Why This Matters to Distributors: Sysco is preparing to connect delivery and warehouse purchasing through its pending Restaurant Depot acquisition while using artificial intelligence to guide sales, improve routing and support procurement. The strategy combines broader customer access with efforts to increase sales per account and reduce operating costs.
Sysco is developing plans to connect its delivery business with Jetro Restaurant Depot’s warehouse stores, expand personalized selling and combine purchasing after the pending acquisition closes, executives said during the company’s Nov. 3 earnings call.
The foodservice distributor also is expanding its AI360 sales tool and rolling out transportation and procurement projects as it seeks growth beyond a restaurant market facing weaker traffic. Management expects its broader AI and technology program to deliver $100 million in net cost savings in fiscal 2027 and $500 million by the close of fiscal 2029.
For its fiscal first quarter ending Sept. 26, Sysco reported sales of $21.74 billion, up 2.8% from $21.15 billion a year earlier. Net earnings increased 10.5% to $526 million from $476 million. Adjusted net earnings, which exclude specified acquisition, restructuring and other items, increased 4.2% to $574 million from $551 million.
Reported operating income fell 10.4% to $717 million, reflecting Restaurant Depot acquisition costs, while adjusted operating income increased 3.2% to $927 million. Net earnings included a $234 million gain related to transactions protecting against interest-rate changes on financing for the acquisition.
Chairman and CEO Kevin Hourican said Sysco’s priorities are improving its existing business, reducing operating costs through technology, and preparing for Restaurant Depot. The proposed acquisition, announced in March at approximately $29.1 billion, would add a warehouse purchasing channel serving smaller independent restaurants and food businesses.
Hourican said the companies had completed their responses to the Federal Trade Commission’s second request for information. Management continued to expect the transaction to close by the end of Sysco’s fiscal third quarter, subject to approval.
“Ahead of deal closure, our integration teams are hard at work on planning for day one as a combined company,” Hourican said.
The planning extends beyond combining purchasing volumes. Sysco is evaluating how customers could use both businesses as their needs change, including obtaining urgent supplies from Restaurant Depot and shifting some warehouse purchases to scheduled delivery.
“You could have a delivery primary customer, ergo Sysco customer, who needs something in a hurry, leveraging the Restaurant Depot stores to do same-day delivery or will call pickup at a Restaurant Depot,” Hourican said.
Conversely, a Restaurant Depot customer opening additional locations could become a candidate for regular Sysco delivery while continuing to buy fresh products at the warehouse. Hourican said purchasing data could help identify when a customer’s business reaches that point.
The companies would retain distinct brands. Hourican said Restaurant Depot would keep its name, with the strategy centered on connecting services rather than combining the businesses under a single customer-facing identity.
“We will not change the brand of Restaurant Depot,” he said.
Sysco also plans to apply its personalization capabilities to Restaurant Depot’s membership and purchasing data. Hourican said the companies are exploring targeted promotions intended to increase the number of products customers buy.
“The Restaurant Depot team is excited to work with Sysco on customer-targeted personalization,” he said.
Chief financial officer Brandon Sewell said Restaurant Depot’s data would support that work.
“They have really good, strong, clean data, and given the investments in personalization that Kevin talked about, we will be able to now use those and leverage those to be able to get a really great result out of personalization by working with Restaurant Depot,” Sewell said.
Management expects to provide more detailed revenue opportunity estimates at an investor day after closing, potentially about six months later. Those opportunities remain plans rather than benefits already realized.
Within Sysco’s existing business, management is emphasizing new-account growth and selling more products to current customers. U.S. Foodservice local case volume increased 2.7% during the quarter, while total U.S. Foodservice volume rose 2.6%.
“Given the traffic to restaurants being soft, given the deflation that we experienced in Q1, we’re putting a renewed effort on opening net new doors,” Hourican said.
The company also pursues healthcare, hospitality, and food service management accounts, including offices, stadiums, colleges, and schools. Hourican said those categories helped offset weaker national restaurant business.
Sysco’s contract business recorded approximately 2.2% volume growth, he said. The company also is developing contracts that allow Sysco and customers to share savings when changes in ordering or service improve efficiency.
“We’ve got a renewed focus as a company on the selling strength capabilities within healthcare, strong partnerships in the healthcare GPO space, helping us profitably take share within healthcare,” Hourican said, referring to group purchasing organizations.
AI360 is another part of the sales strategy. The tool recommends products a customer does not currently buy, identifies potential risks to existing business, and suggests opportunities to switch to Sysco-branded alternatives.
“It is prompting to our sales reps things they should be selling that they are not currently selling, or it is predicting that there is the potential risk for a future loss based on rolling 16 weeks data, and it prompts them to take action,” Hourican said.
He said frequent users were outperforming less frequent users across experience levels. Management did not quantify the tool’s separate contribution to volume growth, but Hourican said its performance supported confidence in Sysco’s full-year local volume target.
Salespeople retain responsibility for acting on the recommendations.
“The tool suggests items to sell or items to convert to Sysco Brand,” he said. “The decisions are still 100% in the hands of our SC,” referring to sales consultants.
Sysco’s own-brand strategy also includes expanding lower-priced products. Hourican said merchants had improved the value-tier assortment and sales teams were presenting those alternatives more consistently.
Sysco Brand’s share of local case volume increased 0.44 percentage points year over year to 46.6%. Management attributed progress to both the expanded assortment and sales activity supported by AI360.
Operating improvements are proceeding alongside those sales efforts. Sysco’s AI and technology program includes 30 initiatives, with four expected to account for approximately 70% of the value, Hourican said.
An initial routing project combines updated software with employee training. Pilot regions are delivering a 2%-4% improvement in pieces delivered per mile, along with better adherence to customer delivery windows.
Sysco plans to extend that capability across its U.S. operating locations during fiscal 2027. Hourican said each 1% improvement in pieces per mile would generate approximately $3 million in efficiency gains once implemented broadly.
A second phase would add AI-supported simulation and more flexible routing. During the question-and-answer session, Hourican said that phase would begin near the end of fiscal 2027, with a greater financial contribution in fiscal 2028.
This approach would allow tighter delivery windows for some customers while working with others with greater scheduling flexibility.
“We are calling this customer-centric routing,” Hourican said.
Procurement is another early application. Sysco recently made an AI-supported request for proposals for truck parts and tires, with employees supervising the process. Hourican said the resulting savings exceeded the company’s target by approximately 30%; that figure measures performance against the savings target, rather than a 30% reduction in purchase prices.
Sewell said the tools could address more than $1 billion in annual indirect spending. Management also sees an opportunity to competitively source smaller categories that previously did not justify dedicated staff time.
Despite lower-than-expected food inflation, Sysco maintained its forecast for fiscal 2027 adjusted earnings-per-share growth of 9%-11% and approximately 2.5% local case volume growth. Sales growth is now expected at the lower end of its previous 6%-7% range, with the outlook covering standalone Sysco and including an extra fiscal week.
“We expect cost-saving benefits to build throughout the year, with the largest contribution expected in the second half and a corresponding acceleration in profit growth,” Sewell said.
.Do not miss any content from Distribution Strategy Group. Join our list.
Share this article:
