Sysco 2015 Annual Report Download - page 15
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Please find page 15 of the 2015 Sysco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.SYSCO CORPORATION-Form10-K 7
PARTI
ITEM1ARisk Factors
Business and Operational Risks
Conditions beyond our control can interrupt our supplies and increase our product costs
We obtain substantially all of our foodservice and related products from third-party suppliers. Although our purchasing volume can provide bene ts when
dealing with suppliers, suppliers may not provide the foodservice products and supplies needed by us in the quantities and at the prices requested.
We are also subject to delays caused by interruptions in production and increases in product costs based on conditions outside of our control. These
conditions include work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more
prolonged climate change, crop and other agricultural conditions, water shortages, animal disease outbreaks, transportation interruptions, unavailability
of fuel or increases in fuel costs, product recalls, competitive demands and natural disasters or other catastrophic events (including, but not limited to
food-borne illnesses). Further, increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply
chain or impact demand for our products. Input costs could increase at any point in time for a large portion of the products that we sell for a prolonged
period. Our inability to obtain adequate supplies of foodservice and related products as a result of any of the foregoing factors or otherwise could mean
that we could not ful ll our obligations to customers, and customers may turn to other distributors.
Adverse publicity about us or lack of con dence in our products could negatively impact our reputation and
reduceearnings
Maintaining a good reputation and public con dence in the safety of the products we distribute is critical to our business. The Sysco brand name, trademarks
and logos and our reputation are powerful sales and marketing tools, and we devote signi cant resources to promoting and protecting them. Anything that
damages our reputation or public con dence in our products, whether or not justi ed, including adverse publicity about the quality, safety, sustainability or
integrity of our products or relating to activities by our operations, employees, suppliers or agents could tarnish our reputation and diminish the value of
our brand, which could adversely affect our revenues and pro ts.
Reports, whether true or not, of food-borne illnesses (such as e-coli, avian u, bovine spongiform encephalopathy, hepatitis A, trichinosis, salmonella,
listeria or swine u) and injuries caused by food tampering could also severely injure our reputation or negatively impact public con dence in our products.
If patrons of our restaurant customers become ill from food-borne illnesses, our customers could be forced to temporarily close restaurant locations and
our sales and pro tability would be correspondingly decreased. In addition, instances of food-borne illnesses or food tampering or other health concerns
(even those unrelated to the use of Sysco products) or public concern regarding the safety of our products, can result in negative publicity about the food
service distribution industry and cause our sales and pro tability to decrease dramatically.
Damage to our reputation and loss of brand equity could reduce demand for our products and services. This reduction in demand, together with the
dedication of time and expense necessary to defend our reputation, would have an adverse effect on our nancial condition, liquidity and results of
operations, as well as require additional resources to rebuild our reputation and restore the value of our brand. Our business prospects, nancial condition
and results of operations could be adversely affected if our public image or reputation were to be tarnished by negative publicity including dissemination
via print, broadcast or social media, or other forms of Internet-based communications. Adverse publicity about regulatory or legal action against us could
damage our reputation and image, undermine our customers’ con dence and reduce short-term or long-term demand for our products and services,
even if the regulatory or legal action is unfounded or not material to our operations. Any of these events could have a material negative impact on our
results of operations and nancial condition.
Unfavorable changes to the mix of locally-managed customers versus corporate-managed customers could have
amaterial adverse effect on our results of operations and nancial condition
Gross margin from our corporate-managed customers is generally lower than that of our locally-managed customers because we typically sell higher
volumes of products to these customers and provide a relatively lower level of value-added services than we do to locally-managed customers. If sales to our
locally-managed customers do not grow at the same or a greater rate as sales to our corporate-managed customers, our operating margins may decline.
Moreover, if sales to our corporate-managed customers increase at a faster pace of growth than sales to our locally-managed customers, we will become
more dependent on corporate-managed customers as they begin to represent a greater proportion of our total sales. Additionally, the loss of sales to the
larger of these corporate-managed customers could have a material negative impact on our results of operations and nancial condition. Additionally, as
a result of our greater dependence on these customers, we could be pressured by them to lower our prices and/or offer expanded or additional services
at the same prices. In that event, we would need to achieve additional cost savings to offset these price reductions and/or cost increases or our gross
margins and pro tability could be materially adversely affected. We may be unable to change our cost structure and pricing practices rapidly enough to
successfully compete in such an environment.
We may not realize anticipated bene ts from our operating cost reduction efforts
We have implemented, and expect to implement in the future, cost reduction initiatives that we believe are necessary to position our business for future
success and growth. Our future success and earnings growth will be signi cantly impacted by our ability to achieve a lower cost structure and operate
ef ciently in the highly competitive food and beverage industry, particularly in an environment of increased competitive activity and low growth rates.