

Companies and

Others

Now Future Now Future Now Future

Buyer Leverage H H H H M M

Supplier Leverage L L L L H H

Threat of New Entrants VL VL VL VL M M

Threat of Substitutes M M L L L L

Intensity of Rivalry VH VH VH VH M M

Profit Potential M M M M H H

Rating Key

VL =Very Low ; L = Low; M =Moderate; H = High; VH = Very High

Table 3-1 – Summary of Five Forces Analysis

The Broadline business unit corresponds to 81% of Sysco’s revenue, and therefore it is

the one that can mostly affect the company’s profit (Sysco, 2013). As discussed previously, the

forces that are most significant are the intensity of rivalry and buyer leverage. This is due to the

fact that this industry is very competitive with several thousands of companies in a highly

fragmented industry. The SYGMA business unit has the same results except for the threat of

substitutes which is low. This unit is more focused on chain restaurants and as previously

mentioned chain restaurants don’t usually substitute their products since they have to standardize

all products across all locations. The Specialty Companies business unit is the smallest one with

6% of Sysco’s revenue. Since they provide special products, they differentiate from the

Broadline products and they focus on higher quality products with higher margins. For this

reason, the suppliers have more leverage since they provide specific products which might not be

available with other suppliers. Also the buyer has a moderate leverage since it is more difficult to

find substitutes and the competition isn’t as fiercer as the broadline products. Hence, this unit can

be more profitable than others. The amount of sales will be lower but profit margins can be

greater, consequentially the profit potential for this unit is greater than the others.


It is extremely important to understand that this industry has a great attractiveness

regarding profits, but in order to achieve this profitability the company has to possess significant

capabilities and resources since the profit margin is low, especially for business units such as

Broadline and SYGMA. The Specialty products does not require a large infrastructure as the

other business units and it generates higher profit margins and less competition which has more

potential for smaller companies to get into this market as indicated on Table 3-1.

3.2.7. Industry Key Success Factor

As previously discussed, this industry is highly competitive and fragmented. Several key

success factors were identified in order for the company to succeed in this industry.

Economies of scale

A company to succeed in this industry most likely will need to survive with low profit

margins. Several large companies distribute foods throughout the United States and

competition is fierce. If a company has no ability to sell products with low profit margins,

it will not be able to compete and therefore lose market share. Conversely, if a company

can expand its businesses, it can generate a larger profit. Even though their margins will

continue to be low, but due to the magnitude of the sales, distributors can generate higher

profits by distributing their costs over a larger business. This is a huge advantage and

leverages the company to beat competitors’ prices.

Supply Chain Network

In order to distribute food, the company has to build a strong supply chain network with a

diversified group of suppliers, extensive warehouse facilities for several different

products and a strong transportation system. The system has to be developed in order to

minimize bottlenecks and increase efficiency to reduce costs.


Global Presence

Global geographic presence is also a very important factor in order to diversify risks and

markets. In other words, if a specific location is experiencing an economical crisis; other

locations might be experiencing growth which can support the company in difficult

times. For instance, during the financial crisis in the United States between 2008 and

2009, several developing countries were experiencing a high growth, such as China, India

and Brazil. This can help the company to offset its losses in some declining markets with

profits in some growing markets.

Acquisitions

In order to be successful, a business must grow and this growth can be built through

organic growth, increasing sales, and also through inorganic growth, by acquiring

competitors or other related companies. This industry requires several different assets and

also the expertise to operate them efficiently. Therefore, acquiring other companies can

substantially increase market share and create opportunities to operate in different

markets through established companies which already has the expertise in such markets.

4. INTERNAL ANALYSIS

The external environment was meticulously discussed in the previous sections and in

order to know how the company is positioned against these external factors an internal analysis

is needed. Therefore, the company’s competitive advantages and its value chain are going to be

discussed and evaluated which will provide a clear understanding of the company’s resources

and capabilities to face its competition.


4.1. Organizational Analysis

This section discusses Sysco’s organizational structure. Sysco distributes foods to

approximately 425,000 customers in the United States, Canada and Ireland through a network of

several local companies.

Sysco’s operations encompass three regions in North America which includes eight

markets in the United States, one located in Canada and operations in Ireland. The following

sections will present the company’s mission, products, culture, structure and strategy.

4.1.1. Corporate Mission

According to Sysco’s annual report (2013), its mission statement is: “to market and

deliver great products to our customers with exceptional service”. Whereas Sysco’s vision is: “to

be our customer’s most valued and trusted business partner”.

4.1.2. Product and Services

Sysco’s products and services are organized into three segments: Broadline, SYGMA and

Specialty Company (Sysco, 2013). The Broadline companies provide food distribution to several

foodservice companies such as restaurants, hotels, educational institutions, entertainment

establishments and others. SYGMA serves multi-unit customers through its seventeen operating

companies which provide a full line of food and non-food products. This segment is focused on

chain companies providing them operational expertise and logistics. The Specialty Companies

serve customers who are looking for differentiated products, therefore this segment provides

exclusive, exotic and niche food products such as fresh produce, several European imported

products, fresh seafood and meats among others.


Overall Sysco and its partners distribute around 400,000 products and each location

provides customized service to meet local customer requirements which helps them to create

long lasting relationships between Sysco and customers.

4.1.3. Leadership

Leadership positions at Sysco are fundamental to keep the company successful since they

need to thoroughly integrate several operating companies and its marketing, sales and supply

chain departments in order to ensure they all run efficiently.

Sysco provides leadership programs to its senior operations positions such as the

Management Development Program (MDP), which is an on-the-job training program. The goal

is to increase the pool of diverse talent in senior leadership positions.

William J. DeLaney was named Chief Executive Officer in March 31, 2009 and has been

with the company for 25 years where he developed extensive knowledge in leadership,

management, corporate strategy, finance, accounting and supply chain management. Delaney as

a leader has the responsibility to guide and influence his team to maintain Sysco’s market

position by implementing Sysco’s strategy.

