EXTERNAL ANALYSIS FOR SYSTEMS AND SERVICES COMPANY (SYSCO CORPORATION)

Introduction

Sysco Corporation or Sysco, and its various subsidiaries, is an American distributor. It highly recognized and appreciated in North America. It specializes in the distribution of food items and related products. The product line of the company involves wide range of frozen, canned, dry, fresh food items like meat, chicken, sea food etc. The company has over four hundred thousand customers that belong to different business backgrounds like hospitals, school, college cafeterias and restaurants and other related business at large (one source, 2011). It is also engaged in the non food items business like cooking ware, kitchen equipment, plates, disposable things etc. for cleaning. The stocks of the company are traded in the New York Stock Exchange under the symbol SYY.

In the fortune 500 companies ranking, it is ranked at number seven among the largest companies in the Texas. It is currently ranked at number 55 as the largest US Company in the Fortune 1000 companies list based on its sales volume (one source, 2011; Energy district, 2009). It is also one of the largest non oil related companies in the Houston and the third largest in Texas (Fortune, 2010). It has two operative segments; Broadline and SYGMA. These segments deals in the variety of products offered at the company to its customers (One Source, 2011).

SWOT Analysis SWOT Matrix The SWOT analysis of Sysco Corporation is as follows:

Strengths y y y Strong Supply Chain Network Leading food service provider Consistent growth Opportunities y y y Acquisitions Expansion High demand for organic products y y y y y y

Weaknesses Graphic concentration Pension liabilities Lack of backward integration Threats Regulations Labor wage rate Competition

Strengths Sysco has a strong market position in the food industry. It has over one hundred and seventy distribution centers and maintains a strong supply chain network by having reputable suppliers and over four hundred thousand customers. It has a strong national distribution network which has prime focus on maintaining the lower costs and increased performance at all the levels of supply chain network (Data monitor, 2010). It owes around ten thousand trucks at more or less one hundred and ninety distribution centers; Sysco is able to serve about twenty per cent of the foodservice market in North America reaching approximately twenty five hundred thousand million US dollars. The strong market position of the company is vital to its success in the markets and being a market leader in the domestic markets. The strong distribution channels give competitive advantage to the company over the competitors (Fortune, 2010; One source, 2011). Weaknesses Sysco has strong network in the United States and Canada but it lacks international presence. Its presence in US markets constitutes over 85 per cent of its revenue in 2010 and the

Canadian market consists of 9% of its revenue (Sysco, 2010). This leads to the conclusion that the company has very less share in the global market, around 1 or 2 percent. This is at a time both weakness and opportunity for the company. Another weakness of the company is based on the economic downturn. The sales of the company are not very impressive, the company is continuously loosing great some of money in the domestic markets. It has no presence in the markets that offer high rate of return and growth, like the markets of Asia and the Europe. The company is lacking potential growth in this area. Another weakness in terms of increased costs to the company is the pension benefits and other postretirement health and life insurance benefits it pays to its employees. These benefits impose great pressure and obligation on the company. It could be a problem for them in the current situation when they are losing their market shares (Sysco, 2010). It lacks backward integration strategy which can cost it high in case of supplier related issues. Opportunities As mentioned in the weaknesses, Sysco lacks the global presence. In order to generate more profits it is advised that it should expand its business network across the globe. For this Sysco should consider the developing markets of Asia like China, India and Japan. These markets show great potential of growth and success if the company expands its business operations there. Another possible option available to the company are strategic acquisitions. Recently it has acquired Austin Tatum through which the company strives to sell its products to the wide range of markets. These strategic alliances can be a great opportunities for the company to tap the European markets. Moreover, the consumers are getting very much concerned about the

health and safety related matters. They seek fresh food items with minimum amount of chemicals and other substances used in them. There is a great opportunity available for Sysco Corporation in the form of offering organic and fresh products to their existing and potential customers. Threats There are some threats faced by the company currently. Among them are the governmental regulations. These regulations are subject to change from time to time. It has to comply with the rules and regulations of the countries it operates in related to the food and drugs etc. which has posed great amount of external threat to the company and its success. If they dont follow or meet their given expectations they wont be able to sell or distribute their products and will ultimately become unsuccessful. Another possible threat to the company is the cost of doing business in terms of labor wage rates. The US government has set the minimum wage rate for the labor force. The labor costs have been increasing continuously over recent years due to the labor market conditions, and other related regulations. The federal minimum wage rate is $7.25 an hour which is expected to increase (Longley, 2011). As stated earlier, the US operations of the company accounts for almost ninety one percent of its revenues and has employed over fifty thousand employees in its business units which means this wage rate issue can become a problem for the company in the given economic conditions and the market position of the company. Apart from the regulations and the wage rates issues, the fiercest threat to the Sysco Corporation is the competition given by the current market players of food industry. The low prices offered by its competitors can impose substantial threat on the operations and profitability of Sysco.

