Restaurant suppliers and food distribution businesses have had a tough time lately. Restaurant sales fell off a cliff during April and May 2020, but things may start looking up once states across the US start allowing restaurants to reopen.
The devastating effect of the pandemic-led downturn cannot be understated and it is possible that a few of the local smaller food joints never reopen. However, that may be an opportunity for major food distributors like Sysco Corporation. The downturn can allow large restaurant supplies and food distribution businesses to focus on fewer customers and further value-add services like consulting.
Sysco looks to be the strongest and most likely candidate to come out stronger from this downturn by adapting to the industry-wide changes, becoming more efficient, and boosting its margins.
Among the various Sysco subsidiaries, Sysco Foods is its most significant. Sysco brands are among the strongest in their categories. Sysco is estimated to do sales of $52 billion this year which is more than double the next competitor’s sales. The company has a diversified customer base and an extensive logistics network. Besides restaurants, Sysco also caters to schools and hospitals.
Another advantage that Sysco has is its cost structure. Roughly 66% of its costs are variable and 34% are fixed. Therefore, it can control its costs better and stay nimble. Just recently, the company furloughed some of its staff as well as cut its fuel costs by driving lesser delivery miles.
Sysco stock closed at $61.59 on 5th June 2020 and is up 21.86% for the past month. The S&P 500, on the other hand, is up 11.35% during the same period. Sysco dividend yield is currently at 3.1%.