4.1.4. Organizational Culture

Sysco has been growing significantly during the recent years and one of the methods of

growth is acquiring another companies. Therefore, Sysco is constantly merging organizational

cultures from its acquisitions. Due to its several operational centers Sysco has a strong

decentralized culture. Sysco’s beliefs and values are based on integrity, reliability,

entrepreneurship, quality and autonomy. These values are the foundation for Sysco’s culture

(Hess & Kazanjian, 2007).


Another interesting fact is that 65% of Sysco’s employees have company shares which

reinforce the bond between the company and its employees. This allows the company to give its

employees ownership which will make them to embrace the idea to be more efficient and more

cost effective in order to enjoy better rewards from Sysco’s stocks. This reward system makes

the employees more productive since they will be rewarded by their work.

Sysco has one of the best retention rates of the market which means that they retain 82%

of its sales employees which helps to create a strong relationship with customers. Moreover, they

achieved 99% of retention for office employees that have an average of 20 years of service

within Sysco. Regarding promotion, Sysco fills over 95% of its job positions with its employees

giving them opportunity for career growth (Hess & Kazanjian, 2007).

4.1.5. Structure

Structure of a company is composed by three elements, infrastructure, social structure

and superstructure. The infrastructure is the chain of command on the company. This is best

represented by the organizational chart. This chart shows the flow path to all departments and

employees and how they are structured in the company. It is fundamental to define this structure

in order to understand how the communication and decisions will flow through the required

departments and key personnel. The APPENDIX shows Sysco’s organizational chart for the

Board of the company and senior management.

The social structure defines the interactions among the company’s employees. This is

very important to ensure people have social interactions to better communicate issues, ideas and

suggestions. Sysco is constantly promoting team building events in order to enable social

interactions among its team members.


The superstructure is also important for the company where the upper management can

embed the company’s culture and values. As discussed in section 4.1.4, the culture of the

company will set beliefs and guiding behaviors of the company and its employees.

4.1.6. Strategy

4.1.6.1. Current Strategy

In order to achieve organization’s mission and vision, a company needs to create a game

plan or a list of actions to achieve its goals. This game plan is known as strategy of a firm. An

organization needs to clearly identify which competitive strategy should be employed (Porter,

1998). Managers should indentify how the company wants to attract its customers in order to

strengthen its core competences (Porter, 1996).

Before a company creates its game plan, it has to select one of the five key competitive

strategies: low-cost, broad differentiation, best-cost, focused low-cost and focused differentiation

(Thompson, Strickland, & Gamble, 2011). Due to the great competitiveness of the food

distribution industry, Sysco is working on the best-cost provider strategy which is different from

low-cost strategy as Wal-Mart adopts. Sysco wants to provide the best value for the customer’s

money by providing not only low cost but also an upscale difference on some of its products

which creates a competitive advantage from others low cost providers. The profit margin in this

industry is very low and cost is one of the key drivers of this segment. Therefore, Sysco creates

value by providing a low-cost product but also a great quality product and service through its

supplier partnerships to improve customers’ experience.


4.1.6.2. Components of Strategy

Sysco’s has defined a five-point strategy according to its annual report (Sysco, 2013).

Below the five-point strategy is presented:

“Profoundly enriching the experience of doing business with Sysco”

This first point strategy is related to the technology that Sysco uses to attract its customers.

The company always looks at ways of improving their relationships with customers by using

the technology such as web applications.

“Continuously improving productivity in all areas of the business”

This strategy point takes care of improving their transportation and storage facilities and also

enhancing their processes to be more productive.

“Expanding our portfolio of products and services by initiating a customer-centric innovation

program”

Sysco wants their customers to create a relationship with them and they created mobile

applications on iPhone, iPads and Android phones in order for them to access recipes, tips

and product descriptions.

“Exploring, assessing and pursuing new business and markets”

In order to gain more market share and grow its business, Sysco always looks for good

opportunities to acquire new businesses and expand its products portfolio.

“Developing and effectively integrating a comprehensive enterprise-wide talent management

process”

Sysco promotes internal surveys in order to gather valuable information in order to know

where they can improve their businesses. This way they can implement ideas to engage their

workforce to work towards the company’s vision and mission.


4.1.6.3. Competitive Strength

Based on Sysco’s strategy, the company is focused to enhance its customers’ experience.

As stated in both Sysco’s mission and vision, the company wants to use its competences to

deliver great products by providing excellent service. Furthermore, Sysco wants to make the

customer its partner. In order to accomplish that, the company is providing several technological

mechanisms through web and mobile applications where the customer will have a personalized

experience.

This creates a competitive strength, by building a trustful relationship with customers not

only by providing the lowest price but improving customer relationship, which will help Sysco to

retain and expand its market share.

4.1.7. Summary of Organizational Analysis

The assessment on Sysco’s organizational structure, culture and strategy as well as its

products and service, provided a valuable insight on how the company is organized and its

capabilities to compete in this extremely competitive market.

Sysco’s organizational structure and culture are well in place to offer its employees and

customers with all the mechanisms to create a strong relationship with them. Sysco’s

management team has a great leadership provided by its CEO who has a large experience with

this business progressing from several leadership and management positions within Sysco. The

culture implemented in the company is focused on a rewarding system where the employees are

rewarded with Sysco’s stocks. This greatly improves the employee’s productivity.

Sysco also has a strong strategy in place in order to meet their vision and mission

requirements which is greatly focused on customers experience and strengthening the

relationships between the company and customers.


4.2. Analysis of Firm Resources

To assess the company’s resources is fundamental to conduct the internal analysis.

According to Barney (1991), “the firm resources are strengths that firms can use to conceive of

and implement their strategies”. This will allow the company to understand how these resources

create capabilities for them to face its competition and to be successful. The following two

sections present two distinct set of resources: tangible and intangible.

4.2.1. Tangible Resources

Tangible resources are the ones that can be quantified, in other words, they are physical

assets and they are classified into four categories: Financial, Organizational, Physical and

Technological.

Financial: STRONG

Sysco has a strong financial position on its market even though this market has a very

low profit margin. It is important to note that Sysco is a publicly traded company on the food

distribution industry. This enables Sysco to acquire resources from the financial market which

can facilitate investments to grow its business. Moreover, sales are continuing to grow by around

5% every year which totaled $44.4 billion dollars according to Sysco’s annual report 2013. This

puts Sysco in a position to acquire small companies. However, Sysco has to control its cost of

sales which are growing on a faster pace than its revenue. The cost of sales is squeezing even

more the tight profit margins which can lead to lower net profits and cause some disturbance for

Sysco to continue invest on its business.

Organizational: MODERATELY STRONG

Sysco’s organizational structure is decentralized and each operating unit has the

autonomy to make decisions to better meet local customer requirements. There are 48,100


employees that support the daily operations. Sysco has directors and senior management

operating in each operational unit. This adds flexibility to the large organization such as Sysco

which needs to operate as flexible as possible to adapt to new market requirements.

Physical: STRONG (in North America and Ireland)

Sysco operates from 193 locations including the United States, Bahamas, Canada and

Ireland. Also Sysco utilizes an extensive transportation fleet in order to deliver its products

throughout these locations. Several distribution centers and warehouses are strategically located

in order to optimize transportation routes. This distribution industry requires strong physical

presence since logistics is fundamental in order to be successful. Sysco is focused on North

America and slowly expanding into Europe but it still hasn’t a strong global presence.

Technological: MODERATE

Every day technology is becoming more present in Sysco’s operations. From how the

way customers place their orders to how warehouses manage inventories, several tasks are being

automated in order to optimize processes and services. According to Sysco’s 2013 annual report,

one example of technology improvement is the fact that the company managed to save 3% in

energy savings in their warehouses and more than 38% since 2006. When technology is applied

efficiently it can reduce operational costs which can greatly improve the company profit margins.

Technology is always evolving and it requires large investments and Sysco has to continue to

seek technologies to improve its efficiency and customer relations.

4.2.2. Intangible Resources

Intangible resources are those that cannot be quantified and measured. For instance,

brands are intangible assets which can be very significant for the company. The value of an

intangible resource can be higher than a tangible resource, therefore it is important to evaluate


them to know their importance to the company. The intangible resources are classified into three

categories: Human Resources, Innovation and Reputation Resources.

Human Resources: STRONG

Sysco has strong human resources division which takes care to maintain and develop

their employees to take leadership positions. Sysco has a very attractive compensation program

to its employees. Also Sysco strives to increase diversity in its group which is portrayed in the

following message: “Creating and maintaining an inclusive environment that elicits the very best

from our associates is essential.” The diversity strategy is applied into four areas: workforce,

leadership, supplier and community (Sysco , 2013).

Innovation Resources: MODERATELY STRONG

Sysco has been innovating how the customers interact with the company. Several web

applications have been introduced in order to help customers to place orders and choose their

products. Also Sysco embedded the innovation into its strategy as the third-point strategy on its

annual report (2013) states: “Expanding our portfolio of products and services by initiating a

customer-centric innovation program”

Reputation Resources: MODERATELY STRONG

Sysco has a strong reputation in the market due to its efficiency and quality of their

distribution services. However, the food industry requires quality all times especially because

food is directly related to people’s health. Therefore, mistakes such as the one which Sysco was

using unrefrigerated drop sites can drastically affect its reputation (Nguyen, et al., 2013). All the

necessary measures have to be in place to avoid these failures in order to keep their reputation.


4.2.3. Summary of Firms Resources

Valuable tangible and intangible resources were discussed in order to understand how the

company can enhance its capabilities to improve its competitive advantages. Overall Sysco has

strong tangible and intangible resources that make them one of the best companies in the food

distribution industry. However, special attention is required to intangible resources which are

more volatile than tangible assets and the company has to continue improving human resources

to enable its workforce to create even better relationship with customers. Also innovation is a

continuous process and new trends are expected to happen every time. Reputation can take years

to build but small mistakes can destroyed it fairly quick, therefore the company needs to strive

for quality excellence on its products and services.

4.3. Capabilities

According to Ulrich and Smallwood (2004) organizational capabilities are “the collective

skills, abilities, and expertise of an organization”. Therefore, the synergy between people and

resources can build the require capability to accomplish goals. The authors suggest that very

often customers don’t know about firms’ assets and tangible resources, but they know their

capabilities. These capabilities can be innovation to serve customers, how efficient there services

are or simply the brand recognition for quality and innovative products (Ulrich & Smallwood,

2004). These are examples of intangible resources and they might be more valuable than

physical assets. Moreover, it can create intangible value for the companies.

Sysco has strong capability in its logistics which is efficient by reducing transportation

and storage costs as well as performing processes focused on customer requirements and needs.

Another capability is that Sysco creates a strong customer as well as supplier relationships by

promoting trust with them. Consequently these relationships endure for a long time which


improves brands reputation and recognition. As Ulrich and Smallwood suggested these

intangible resources are valuable and create capabilities for Sysco that are important to

customers.

4.3.1. Value Chain Analysis

Value chain analysis of a firm has the purpose of identifying the chain of activities that

add value to a product or service for its customers. Understanding its value chain the company

can enable competitive advantage. The value chain is comprised of value activities and margin.

In order to create a valuable product, a firm performs physical and technological activities which

embed value to its buyers. Whereas margin is the result of the total value of the product less the

total cost of executing the value activities.

Value activities can be discretized into two sets of activities: primary and support.

Primary activities are those that are performed to physically create the product, logistics, sales

and aftermarket sale assistance. In any company, these activities can be subdivided into five

categories: Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales and Service.

