Sysco is the largest food service distribution company in the world, selling over $50 billion of food annually to restaurants, hotels, hospitals and concert venues. CEO Kevin Hourican appeared this morning on Bloomberg Television to discuss his latest views on the restaurant industry.
“The extent of the COVID-19 crisis is more substantial than any other throughout the company’s history,” said Hourican. Sysco has operated continuously for five decades, which makes this morning’s statement particularly sobering. According to Hourican, before COVID-19, U.S. consumers purchased roughly half of their food for consumption outside of their homes. During the past few weeks, lockdown practices have shifted the vast majority of those purchases into grocery stores.
Before the coronavirus, Hourican says Sysco controlled approximately “16% market share” of what he estimated to be an annual “$300 billion industry” of food service. That math aligns with his company’s annual revenue of approximately $50 billion.
When the shelter-in-place orders went in place, food purchases declined dramatically for all restaurants. As a result, Sysco’s top-line sales were “down 60% during the trough of the crisis,” according to Hourican. This claim is also believable, as restaurant revenue in some of the hardest hit areas of the country like New York City had plummeted 90% by April 1st.
“The hardest-hit has been that locally owned restaurant,” said Hourican, referring to the relative outperformance of publicly traded restaurant conglomerates versus independently-owned establishments. “What is clear is that what’s happening right now is that those restaurants with drive-thru windows are performing the best.”
As of today, Sysco has over $6 billion of cash and available liquidity on its balance sheet. “That will position us to be ahead,” Hourican said. “We’re actually doing a campaign right now called hashtag giveback,” referring to his marketing team’s appropriation of the social media tag #giveback which has amassed millions of posts.
Sysco is also pivoting into entirely new revenue streams. As grocery stores struggled to stock their shelves and maintain inventory, “We needed to pivot to supply the retail grocer partners,” said Hourican. He also said that customers convinced Sysco to fulfill individual food orders. “So, we’ve actually set up our own direct-to-consumer website.” Currently offering only meat products, Sysco’s retail website is its first direct-to-consumer offering since the company was founded in 1969.
Does Hourican believe the recovery for restaurants will arrive? In a word, yes. “We call it food at home fatigue,” he said, referring to pent-up consumer demand for restaurant reopenings. “How quickly that recovery takes place is subject to much debate,” he continued, “But as we exited April, we’ve been seeing sequential 10% week-on-week improvements, as states begin to relax shelter-in-place orders.”
It can be hard to believe that Sysco now sells directly to consumers and grocery stores. Incredibly, the coronavirus has sparked change even for 50 year old companies. “We’re a supply chain company, that’s literally what we do for a living,” said Hourican. “We have to maximize opportunities in the near-term.”
What comes next? “We anticipate schools will recover,” Hourican said. “Restaurants will recover. We believe the slowest recovery will be in the hospitality sector, due to a potentially permanent reduction in business travel.”
When asked about meat shortages, including alarms by Tyson Foods and Wendy’s Hamburgers, Hourican said, “The protein space is under strain. We do have access to product. We have redundancy. We have not had significant supply chain issues with meat so far. The challenges will be time-based. I will say, the challenges we’re facing will be short-term in nature.” President Trump guaranteed meat supply by invoking the Defense Production Act on April 28th, providing emergency funds and ordering meat processing facilities to remain open.
Sysco Headquarters. Photo by WhisperToMe, edited by Henry Han.