Sysco 2014 Annual Report Download - page 32

SYSCO CORPORATION-Form10-K20
PARTII
ITEM7Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
product categories, can have a negative impact on us and our customers, as high food costs can be dif cult to pass on to our customers and in ation
can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross pro t, operating income and earnings.
We have experienced higher operating expenses this  scal year as compared to  scal 2013, stemming from higher case volumes, some of which is
attributable to our acquired operations, increased depreciation and amortization, increased delivery costs and higher corporate expenses. These were
partially offset by lower Business Transformation Project expenses and bene ts from Business Transformation Project initiatives. We have experienced a
decrease in pay-related expenses in the selling and information technology areas due to initiatives from our Business Transformation Project. The bene ts
in the selling and information technology areas have largely been realized and are not expected to recur in  scal 2015. Other areas of pay-related expense
have increased primarily from acquired companies and within delivery areas of our business a portion of which can be attributable to volume increases. Our
retirement-related expenses consist primarily of costs from our company-sponsored quali ed pension plan (Retirement Plan), our Supplemental Executive
Retirement Plan (SERP) and our de ned contribution plan. Our Retirement Plan was substantially frozen and the SERP was completely frozen in  scal
2013, and our de ned contribution plan was enhanced with greater bene ts. The net impact of these actions is a reduction in retirement-related costs for
 scal 2014 as compared to  scal 2013. The bene ts in the retirement-related expense have largely been realized and the amount of cost decrease is not
expected to recur at the same magnitude in  scal 2015 as in  scal 2014. Corporate of ce expenses have risen in  scal 2014 and will continue to rise in
 scal 2015 as we expand our corporate capabilities including a new revenue management function, organizational changes that drive greater functional
support in our broadline operations and additional investments in technology. We have incurred additional costs in connection with the proposed merger
with US Foods announced in the second quarter of  scal 2014 primarily from integration planning and due diligence costs. We anticipate incurring additional
costs as we begin planning for integration of the two companies as well as other  nancing costs incurred in connection with the proposed merger. The
proposed merger is undergoing regulatory review by the Federal Trade Commission and we estimate the merger will close by the end of the third quarter
or in the fourth quarter of calendar 2014.
Strategy
We are focused on optimizing our core broadline business in the U.S., Bahamas, Canada and Ireland, while continuing to explore appropriate opportunities
to pro tably grow our market share and create shareholder value by expanding beyond our core business. Day-to-day, our business decisions are driven by
our mission to market and deliver great products to our customers with exceptional service, with the aspirational vision of becoming each of our customers’
most valued and trusted business partner. We have identi ed  ve components of our strategy to help us achieve our mission and vision:
•
Profoundly enrich the experience of doing business with Sysco: Our primary focus is to help our customers succeed. We believe that by building
on our current competitive advantages, we will be able to further differentiate our offering to customers. Our competitive advantages include
our sales force of over 7,000 marketing associates; our diversi ed product base, which includes quality-assured Sysco brand products; the
suite of services we provide to our customers such as business reviews and menu analysis; and our multi-regional presence in the U.S. and
Canada. In addition, we have a portfolio of businesses spanning broadline, specialty meat, chain restaurant distribution, specialty produce,
hotel amenities, specialty import and export which serves our customers’ needs across a wide array of business segments. Through our Sysco
Ventures platform, we are developing a suite of technology solutions that help support the administrative needs of our customers. We believe
this strategy of enriching the experience of doing business with Sysco will increase customer retention and pro tably accelerate sales growth
with both existing and new customers.
• Continuously improve productivity in all areas of our business: Our multi-year Business Transformation Project is designed to improve productivity
and reduce costs. An integrated software system is included in this project and will support a majority of our business processes to further
streamline our operations and reduce costs. These systems are commonly referred to as Enterprise Resource Planning (ERP) systems. We
view the technology as an important enabler of this project; however the larger outcome of this project will be from transformed processes that
standardize portions of our operations. This includes a shared business service center to centrally manage certain back-of ce functions that
are currently performed at a majority of our operating companies. This project includes other components to lower our cost structure through
improved productivity without impacting our service to our customers. We continue to optimize warehouse and delivery activities across the
organization to achieve a more ef cient delivery of products to our customers and we seek to improve sales productivity and lower general and
administrative costs. We also have a product cost reduction and category management initiative to use market data and customer insights to
make changes to product pricing and product assortment.
• Expand our portfolio of products and services by initiating a customer-centric innovation program: We continually explore opportunities to provide new
and improved products, technologies and services to our customers.
• Explore, assess and pursue new businesses and markets: This strategy is focused on identifying opportunities to expand the core business through
growth in new international markets and in adjacent areas that complement our core foodservice distribution business. As a part of our ongoing strategic
analysis, we regularly evaluate business opportunities, including potential acquisitions, joint ventures and sales of assets and businesses.
•
Develop and effectively integrate a comprehensive, enterprise-wide talent management process: Our ability to drive results and grow our business is
directly linked to having the best talent in the industry. We are committed to the continued enhancement of our talent management programs in terms
of how we recruit, select, train and develop our associates throughout Sysco, as well as succession planning. Our ultimate objective is to provide our
associates with outstanding opportunities for professional growth and career development.