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Sysco versus United Natural Foods

Sysco versus United Natural Foods

Abstract

This paper is aimed at analyzing the competitive strategies utilized by Sysco and United Natural Food as the companies try to remain competitive in the food industry. More to say, the paper put into perspective the different methods and avenues utilized by the companies as they realign themselves to maintain the command in their market niche. Moreover, it is of interest of the paper to identify the time in which a company is most vulnerable. The paper also sheds light on the actions that necessitate retaliation actions by its competitors. Finally, there is a recommendation to both the companies on whether to amend or maintain their competitive strategies.

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Introduction

The food industry is a booming industry in the USA with various franchises battling it out competitively. With increasing demand for more food in restaurants and other facilities, there comes the need to have a reliable distributor. The trend in the foodstuff industry is the demand for quality and freshness, and this has forced the companies involved to realign themselves to meet these new market demands. Sysco and United Natural Food are some of the companies involved in availing distribution services to the ever-expanding food industry in the USA. The paper aims at analyzing the present competitive strategies utilized by these two companies. The primary goal is to illustrate how companies realign themselves to remain competitive in response to other actions or inactions by their competitors on the market. Moreover, the paper will shed light on when a company is most vulnerable and the market shifts expected with the ever-changing demands. It is the optimal intention of the paper to illustrate that indeed, the profit potential of a firm is a function of the industry it operates and the competitors it opposes.

Company Overview

Sysco

Sysco stands for Systems and Service Company. Founded in 1969 by Harry Rosenthal together with John F. Baugh, Sysco is an American company that specializes in food distribution and management consultancy services (“The Sysco Story”, 2012). The company became publically traded in 1970. Its primary clientele includes the restaurants education facilities, hotels to name but a few. Its headquarters are located in Texas, Houston. Over the years, the company has grown to be one of the world’s largest food distributors with a reach of over 40,000 customers. The company has continued to grow and by 2005, it had 170 distribution centers in the United States and Canada (“The Sysco Story”, 2012).

United Natural Food

United Natural Food, commonly known as UNFI, is the leading natural and organic food distributor in both Canada and the United States. The company provides store support, merchandising and marketing services. It has a wide range of products it offers that include groceries, personal care products, fresh produce, and non-food material such as cleaning products to name but a few. The company started via a merger between two companies in 1996, namely Mountain People’s Warehouse (1976) and Cornucopia Natural Foods 1977) (“About Us”, 2014). These were two companies serving both the western and eastern part of America. Coming together, they formed the first natural food distributing company that had a national-wide reach. Its primary clients are supermarkets, natural food stores with the company having expanded well in the USA and Canada market and, in addition, more than forty countries.

Financial Analysis

Company Sysco United Natural Food
Sale $46,516,712 $6.79 Billion
Operating Income $1,587,122 $210.8 million
Net Earnings $931, 533 $125.5 million
Return to Capital % 11 16

Figures from: (“Financial Highlights”, 2014) and (“UNFI Announces”, 2014) financial highlights

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The financial analysis clearly indicates that United Natural Food outperformed Sysco on almost every front. A big difference is on the sales made in the year 2014 and, as a result, has better net earnings. UNIF had a better return on capital (16%) compared to Sysco’s 11% (“Financial Highlights”, 2014; “UNFI Announces”, 2014).

Company SWOT Analysis

Sysco

Strengths

Customer oriented service delivery

National reach

Strong supplier relationship

My Sysco truck initiative

Weaknesses

Legal issues (2013 scandal)

Opportunities

Hispanic restaurant 18.3% growth

50% interest in Mayca Distribuidores S.A (costa Rica)

Market segmentation

Threats

Increased industrial competition

Increased regulations

United Natural Food Company

Strengths

Improved sales

Expanded reach

Wide range of products

Exemplarily awards (Rhode Island’s Healthiest Employer 2014)

Weaknesses

Reliance on foreign currency, in particular Canadian dollar.

