From acquiring firms to decentralizing operations strategies vary for largest distributing companies

Nation's Restaurant News,  May 5, 2008  by Caroline Perkins

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The top five broadline distributors make up 33 percent of total foodservice distribution sales. They are Sysco Corp., with 2007 revenues of $36.4 billion; U.S. Foodservice, $20 billion; Performance Food Group, $6.3 billion; Gordon Food Service, $6 billion; and Reinhart FoodService, $3 billion. Each company increased its revenues over the prior year, but each currently is pursuing a very different strategic path.

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First of all, the top three-Sysco, USF and PFG--were all public companies until recently. Now there is only one: Sysco. USF's parent, Royal Ahold, sold the distributor last year for $7.1 billion to a private equity consortium of Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co. PFG is in the process of being acquired by an affiliate of two equity firms: The Blackstone Group and Wellspring Capital Management. The price: $1.3 billion.

While USF announced at the end of 2007 that it plans to invest $100 million in expansion projects, it also has been rationalizing its systems business, North Star, by dosing some distribution centers. USF did make an acquisition in January--the broadline division of Clark National--but overall its belt has been kept pretty tight. Corporate management has been focused on getting the house in order before launching growth initiatives.

Prior to acquisition, PFG had been making moves toward greater centralization of some of the services it provides to its 26 distribution centers, such as purchasing, category management and sales training. This was counter to the decentralized stance it had taken prior to 2007. With the new deal, PFG will be combined with Vistar Corp., a company that distributes to the office, coffee, concessions, Italian/pizza and theater segments. They will be two separate business units operating under the Performance Food Group name.

Gordon Food Service has been expanding steadily through construction of new facilities or expansion of existing locations. Its reach now extends from its headquarters in Grand Rapids, Mich., to

Florida in the South, Kentucky and South Carolina in the East and Ohio in the Midwest. In addition, it has nine locations in Canada. GFS has long been known for its leading-edge technology, and it continues to use that leverage as a competitive weapon.

Reinhart has been gobbling up companies at breakneck speed. It acquired seven distributors over the past two years, bringing the total distribution locations to 19. This steady addition of new companies presents challenges to the integration of systems and corporate culture. Reinhart seems to have conquered these problems.

Meanwhile, Sysco is going global. While it did not win the bid to purchase United Kingdom-based Brake Brothers, it did succeed in acquiring Austin Tatum, an amenities company based in Hong Kong. On the home front, the company continues its successful "foldout" strategy, building additional distribution centers near an existing facility to better serve and penetrate the surrounding market. Its acquisition furor of a few years back has slowed to one or two a year.

Sysco, like PFG, has moved from a decentralized system that allowed for an entrepreneurial style of management on the part of its operating companies. It has implemented some centralized operations and purchasing. Sysco also has developed is its program of customer business reviews, which reportedly result in double-digit growth for operators who participate in the process.

Their varied strategies illustrate the need for leading companies to be creative, flexible and constantly adaptable in a competitive business environment. These five are up to the challenge.

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