The support activities are those which support the execution of primary and also other support

activities. They are divided into four generic categories: Firm Infrastructure, Human Resource

Management, Technology Development and Procurement as Figure 4-1 shows below (Porter,

1985).


Figure 4-1- Michael Porter’s Generic Value Chain

Sysco’s value chain analysis is discussed through every category as follows.

Primary Activities

o Inbound Logistics – This activity is focused on the processes for receiving the food and

non-food products. Also how Sysco develops its suppliers as well as creates

partnerships with them which create value to obtain the right products (freshness,

quality, cost and etc...)

o Operations – Sysco has key processes in order to optimize how they use their storage

facilities. The optimal location for installing their operational centers and how they

handle its products are key factors to guarantee that the customers will receive their

product on time and with the required freshness.

o Outbound Logistics – The transportation fleet is fundamental to meet the demand. A

fuel efficient fleet is required in order to keep costs and prices for customers down.

Sysco continues to expand and improve its fleet to enhance outbound logistics.


o Marketing & Sales – Sysco has specific sales workforce on each operational center.

This adds flexibility to the company to meet local customer requirements. Also web

apps were developed in order to improve customers’ relationship, products selection

and order placement.

o Service – Sysco has customer service teams for every operational location. These teams

ensure that the customers have the necessary support even after the products were

delivered. Sysco continues to interact with customers in order to understand their

needs.

Support Activities

o Procurement (purchasing) – Sysco is working along with its suppliers through

partnerships to provide products that customers are looking for. Sysco buyers are also

looking for alternatives to keep costs down to please its customers.

o Human Resource Management – Sysco has effective policies on its Human Resources

which achieved high employee retention (82% of its sales employees and 99% of

retention for office employees that have an average of 20 years of service) . Also Sysco

rewards its employees with company’s stocks which creates ownership and motivates

the team (Hess & Kazanjian, 2007).

o Technological Development – Sysco has been investing in technologies to help them to

be more efficient. An example according to Sysco’s 2013 annual report, they managed

to save 3% in energy savings in their warehouses and more than 38% since 2006. Also

internet technologies have been helping Sysco to facilitate customers’ interactions and

retaining them as a customer.


o Infrastructure – This is the whole support systems for the company which encompasses

legal, administrative, accounting and general management in order to support

operations. Sysco has its infrastructure in place in all operation centers to support its

operations. It is necessary to maintain a lean and efficient infrastructure to keep overall

costs down.

4.3.2. Core Competences and Sustainable Advantages

Core competences are a set of skills/capabilities that create competitive advantages.

These competences shall be hard to imitate and/or substitute, they need to be reusable on other

products or markets, and they need to add value, bringing benefits to customers’ experience.

These competences become the company’s strategic strength against competition.

One of the Sysco’s core competences is the ability to create a large sales volume which

allows the company to lower its costs and reduce its profit margins but remain highly profitable.

This competitive advantage is very strong since a new competitor will be unable to lower its

profit margin and still remain profitable with a lower sales volume. And for a new competitor it

is extremely difficult to have a large sales volume when the company starts its operations and as

well as for some other established competitors since it demands a significant amount of

investments in several operations’ segments. Therefore, this competency is valuable for Sysco

and its customers since it lowers the price for customers and increases market share for Sysco.

The magnitude of this competency is rare, especially in this industry. Sysco is the largest food

distributor in the world and its growth was acquired through several years which makes harder

for any other competitor to overtake Sysco’s position on a short-term period. Moreover, this

competence is not easy to substitute since no other competitor can sustain the same profit margin


with low sales volume. Therefore, these factors make this competence unique for Sysco which

generates a great competitive advantage.

The second core competency is Sysco’s technology in the logistics area. Sysco has a very

strong logistics in order to deliver foods and non-foods products to its 425,000 customers. It is

neither simple nor easy to build an efficient system to handle this magnitude of customer’s

orders, procure the products, store them into warehouses that demand high technology to

maintain products’ freshness, and to deliver them on time. These logistics knowledge have been

built over several years, with large investments on technology and infrastructure which become

extremely difficult and costly to another competitor to achieve this stage of operations efficiency

for such large scale. This core competency is valuable for Sysco and puts them in the forefront of

its industry with capabilities that no other competitor can match.

4.3.3. Summary of Firms Capabilities

Sysco has strong and valuable capabilities to compete and succeed in the food

distribution industry. The value chain analysis demonstrated specific primary and support

activities where Sysco add significant value to its services which customers are benefited.

Sysco has competitive advantages that are unique for the company. The ability to create a

large sales volume with very low profit margins is one of the core competencies that enable

Sysco to be the leader of food distribution system. Also its extensive knowledge as well as the

technology embedded into its logistics and operations department makes another competitive

advantage for Sysco. These core competencies were analyzed and they were found valuable, rare

and extremely difficult to imitate since it would require a significant amount of investment and

time. Moreover, it would be extremely difficult to achieve the knowledge level to perform all

operations required to distribute such a large volume of products.


4.4. Financial Analysis

The financial analysis can generate valuable information regarding the company’s

financial health. Investors, financial analysts and also the company’s top management evaluate

the company financial statements in order to determine whether or not the company needs to

restructure its costs, to invest more and any other strategic moves that need financial support.

Some key analyses such as valuation, growth and profitability are discussed through the

following sections.

4.4.1. Valuation Analysis

The valuation analysis is important in order to evaluate and determine the value of the

business. There are several financial ratios that provide good insight on the company’s

performance and help to evaluate the company’s value.

Several metrics can be used to perform a valuation analysis. The following metrics will

be discussed to evaluate Sysco: Price-Earnings ratio (P/E ratio), Price/Book Value and Enterprise

value/EBITDA (Earnings before interest, taxes, depreciation and amortization). All ratios were

retrieved from yahoo website (http://www.yahoo.com/finance) on October, 16th, 2013.

Price/Earnings ratio

P/E ratio is a measure to show how the investors are expecting earnings’ growth in the

future, in other words, it shows how much the investors are willing to pay per dollar of earnings.