Opportunities

Mergers

Increased demand for organic products

Increased demand in the cosmetic market

Threats

Increased intra—industry competition

Increased regulation

Current Company’s Competitive Strategies

Being in the food industry, both companies have enforced expansionary tactics as the main competitive strategy, in particular through merging and acquisitions. However, with time, the trend has changed. In the case of Sysco, to remain competitive, the company utilizes a four-pillared strategy that includes people, productivity, partnerships, and product (“The Sysco Story”, 2012). One of the competitive strategies is the recruitment and retaining of best employees in the industry. This strategy has been utilized via the new HR model where it is possible to manage and evaluate employees’ growth. Various personnel programs, including sales leadership academy, ethics, and frontline supervisor program to name but a few have been rolled. These programs have helped in creating lasting ties with the company’s clientele.

Another key strategy pertains the products; there is a great deal of product innovation, a phenomenon brought about by constructive engagement with the company’s supply partners. Through this healthy relationship, Sysco is able to identify and appreciate customer’s trends and thereby realign itself to meet the changing demands. A good result of the healthy exchange is the introduction of non-GMO, zero trans-fat sunflower oil (“The Sysco Story”, 2012). In terms of productivity, the company has been able to serve its customers better and in a timelier manner. “My Sysco Truck” is an initiative aimed at enabling the customers to see the real time position of the Sysco truck carrying their products. Finally, the company is keen on utilizing lasting partnerships with their customers. Under a platform dubbed “customer 1st”, Sysco has embarked on an initiative of creating a more pro-active engagement with their customers. Through the combination of the above strategies, Sysco has been able to expand its reach and, at the same time, uphold a close relationship with their customers, which enables it to remain competitive in the industry.

On the other hand, United Natural Food has the main competitive strategy, which is “on time delivery” (“About Us”, 2014). This goal is met through strategically positioned distribution centers that not only help UNFI to deliver products on time but also help it minimize fuel costs. The company utilizes ‘pick-to-voice’ and ‘pick-to-light’ technological strategies that aid in ensuring diligent preparation and delivery of the products to respective customers. Another helpful strategy is product selection where UNFI ensures an extensive research to come up with the right product mix that meets the market trends. In addition, the company is very keen on matters current trends, UNFI offers monthly changes in their products that manifest up to date trend in the market. This has enabled it to remain relevant in the industry, thus maintaining its competitiveness.

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Improvements in Their Current Strategies

To improve the above strategies, now Sysco embarks on the expansionary strategy. This has been necessitated by Sysco’s awareness of the expanding ethnic market with a good example being the Hispanic segment growth of 18.3% a growth attained from 2000 to 2010 (“The Sysco Story”, 2012). In response, Sysco enacts segment-specific programs that aim at shaping Sysco’s actions towards appreciating the demands of various market segmentations (“The Sysco Story”, 2012). This will help the company to improve on its effort to meet the differentiated customer demands. On the other hand, United Natural Food undertakes a self-improvement strategy known as Thrive (“UNFI Announces”, 2014). This strategy is aimed at ensuring an improvement and transformation of the UNFI supply chain. This strategy has four components, namely improved management, improved delivery, improved mode of purchase, and Foundational. In terms of improved management, UNFI will be utilizing Engineered Labor Standards (ELS) aimed at setting safer labor standards in all their distribution centers. In addition, the company aims to use Distributed Order Management (DOM) that will enable UNFI to keep improved inventories for the customers’ reservations. This will help the company to serve their customers in a more accurate and professional manner. Moreover, under improved management, the company also seeks to use Warehouse Management (WM) that sees to it that the company is able to position its products in the right slots and manner, thereby serving their customers in a timely and accurate manner. Through this strategy, the company will be able to distribute more volumes of products but at the same time, maintain accuracy, which will lead to improved customer satisfaction

What Likely Moves or Strategy Shifts will They Make?

Based on the realignment seen in Sysco in terms of appreciating market segmentation to meet the expanding ethnic market, the company is going to have a more expanded product mix and a more differentiated model of service delivery. The result is that the company will have to get into new market delivering new products to the newly identified market segmentations. According to Sysco, appreciating these new market segmentations will be helpful in delivering tailor-made services to their customers.

