Sysco purchases Abbott Foods, operators share mixed feelings

Aug. 29, 2002

Vic Cassano, Jr. has mixed feelings about the Aug. 29 purchase of Columbus, Ohio-based Abbott Foods by Sysco Corporation, the largest broadline foodservice distributor in the U.S.

On one hand, he's happy for company president Larry Abbott, whose father, Lawrence, founded the company in 1939 as a meat supplier. Larry took over in the 1970s and helped it become Ohio's largest broadliner, posting $240 million in sales in 2001.

"I'm glad for Larry Abbot, who's probably going off to buy some island somewhere," said Cassano, chairman and CEO of Cassano's Pizza. The 33-store Dayton, Ohio pizza chain also manufactures fresh-frozen dough resold by Abbott Foods. "It's his just dessert for building that company, and I can't ever begrudge someone for reaping the fruits of his labor."

But Cassano also suspects negative thoughts are running through the minds of Abbott's pizzeria customers. Were he an independent operator and his preferred distributor were sold, he'd be cautiously optimistic while knowing that some change would be inevitable.

"The independents especially will take a deep breath and say, 'I wonder how this is going to affect me?' " said Cassano. "Sysco will need to gain their confidence by their actions and service. That's what people are going be to looking for."

Calls to Sysco and Abbott were not returned, but an Aug. 30 story in the Columbus Dispatch quoted Abbott calling the union of the two companies "a great move for Abbott Foods, our associates and customers. ... This is going to be fun. We're being asked to play with the best team out there."

Specific terms of the deal were not disclosed, but the new company will be named Abbott Sysco Food Services and become an autonomous arm of Sysco upon the transaction's completion in October. According to the Dispatch, Abbott's 450 employees' pay and benefits will remain mostly unchanged, and they will be able to participate in Sysco's stock-purchase program.

A marriage made in secret

With $23 billion in annual revenues, Houston-based Sysco is nearly 10 times larger than Abbott, which, according to ID Magazine, is the U.S.'s 20th largest broadline distributor.

When Sysco went public in 1970, annual revenues were $115 million, and ever since 1976, the company has posted increases in revenues and earnings. Though the company's stock dipped to a 52-week low of $21.25 on July 24, 2002, it has rebounded to trade at more than $28 a share throughout August.

Sysco has become a distribution empire by acquiring smaller broadliners throughout North America. Its most recent purchase was a March acquisition of Toronto, Ontario-based Serca Foodservice for $278 million in cash, plus the assumption of debt.

Ironically, Sysco also bought Columbus-based DiPaolo Distributors in 1985. But when the venture proved overwhelming for the team left to run it, Sysco moved its Columbus operations south to its Cincinnati base.

Free of its non-compete clause with Sysco in 1996, the DiPaolo family started RDP Foodservice, a distributor serving pizza and Italian restaurants in and around Columbus. Calls placed to RDP were not returned, but the company's Web site claims the firm posted revenues of $20 million in 1998.

Smaller seems better to some

On Aug. 29, several Abbott Foods pizzeria customers were surprised to learn of the deal with Sysco, which was revealed to Abbott employees that evening.

Cassano said he "had no idea that was happening" when he called Abbott to confirm the rumor, and Debbie Taranto, owner of three Taranto's Pizza Barns near Columbus, said her Abbott sales rep was tight lipped when asked.

"He said he didn't know anything about it, but he didn't sound like himself when I asked him," said Taranto.

Later in the day when the rumor was confirmed, Taranto said she was "disappointed, because I really like dealing with Abbott."

As Cassano said, Abbott's independent pizzerias likely are the most concerned about the sale because they often use products Sysco might not carry.

Taranto said Abbott went out of its way to provide her a bread product it doesn't represent, and that that's the service level she'll expect from Sysco.

"If I'm going to stick with them, they're also going to have to keep my rep," said Taranto, an Abbott customer for 10 years. "You learn to work with these guys over the years, and they understand your needs. You eventually build a certain trust with them, and (my rep's) a big reason why I'm still with Abbott."

Jeff Aufdencamp, co-owner of three-outlet Mama Mimi's Take 'n Bake Pizza, said he chose Abbott two years ago when he started the company because they were privately owned.

"They have always been very service-oriented, but this new ownership ... that leaves a big question mark on service," said Aufdencamp, whose shops are located in Columbus's suburbs. "A smaller company is going to cater to smaller accounts, and going to bring in the special products we use. I guess you just expect a bigger company to have a streamlined inventory that might not have what we need."

"The independents especially will take a deep breath and say, 'I wonder how this is going to affect me?' "

Vic Cassano, Jr.
Chairman, CEO, Cassano's Pizza

Like Taranto, Aufdencamp said good service will win him over. More than once, he said, he has run out of products on the weekend, and that his rep -- and sometimes his rep's supervisor -- delivered those products personally on their days off. "I rather doubt that will happen with Sysco," he added.

Aufdencamp also said he's somewhat concerned that trade secrets, such as products sold to Mama Mimi's, could become compromised.

"Given the relative newness of take and bake, there are a lot of people asking questions about what we do," said Aufdencamp. "Right now we're comfortable with what we've shared with Abbott Foods, and that's made them our exclusive supplier."

Compared to Sysco, Taranto said Abbott's relatively small size allows her company to be one of its top-100 buyers. The perks that come with that -- quarterly rebate checks, and a trip to Puerto Rico that she won at an Abbott food show -- are nice, she added.

"Abbot has treated me very well in those areas, so I hope Sysco does too," she said.

For all their concerns about Sysco taking over, both Aufdencamp and Taranto share Cassano's good wishes for Larry Abbott. Aufdencamp, who envisions growing his company into a large chain, said selling Mama Mimi's to the right buyer is the end game he and wife, Jodi, have in mind. Taranto said that she, too, wouldn't pass up the right offer if it came along.

"As a business owner, if someone came in and offered me the right kind of money, I'd accept it hands down," Taranto said.

Topics: Operations Management

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