Therefore, if the P/E ratio is high, it means the investor is willing to pay more for each unit of

earnings. However, a very high P/E ratio can be a speculative price per earnings. The ratio is

calculated by dividing the current stock price by the earnings per share (EPS).

Sysco’s trailing P/E ratio (last four quarters) is 19.19 which is a good ratio since the

market average is between 20 and 25. Although, it is difficult to determine whether or not Sysco


is overvalued against its industry peers since most of Sysco’s competitors aren’t publicly traded

companies, Sysco’s P/E ratio is not very high and still can be good opportunity for investors to

buy its shares.

Price/Book ratio

Price to book ratio shows the relation between the company’s stock price and its book

value. The calculation of this ratio is done by dividing the current share price by the book value

per share. A disadvantage of this ratio is that it does not use the intangible assets such as brand

value which can mislead the calculations.

Sysco’s price/book ratio is 3.60. Since this type of business requires huge investments in

assets, the ratio is compatible with Sysco’s industry. For instance, Wal-Mart has a price/book

ratio of 3.39, which is very close to Sysco’s ratio.

Enterprise value/EBITDA

The Enterprise value/EBITDA ratio is calculated by dividing the enterprise value by the

earnings before interest, taxes, depreciation and amortization. This ratio provides a better

understanding of Sysco’s value since it is applicable to a wide variety of companies.

Sysco’s Enterprise value/EBITDA ratio is 8.65 and for instance, Wal-Mart ratio is 7.96.

Again Sysco’s valuation ratios are compatible with similar companies.

4.4.2. Growth Analysis

Growth rates are extremely important on the financial analysis. It helps analysts and

company’s top management to evaluate how the company is growing. This is important in order

to identify whether the company needs more capital for expansion or simply whether or not the

company can sustain its profits. Moreover, the growth ratios can be compared to any company

sizes which facilitate the comparison between companies.


Sysco has been increasing sales/revenue by an average of 5% year over year according to

Table 4-1, however its quarterly earnings has been decreasing -8.5% year over year

(http://www.yahoo.com/finance - Oct. 16th, 2013). This isn’t good for Sysco because even

though the company is growing in sales, its earnings are going down which suggests that the cost

for Sysco to operate is increasing and margins are getting smaller. As the Table 4-1 shows the

net margin dropped 0.7% from 2011 to 2013.

Annual (USD million) 6/30/2013 6/30/2012 6/30/2011

Revenues 44,411.20 42,380.90 39,323.50 Revenue Growth % 4.8 7.8 5.6 Net Income 992.40 1,121.60 1,152.00 Net Income Growth % -11.5 -2.6 -2.4

Net Margin % 2.23 2.65 2.93

Table 4-1 – Sysco Growth Rates

4.4.3. Profitability Analysis

In order to show that the company has the potential to continue to grow and also show

investors that the business is profitable, some profit ratios are analyzed. Essentially sales have to

increase and/or costs have to decrease which will make the profit margins higher.

The Table 4-2 shows that Sysco is reducing its growth every calendar year. All profit

ratios are showing a decline on its profits. As mentioned previously, sales increased but the

gross margin which is sales minus cost of goods sold is declining every year.

The operating income shows the efficiencies of Sysco’s activities. Again, the ratio shows

that sales have been less profitable every year from this perspective which can be related to

increase in operating expenses.

The net margin considers interest expenses and provision for income taxes. This ratio is

also declining and basically there is no change on the interest expenses ratio along the years.


Return on equity (ROE) is a ratio for company’s performance which is the amount of net

income returned as a percentage of stockholder’s equity. From 2010 to 2013, Sysco’s ROE

reduced 12.3%. Even though Sysco has a good ratio, the downward trend can create concerns for

future investments.

Finally, the return on assets (ROA) is the ratio that helps to determine the company’s

operating efficiency on its assets. There is a downward trend again which can raise concerns

about future returns. This trend implies that Sysco is being less efficient over the years.

Annual (USD million) 6/30/2013 6/30/2012 6/30/2011 6/30/2010

Gross profit margin % 17.72 18.11 18.62 19.08 Operating income % 3.73 4.46 4.91 5.31 Net Margin % 2.23 2.65 2.93 3.17 ROE % 20.1 23.9 27 32.4

ROA % 8 9.6 10.6 11.5

Table 4-2 – Sysco Profit Ratios (http://www.morningstar.com – Oct. 16th

2013)

4.4.4. Financial Strength Analysis

The financial strength of a company can be measured through liquidity, solvency and

capital structure. There are several financial ratios for each of this segment which will be

described in the following sections.

Liquidity, solvency and capital structure shows the marketability of the assets of a

company. In other words, it shows how easy is to convert assets into cash. Liquidity provides

creditors, banks and suppliers the ability of a company to meet its financial obligations. Capital

structure and solvency shows how companies are financing their assets.


Current ratio

Current ratio defines Sysco’s ability to pay its short-term liabilities with short-term

assets. It is desirable to have a ratio greater than 1 which means that the company is able to pay

its obligations. Another perspective for this ratio is the ability of a company to turn product into

cash. According to Table 4-3, Sysco current ratio has been above 1 for all periods reported.

There is a small oscillation over the years, but overall this ratio shows that Sysco is able to meet

its short-term obligations.

Quick ratio

The quick ratio is very similar to current ratio, however it excludes inventory. Therefore,

it shows how a company can meet its short-term obligations without converting their inventories

into cash. Quick ratios above 1 is desirable, however it has a large variation across different

industries. Sysco’s quick ratios are very close to 1 which means that the company is able to meet

its obligations without recurring to inventories. Although Sysco is not expected to have issues

converting inventories into cash.