Thrive strategy that is being prepared by UNFI is aimed at improving supply chain, a phenomenon aimed at transforming UNFI’s business so that their customers can wholly concentrate on theirs (“UNFI Announces”, 2014). Thrive intention, according to UNFI, will see growth to both the company and its clients. At the core of this initiative is an efficient and timely manner of distribution. As a result, the possible shift by the UNFI is more geographical reach thereby expanding their market dominance.

Where is Each Company Most Vulnerable?

In the food industry, lawfulness is a key pillar that governs the operations and engagements. Actions or inactions taken that go contrary to this expectation will put a company is a vulnerable state. Sysco was involved in a quality scandal in 2013 whereby it was accused of using unrefrigerated drop sites for storing perishable foodstuff that included meat (Jeffords, 2013). Such scandals greatly undermine the credibility of a company in terms of how healthy its products are. In the context of Sysco, the involvement of feds badly dented the company’s image, leaving the company very vulnerable to increased competition in the industry brought about by poor identity. UNFI also has also been in collision with the authority on matters regarding employee abuse. Early this year, the company faced lawsuits from its former employees. A warehouse worker by the name Sergio Acosta testified to the Southern California Commission on a Sustainable Supply Chain on how he had been fired by the UNFI’s management by organizing a labor union (Deniz, 2015). In addition, Anthony Matson, who was a UNFI’s driver, was also fired for the same reason (Deniz, 2015). These legal issues end up tarnishing the company’s identity, which is a key marketing tool in any market. The result is usually huge fines in terms of fines charged or reduced sales as the result of negative perception by the public.

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What Competitive Moves will Provoke the Greatest and Most Effective Retaliation by Each Company?

At the heart of perpetuity of any company in any industry is the well-choreographed market dominance of the market in different geographical areas of the market (McCrackan, 2005). This is why one finds a company’s products doing well in a certain segment of the market and another one dominating on another. Therefore, if one of the companies makes an expansionary move towards the other’s strongest niche, then this will provoke the greatest and most effective retaliation measures. Both companies have been seen making efforts to improve on their current competitive strategies. These undertakings are aimed at ensuring more sales, and more reach is attained. Appreciating this fact, if one of the players makes a strong move, for example, setting distribution facilities near its rivals, then serious counter-measures are to be expected as this is perceived as a direct threat to the respective company’s market niche. Another example is one company offering transport services on a similar route but for a reduced price. The other rival company will be forced to effectively come up with a better package or risk losing its clientele. Therefore, any competitive move, which makes the rival company lose its market dominance either in terms of sales or reach, will provoke retaliation actions.

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Would You Recommend the Continuation or Modification of Each Company’s Current Strategy?

Both companies should continue with their current competitive strategies. In the case of Sysco, utilizing the ‘people’ strategy where they recruit most suitable candidates and subject them to intensive training programs is very viable. As a result, the employees have been able to create and maintain healthy and long lasting relationship with the customers. One of the fundamentals of a highly performing company is customer loyalty brought about by close ties between the company and its clientele (Reichheld & Teal, 1996). On the other hand, UNFI has been centered on an on-time delivery and in addition product mix that is reflective on the up to date market trends. These two strategies have made the company ensure it customers get their products in at the right time and in addition, get a mix of products that meets the market’s demands and trends.

However, there is need to complement the current strategies with their intended actions in the line of ensuring that the company continues availing products in a more customer friendly manner. For Sysco, appreciating the market segmentations will help the company provide a wider range of products to different people making these segmentations. The result will mean more sales, leading to more financial stability of the company. In the same manner, Thrive initiative by UNFI aimed at transforming the supply chain will see to it that the company is able to cover more ground in less time, making it more possible to venture into new market. Eventually, this will lead to an improved financial performance by United Natural Food. It is clear that the industry dynamics plays a major role on the profits made; in addition, a firm is also very conscious of the actions and inactions taken by its rivals if it is to make and safeguard its market niche. It is, therefore, valid to argue that the profit potential of a firm is a function of the industry it operates and the competitors it opposes.

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