PESTEL Analysis The PESTEL analysis contains the analysis of Political, Economic, Social, Technological, Environmental and Legal environments of a country with reference to a particular object. The PESTEL analysis of Sysco Corporation is as follows: Political The decisions taken by the government can have significant impact on the companies operating in the markets. The environmental issues show increased influence on the political and legal actions. The consumer concerns about food and health safety has pressured the government to pass regulations and laws in order to protect their people. The government of USA has tried to leverage the farmers of fruits, wheat etc by helping them with the business contracts and relations. These actions have significant impact on the business networks related to food industry in the country. These direct business contracts have minimized the revenues of the food distributors and various others. Economic The government of USA predicted that the economic crises will continue to prevail for many years and the recovery will require patience and efforts of the people. The economic crisis has impacted entire nation and the world. All the companies are trying hard with the available cash and declining revenues to stay active in the markets in the current economic downturn. The period including difficult economic conditions and heightened uncertainty in the financial markets can impose profound impact on the business of Sysco Corporation (Form 10-k, 2010). From late 2008 to the beginning of 2010, the fluctuating economic conditions in the financial markets have negatively affected the consumer confidence level and their level of spending. This has led to reduced frequency of dining out and the money spent by the consumers for take away

(Marc Lucas, 2009). These market conditions negatively impacted the sales of the company by declining the sales trend from positive 9 percent to negative 8 percent during the first quarter of 2010. The increased costs of food have badly impacted the industry. These costs have increased the cost of production costs that has ultimately affected the prices of the products which in turn affects the consumer buying behaviors.

Social The cultural and social trends in America and world can have significant impact on the business operations of the companies. These trends greatly affect the types of food that people want to eat. In order to meet the customer demands, the companies operating in the markets have to make the right move in the supply chain networks. The societal and cultural trends affect the entire supply chain, all the way back to the farmers, who must change their practices to satisfy the market demands. It is necessary for the food distributing companies and services to understand the needs of the current markets and respond to these changing needs in order to remain in the business and maintain their competitive edge. Currently there are trends in the American culture that have impacted the business of these food distributors. These trends may involve customer priorities to the health, safety, cleanliness, and ethical practices etc. The trend of organic foods has become very significant. According to the survey conducted by OTA in 2007, there were increased sales in the organic food and beverages from one billion US dollars to over fifteen billion US dollars in the last decade. Now many food related businesses like hotels, restaurants etc. are now mandated by the government to display

the details about the calories, fats etc on their menus as well as the nutritive values of their food items (Nneji, 2009). Technological The technology plays significant role in the food service distribution networks, its suppliers and its customers. Without subsequent amount of technology, the chances of failure of the distributor will increase. The industry must become more technology based because of the growing concern of global economic situations. The high price of fuel causes the increase in prices for certain or nearly all products being delivered across city and especially across state lines (Out Bound, 2007). Sysco Corp. is in a process of developing and implemented the software system that will integrate all of its business units and process to align its business operations which in turn will reduce their costs. These systems are commonly referred to as Enterprise Resource Planning (ERP) systems (Sysco, 2011). The management expects that the implementation of these software programs will increase the benefits to the company. Environmental Sysco is striving hard for the environmental safety and is taking initiatives to improve its impact on the environment of the locations it operates in. These initiatives includes introduction of pest control system to promote the healthy environment partnership with its supply chain partners. The other initiatives might include the protection of sensitive areas, waste management, recycling of paper, reusing the resources, less consumption of energy etc. (Sysco, 2011). Legal The operations of the company are subject to various rules, regulations, laws imposed by the local and international governments based on the food production, safety, manufacturing,

packaging etc. of products. The company business units where the integrated processes related to the business are conducted are also subject various laws relating to the protection of the environment, including discharge of materials into the environment, health and safety issues of employees (Annual Report, 2010).