Debt/Equity ratio

Debt/Equity ratio is one of the best ratios to indicate financial leverage. This ratio shows

the extent to which assets are financed with debt. This ratio is calculated by dividing total

liabilities by shareholders equity. A high debt/equity ratio means that the company has been

significantly financing its growth with debt. This can increase risk and interest expense will

increase in the long-run. Sysco debt/equity ratio has an average around 0.5 and it is not

fluctuating much along the years which show that the company is using its debt to finance its

growth responsibly.


Times Interest Earned

This ratio essentially shows how many times a company is able to cover interest payable

using its pretax earnings. It is calculated by dividing EBIT (earnings before interest and taxes) by

total interest payable. This ratio demonstrates the company’s ability to pay back its obligations.

From the ratios on Table 4-3, Sysco has the ability to pay back debt. However, due to

reductions in earnings last year, the ratio went down which it isn’t a good sign for Sysco.

6/30/2013 6/30/2012 6/30/2011 6/30/2010

Current Ratio 1.66 1.78 1.60 1.69 Quick Ratio 0.96 1.07 0.99 1.07

Debt/Equity Ratio 0.51 0.59 0.48 0.65

Times Interest Earned 13.04 16.73 16.45 15.74

Table 4-3 – Financial Strength Ratios (Source: http://www.morningstar.com and

http://www.barchart.com)

4.4.5. Management Efficiency Analysis

The management efficiency analysis evaluates how efficient the company manages to

utilize its assets to increase sales. Several ratios provide indications whether or not the company

is efficient to manage its assets.

Inventory Turnover

Inventory turnover is a ratio that shows the number of times the company replenishes its

inventory. If the ratio is high, it means that the company is actively replacing its inventory which

implies more sales. Lower ratios show that the company has problems to move its inventory.

According to Table 4-4, Sysco constantly move its inventory, however they might watch

closely the downward trend along the years.


Assets Turnover

This ratio is very simple and meaningful since it takes the total sales and divided by total

assets. Therefore, this ratio is an efficiency measure of sales revenue by company’s physical

resources. It is not good when a company has large amount of assets in order to generate low

revenues. Sysco’s asset turnover ratio has been slightly decreasing over the years. This might be

explained by several acquisitions which increases the total assets.

Receivables Turnover

Receivables turnover ratio shows how effective the company is to collect its debts. A

high ratio is desirable in order to show efficiency in the collection of accounts receivable. Sysco

has a very steady ratio along the years which shows consistency in collecting receivables.

Days to sell inventory

This is a very straightforward ratio since it measure how many days it takes to convert

inventory into sales. As Table 4-4 shows, this ratio has been gradually increasing over the years

which is not a good sign for Sysco that has to show efficiency in inventory management.

6/30/2013 6/30/2012 6/30/2011 6/30/2010

Inventory Turnover 15.98 16.32 16.64 17.61 Assets Turnover 3.59 3.61 3.62 3.63 Receivables Turnover 14.44 14.45 14.26 14.65

Days Inventory 22.85 22.36 21.93 20.72 Table 4-4 – Management Efficient Ratios

4.4.6. Summary of Financial Analysis

It is worth note that Sysco is the only large food distributor that is publicly traded,

therefore an effective comparison with its competitors are not possible since many financial

ratios are not readily available for Sysco’s competitors. There is no industry average to compare

with and the analysis is made using Sysco’s numbers and evaluating its trends.


The analysis was subdivided into 5 categories: Valuation, Growth, Profitability, Financial

Strength and Management Efficiency. Regarding valuation, Sysco seems to be corrected

valuated by the market and its ratios shows some compatibility with similar industries. The P/E

ratio of Sysco is negligibly below similar industries averages which means that Sysco seems to

have correct value in the market.

Sysco has been growing in sales consistently over the years; however its net income and

net margins are declining. This can raise a concern since costs are increasing more than revenue.

It is expected that Sysco manages its costs better in order to keep or raise its profit margins.

The profitability analysis shows that Sysco has been experiencing a decline on its net

income. Several indicators, such as profit margin, operating income, ROE and ROA are

declining mainly due to increase in operating expenses. For instance, return on equity has

declined 12.3% in three years and return on assets has declined 3.5% on the same period. Sysco

has to keep controlling its costs and investigate more efficient ways to grow its sales.

Some financial strength ratios were analyzed in order to assess Sysco marketability and

financial leverage. Sysco has very steady ratios on this category which shows financial stability.

The times interest earned ratio is the one that caught the attention due to recent decline in 2013

which implies some higher interest payables for this year.

Finally, the management efficient analysis shows that Sysco have been increasing its

inventory, consequently all indicators of efficiency has been declining. Sysco is increasing its

assets and inventories and this might be related to new acquisitions. Therefore, Sysco has to

devote some attention to stop the downward trend on its efficiency ratios by efficiently manage

its assets and inventories.


5. STRATEGIC ISSUES ANALYSIS

This section describes the implications that the driving forces (section 3.1.8) and key

success factors (section 3.2.7) have in the strategy of Sysco and how the company’s resources

(section 4.2) and capabilities (section 4.3) can react to these challenges.

5.1. Critical Challenges

Any company that participates in a competitive industry faces challenges. Some of these

challenges are originated from the external environment. These challenges are the driving forces

that will force the company to react and adapt itself to the new scenario. The driving forces

discussed on section 3.1.8 are: 1) major costs associated with food prices and transportation costs

and 2) customer preferences. The first driving force can significantly impact Sysco business

since this will drive margin profitability. If food prices rise, demand might reduce especially for

businesses such as restaurants which are the main market for Sysco. Therefore, restaurants will

force Sysco to maintain its prices which will squeeze Sysco’s profit margins. The same occurs

for transportation costs. Oil prices tend to increase especially because developing countries are

consuming more which will increase demand for oil. If it costs more to distribute food,

businesses such as restaurants will be affected and demand might slow down. This will require

Sysco to seek efficiency and new ways to distribute food to keep its costs down.

Customer preference is another important driving force. It can also force the company to

take measures to adapt its operations to meet customers’ needs such as refrigerated warehouses,

quicker transportations and etc.... It can also impose challenges to procure the right type of foods

and conquer new markets.

