Dive Brief:
- Sysco Corp. has laid out a three-year plan involving stricter cost management and strong sales efforts to boost the company's annual operating income by at least $400 million and by 2018 provide a 15% return on invested capital.
- The plan follows a failed acquisition of US Foods Inc. in June and the addition of investor Nelson Peltz, whose investment fund Trian Fund Management LP disclosed a 7% stake in Sysco to the company's board a few weeks ago, earning it the title of the company's biggest shareholder.
- Of that $400 million, 15% to 20% will come as a result of administrative expense lowering, while over half of it will arrive per rising gross profits, Sysco CEO Bill DeLaney told The Wall Street Journal. "Certainly cost reduction is a part of that, but it’s not the end goal. Growth is important," DeLaney said.
Dive Insight:
Sysco had seen its operating profit margin fall for the past several years, "as smaller specialty distributors and wholesale stores, such as Restaurant Depot LLC, attract local restaurant customers, which are more profitable for Sysco than national chains," The Wall Street Journal reported. Restaurant sales as a whole have been down, which has hurt Sysco's revenues as well.
Sysco's profits also took a 71% hit last quarter due to costs incurred during the failed US Foods merger proceedings.
However, gross margins have slowly begun to rise and stabilize after remaining flat for the past five years. Last quarter, the company reported a 17.9% margin, an increase over a 17.5% margin the year before.
Sysco will focus on a more localized approach to try to bring those local restaurant customers back, including providing targeted menu items like local, fresh ingredients for New York customers and authentic, Hispanic ingredients for customers in California. The company will also shift sales-and-marketing to "pockets of growth," such as Hispanic foods and restaurants and delis inside grocery stores, DeLaney told The Wall Street Journal.
"We need to be tuned in to the latest trends," DeLaney told The Wall Street Journal.