Porters Five Forces Analysis

Rivalry among established competitions The rivalry among the existing competitors in the food industry is very stiff. Sysco Corporation deals with the business to business clients only. Many businesses use the company as their primary distributor. It faces the threat of rivalry from all the distributors nationwide. Some of its counterparts includes: Meadowbrook Meat Company, Performance Food Group, and US Foodservice Inc. All of these companies offer a wide range of food products that can be delivered to a business. In order for Sysco to be successful in the competition stricken market, it has to differentiate itself from its competitors. Bargaining power of suppliers The bargaining power of suppliers in the case of food industry is low. Sysco is a supplier of variant products to its clients which gives it a position to maintain power over their buyers. It has the power and position to impact the profitability of its clients by increasing or decreasing the prices of its products. There are large numbers of food suppliers in the industry. Which means the power of suppliers is moderate to low. The suppliers do have power in some areas, but

Sysco is such a large company, with so many resources that limits the bargaining powers and abilities of the suppliers. The bargaining power of buyers These food distributing companies are dependent on their customers. This industry established its own market prices. As the economic crunch continues to less spending behavior, the conscious and cautious buyers are hedging toward an economical solution that will please their bottom line. Sysco serves over four hindered thousand clients who broadly include cafeterias at companies, schools; hospitals etc. (Forbes, 2010).The customer may ask for a lower price or may even ask for a special delivery of certain products. Quiet often, if the customer requirements are not met at right time then there are chances for the company to lose its valuable customers as the cost of switching is very low. The threat of substitute products or services The threat of substitute products is high in the case of food industry. Many suppliers in this industry understand and recognize the crucial needs of their supply chain partners to deliver goods and services to their customers. The wholesale food distributors used to only be responsible for wholesaling and distributing activities. However, in todays time distributors are playing a new role by valuing their suppliers via creating opportunity for profit gain, improved relations with the customers, as well as the productivity of the distribution channels. The threat of the entry of new competitors The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the

industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players.

Recommendations

This study provided brief overview on the external environment analysis of Sysco Corporation. The findings of the study suggested that Sysco Corporation should focus on the following factors in order to excel its business and social image in the world: 1. Expand the business operations to the developing markets of the world. Developing markets like India, China and Japan shows potential level of success for the company. 2. Improve the operational competencies in order to meet the internal requirements like pension and other benefit plans. 3. Aggressively engage into social initiatives as done by its competitors. This engagement will raise its brand power and in the markets. 4. Effectively collaborate with the labor unions in order to deal strategically with the labor groups in the company. Failure to collaborate will impose collateral damage to the company.

References Datamonitor, (2010).Sysco Corporation, Retrieved on June 28, 2011 from http://www.datamonitor.com/store/Product/sysco_corporation Energy Corridor District, (2009) Land use and Demographics, Retrieved on June 28, 2011 from http://www.energycorridor.org/business/documents/2009ECDFinalReport.pdf Fortune, (2010) Americas largest Corporations, Fortune 500, Retrieved on June 28, 2011 from http://money.cnn.com/magazines/fortune/fortune500/2010/states/TX.html Longley, R., (2011) Federal Minimum Wage Rate, Retrieved on June 27, 2011 from http://usgovinfo.about.com/od/moneymatters/a/Federal-Minimum-Wage.htm Marc Lucas, J. (2009) US households have blues, market research, retrieved on June 27, 2011 from http://research.bnpparibas.com/applis/www/RechEco.nsf/ConjonctureByCountryEN/809BBF8E 312048ACC1257578002F398E/$File/C0903_A1.pdf?OpenElement One Source, (2011) Fortune 1000 Companies, One Source, Retrieved on June 28, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 (2011) Sysco Company Profile, Retrieved on June 28, 2011 from http://www.onesource.com/free/SYSCO-Corporation/Company/Profile/27447 Outbound, (2007) Refrigerated Transporter, Business Source Premier. Sysco, (2010) Form 10-k, Annual Report, Retrieved on June 29, 2011 from http://www.sysco.com/documents/2010_Annual_Report.pdf (2010) Sources of Supply, Annual Report, Retrieved on June 28, 2011 from http://www.sysco.com/shared-components/annual-report.html (2010) Properties, Annual Report, Retrieved on June 28, 2011 from http://www.sysco.com/shared-components/annual-report.html (2011) About Us: locations, Retrieved on June 28, 2011 from http://www.sysco.com/about-sysco/our-locations.html (2011) Sustainability Report, Retrieved on June 29, 2011 from http://www.sysco.com/documents/2010_Sustainability_Report.pdf