In addition to challenges from the general environment, some of them are generated from

the specific industry which the company is involved. Section 3.2.7 describes four key success


factors: 1) Economies of Scale; 2) Supply Chain Network; 3) Global Presence and 4)

Acquisitions.

In the food distribution industry the economies of scale is fundamental in order to be

profitable. If a company get its costs and divided by the number of items distributed, it will find

how much it will cost per unit of product transported. For instance, if a truck can pack 500 items

but the company will only transport 200 items, the truck cost will be basically the same for the

500 or 200 items. Therefore, the unit cost to transport 200 items will be higher and it might make

the product uncompetitive in this scenario. The company needs to create mechanisms where they

utilize its resources to optimize and to distribute the costs as much as possible. Sysco always has

to verify where they can utilize their assets to promote efficiency and distribute the costs per unit

of product which will basically reduce the final price of transportation, storage and other

associated costs per item.

The second factor is supply chain network which creates flexibility to have more

suppliers with diversified products, strategic located warehouses and a technology to operate the

logistics. In order to grow the economies of scale, Sysco has to constantly reach a higher number

of customers and offer them a variety of products. Therefore, the challenge is to expand its

supply chain network efficiently to obtain growth.

Another factor is the global presence. In other to diversify and expand the business in this

globalized environment, Sysco has to look at potential markets. This can bring some relief to

Sysco since it will not be dependent on just one market. Sysco has operations outside the United

States, in Canada and Ireland but since several developing countries are growing in a much faster

pace than these developed economies, Sysco needs to explore these opportunities to diversify its

business and decrease the reliance on few developed markets.


Finally, the last factor is acquisitions which encompass inorganic growth. The food

distribution industry is very competitive and some market share can only be obtained through

acquisition. Specific local products and local companies offer opportunities to Sysco to expand

its operations on locations where the company is not established. These generate rapid growth

but also create challenges to manage the new assets and to make them efficient within Sysco’s

structure. The Table 5-1summarizes the critical challenges.

Critical Challenges

Major costs associated with food prices

and transportation costs. Driving Forces

Customer preferences

Economies of scale

Key Success Factors Supply Chain Network

Global presence

Acquisitions

Table 5-1 – Critical Challenges

5.2. Resources and Capabilities

The company’s resources and capabilities were described on sections 4.2 and 4.3

respectively. This section will describe how these resources and capabilities will assist Sysco to

face the challenges described on the previous section. Table 5-2 summarizes the strength of

Sysco’s resources and capabilities against the challenges that the company might face in the

future.


Challenges Resources (Tangible &

Intangible) & Capabilities

Resources &

Capabilities status

against challenges

Driving Forces

Major costs associated

with food prices and transportation costs.

Technological, Innovation Weak

Customer preferences Customer Relationship Strong

Key Success

Factors

Economies of scale Financial, Physical (in North

America), Logistics Strong

Supply Chain Network Logistics, Supplier

Relationship Strong

Global presence Physical (Global),

Financial, Operations Knowledge

Medium

Acquisitions Financial , Organizational Medium

Table 5-2 – Strategic Fit Analysis

In order to identify whether or not the company is prepared to face the challenges

described in the previous section, each challenge shall be analyzed against the company’s

competences which are based on its resources and capabilities.

Major costs associated with food prices and transportation costs.

This challenge poses a significant concern because even though the company has good

technology and innovation embedded on its assets; the company cannot control some forces. For

instance, if food commodities prices increase such as corn, sugar and meats, the company will

face severe pressure from its customers to maintain prices or even substitute some of these food

products to others that are less profitable. Also some occurrences on the global economy can

affect demand, especially for businesses such as restaurants which corresponds to 61% of

Sysco’s business. If the purchase power of the population reduces, most likely the population

will reduce its spending on businesses such as restaurants. There is no significant measure that

the company can perform in order to avoid such events from happening which makes its

resources and capabilities weak against this challenge.


Customer Preferences

This challenge is always evolving due to the human nature which is always changing its

habits and preferences. Sysco has offering a broad selection of products which encompasses

400,000 products. Also the organic foods are experiencing a growth in demand which forces the

company to meet customer needs. One of Sysco’s strategies described on its 2013 annual report

is: “Profoundly enriching the experience of doing business with Sysco” and section 4.1.6

discusses how Sysco is trying to improve its customers’ relationship. Since improving

customers’ preference is an ongoing process, where Sysco will have to constantly improve and

adapt itself to the market conditions, the customer relationship capability was classified as strong

with opportunities to improve it even further. Note that this capability, customer relationship,

was identified and discussed on section 4.3.

Economies of Scale

It was identified that in order to be successful and a leader on this industry, the company

has to use economies of scale which will enable the company to spread its costs to operate on a

low margin business while generating profits.

Sysco has the necessary resources and capabilities to apply the economies of scales

concept. As identified on Table 5-2, Sysco has a strong financial position, which enables the

company to invest on the business, has physical presence in 193 locations throughout the United

States and its logistics comprises of several state-of-the-art warehouses and a large transportation

fleet that allows Sysco to service 425,000 customers. This makes Sysco the largest food

distributor in the world. Therefore, Sysco has plenty of opportunities to use economies of scale

against its competitors.


Supply Chain Network

Sysco has a strong supply chain network in the United States. As previously mentioned

the company has strong logistics capabilities (section 4.3) which enhance Sysco’s abilities to

service customers. Another strong capability is the supplier relationship which Sysco has been

succeeding by creating partnerships (Sysco, 2013). Sysco is working on connecting the suppliers

to its customers; therefore both parties know each other expectations. These actions close the gap

between the manufacturer and the businesses which will consume the products. Sysco is building

trust among the supplier network and its customers which will create long lasting relationships

between them. Therefore, Sysco capabilities against supply chain network challenge were

classified as strong.

Global Presence

Sysco has a very strong position in North America, and a growing business in Ireland.

However, due to economic uncertainties around the world, and to decrease Sysco’s dependency

on these economies where they are operating, a challenge of global presence was identified.

Sysco could benefit from developing countries such as China, India and Brazil. Sysco has some

capabilities and resources to enter new markets, such as financial position, knowledge of the

business, technology and others. Even though these capabilities can support Sysco to enter new

markets, there are still some unknowns which can make this strategic move too risky. There are

several different regulations for the food industry on these countries and also the politics can be a

major force that can pose several risks. Governments on developing countries have strong

presence and may intervene on the economy which can impact local oil prices and food prices,

and creates several scenarios where profitability can be really hard to achieve. Therefore, the

economic and political volatilities on these countries are hard to measure and make it difficult for


the company to prepare a strong and efficient strategy. Due to the facts presented, Sysco’s

capabilities and resources were classified as medium.

Acquisitions

In order to survive, companies have to grow otherwise the competition will succeed. The

company can increase its sales and another possibility is the inorganic growth where the

company grows by acquiring or merging with another companies. Sysco has good capabilities

and resources, such as strong financial position and also a very well established organizational

structure which enables Sysco to acquire a company and rapidly operates the new company

under Sysco’s values. Another point is that Sysco is the market leader with just 17.5% of the

market which shows that there are still a lot of opportunities to Sysco to grow and acquire

smaller companies and expand its businesses. The main challenge is to acquire new companies

and make them profitable while adapting the business to Sysco culture and values. Sysco has to

be efficient, and acquiring new companies and assets can pose some risks and create large

expenses until the business adapt to the new environment. Sysco has already been experiencing

some decline on its profit margin and net income which can create barriers for new acquisitions.

Sysco capabilities and resources were classified as medium but with great possibilities to explore

new opportunities where they become available.

5.3. Strengths or Weaknesses Analysis

In order to carry out the strength or weakness analysis, a question should be made: Can

Sysco handle the challenges? In section 5.2, it was presented whether or not Sysco had the

capabilities and resources to face the challenges identified in section 5.1.

Based on the six challenges presented, two of them were classified as strengths and one

was classified as weakness according to Table 3-1.


Challenges Resources & Capabilities

status against challenges Can Sysco handle the

challenge? Strength or

Weakness

Economies of scale Strong Yes Strength

Supply Chain Network Strong Yes Strength

Global presence Medium No Weakness

Table 5-3 – Sysco’s strengths and weaknesses

Both economies of scale and Supply chain network challenges can be well handled by

Sysco’s resources and capabilities as discussed on the previous section. Therefore, they are

strengths for Sysco that can apply its competences to overcome these challenges and create

competitive advantage over its competitors.

The global presence challenge was classified as weakness, since Sysco has not presented

through its resources, capabilities and strategy that any move will be made soon. Sysco has to

build some capabilities and some recommendations can be presented in order for Sysco to pursue

new endeavors on different markets. At this moment, the global presence is a weakness for

Sysco which is not a threat yet because there are still opportunities on the North America market

where Sysco is strong.

5.4. Opportunities or Threats

The same exercise was performed on the challenges in order to identify opportunities and

threats for Sysco. Two challenges were classified as opportunities and one as threat.

Challenges Resources & Capabilities

status against challenges Can Sysco handle the

internal challenge? Strength or

Weakness

Major costs associated

with food prices and transportation costs.

Weak No Threat

Customer preferences Strong Yes Opportunity

Acquisitions Medium Yes Opportunity

Table 5-4 - Sysco’s opportunities and threats


As discussed in section 5.2, the food and transportation costs can create a significant

challenge for the economy of a country and the demand will naturally decline especially for

Sysco’s major customers. Food costs are not controlled by Sysco and if there is a situation

where food commodities prices spike, it can pose a significant threat for Sysco to retain its profit

margins.

Regarding opportunities, both customer preferences and acquisitions can generate great

possibilities for Sysco. Even though, Sysco has some pressure, due to both profit margins and net

income are declining, the company can find great opportunities for acquisitions. Sysco has strong

capabilities such as financial position and organizational structure to acquire companies and

merge them to its structure. In terms of customer preferences, Sysco has several strategies in

place (see section 4.1.6) focused on customer satisfaction and improving interaction with the

company. Some opportunities can be explored in order to enhance customer relationship in order

to understand customer preferences for products such as organic foods.

5.5. Summary of Strategic Analysis

From the results obtained in section 5.3 and 5.4, two main challenges are considered

critical for Sysco. It is fundamental that the company take actions in order to mitigate the threats

and to take advantage of opportunities. Table 5-5 shows the main two critical challenges for

Sysco.

Challenges Strength or

Weakness

Major costs associated with food prices and transportation costs. Threat

Customer preferences Opportunity Table 5-5 – Main challenges for Sysco


In order to mitigate the risk of a threat Sysco has to create a contingency plan in case the

threat occurs and recommendations of actions should be evaluated to address this issue. Also

customer preference is a significant area where Sysco can explore in order to gain more market

share and to understand where they can offer products with higher profit margin. In other words,

Sysco can take actions to understand where the customer recognizes additional quality or desires

a specific product which will enable the company to obtain more market share with higher profit

margins.

Below a complete SWOT framework is presented to summarize all the findings from

section 5.1 to 5.4.

Table 5-6 – SWOT analysis


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The Castle Focus Fund. (2012). Sysco Corporation (SYY) . Garden City: Rafferty Capital

Markets, LLC.

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.

Ulrich, D., & Smallwood, N. (2004, June). Capitalizing on capabilities. Harvard Business

Review, pp. 119-127.

Von Braun, J. (2008). Rising food prices. Washington: International Food Policy Research

Institute.

World Population. (2013, October). Retrieved from Index Mundi Web site:

http://www.indexmundi.com/world/population.html


7. APPENDIX A

SYSCO’S ORGANIZATIONAL CHART

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