US Foods
Encyclopedia
US Foods is one of the country’s leading foodservice distributors. With nearly $19 billion in annual revenue, US Foods is the 10th largest private company in America. Many of the entities that make up US Foods were founded in the 19th century, including one that sold provisions to travelers heading west during the 1850s gold rush. The company had used the name U.S. Foodservice since 1993. US Foods offers more than 350,000 national brand products and its own high-quality “exclusive brand” items, ranging from fresh meats and produce to prepared and frozen foods. The company proudly employs approximately 25,000 people in more than 60 locations nationwide, and provides the finest quality food and related products to more than 250,000 customers, including independent and multi-unit restaurants, healthcare and hospitality entities, government and educational institutions. The company is headquartered in Rosemont, Ill., and jointly owned by funds managed by Clayton, Dubilier & Rice Inc. and Kohlberg Kravis Roberts & Co.
In October 2011, the company launched a dynamic, new brand identity reflecting its strategic focus on creating a better food offering and an easier service experience for customers. In conjuction, US Foods introduced more innovative products, exclusive brands and specialized services to help drive customer growth. The company’s new tagline, “Keeping Kitchens Cooking,” emphasizes its strong focus on making customers more successful.
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John Sexton & Company
began as a retail tea and coffee merchant in Chicago, IL in 1883. John Sexton soon discovered hotels and restaurants were his biggest customers. By 1887, Sexton closed his four Chicago retail locations to focus on his institutional customers. By 1891, Sexton began manufacturing private label pickles, salad dressings, preserves, and jellies as well as roasting coffee in downtown Chicago. In addition, Sexton established a food testing laborartory to guarantee that his products had a uniform high level of quality. Sexton also developed an extensive national institutional sales force in all major metropolitan areas as well as a catalog mail order grocery business. All national orders were shipped via rail or parcel post from Sexton’s Chicago warehouse. Chicago delivers were by Sexton horse & wagon fleet and after 1924 Sexton electric and diesel truck fleets. By 1930, Sexton dropped the catalog mail order business and concentrated on the institutional customers throughout the United States. In 1933, Sexton opened a warehouse and truck fleet in Brooklyn, NY to support the New York Sexton salesforce. By 1949, John Sexton & Co. was operating branch warehouses and truck fleets in Atlanta, Chicago, Dallas, Detroit, Long Island City, Philadelphia and Pittsburgh to support the Sexton national salesforce. In 1962, John Sexton & Co. was listed as a public company on the Over the Counter Stock Market with $79 million in sales and $2 million in profits. In 1968, John Sexton & Co. had $90 million in sales , which represented 5% of the total institutional foodservice industry. In 1968, Sexton warehouses and truck fleets were located in Atlanta, Boston, Chicago, Cincinnati, Dallas, Detroit, Los Angeles, New York, Orlando, Philadelphia, St. Louis and San Francisco with a regional salesforce covering the majority of the United States. This gave Sexton a coast to coast distribution and sales network to service their 70,000 customers. In late 1968, John Sexton & Co. was purchased by Beatrice Foods for $37.5 million in Beatrice preferred shares and assumption of Sexton debt. Beatric operated Sexton as an independent division until 1983, when Beatrice sold Sexton to S.E. Rykoff & Co of Los Angeles, CA for $84.5 million.
L. H. Parke Company started in 1889 as a partnership of Louis H. Parke and William P. M. Irwin. The partnership took over the small provision-pushcart business of Samuel Irwin, a civil war vet. who had lost his arm in the Battle of Winchester, Virginia. Parke started as a seller of coffee, tea and spices. The company grew to be a major institutional wholesale seller of canned goods and had five locations (Philadelphia, Pittsburgh, Washington, DC, Albany, New York and Richmond, VA.) by the time it sold out to Consolidated Foods in 1962. Donald Irwin Jr., President of Parke became the first president of Monarch Institutional Foods at that time.
Los Angeles-based S.E. Rykoff
& Co. was established in 1911, and the Mazo and Lerch families started their business in Northern Virginia
in 1927. Most of these wholesalers tended to specialize, selling items to local grocery stores. In the early 1930s, distributors, including Mazo-Lerch Company, began offering frozen foods, primarily frozen French fries and orange juice.
The federal government also helped open up foodservice markets. Five years earlier, in 1946, the U.S. Congress passed the National School Lunch Act. Suddenly, large numbers of schoolchildren were eating cooked meals away from home, and school cafeterias became the first institutional mass market. One of the few distributors to focus on schools was the Pearce-Young-Angel Company (PYA) in the Carolinas. That same year, Consolidated Foods Corp., the precursor of Sara Lee Corporation, acquired Monarch Foods.
By the late 1950s, most distributors had added frozen foods to their product lines. In 1958, Mazo-Lerch held the first food show, and was one of the first distributors to offer both custom-cut meats and beverage dispenser programs. The diversification trend continued over the years, as foodservice distributors provided disposable items such as napkins and tablecloths, followed by china and glassware, then light and heavy equipment.
went public and its shares traded on the Over the Counter Stock Market (NASDAQ
) with $79 million in sales and $2 million in profits.
was established in 1970 by combining five independent wholesale grocery companies. Sysco
went public in 1970 with $115 million in annual sales and shares were traded on the NYSE. Continental Coffee Company established in 1915 by the Cohn family (CFS Continental) went public in 1970. S.E. Rykoff & Co.
was generating $1.9 million in profits with revenue of $75.9 million and went public in 1972. In 1973, Continental Coffee Company changed their name to CFS Continental, Inc.
to reflect the growing importance of foodservice to their traditional coffee business. By the end of 1979, SYSCO
of Houston, TX has sales of $895 million. CFS Continental of Chicago, IL had sales of $775 million. PYA/Monarch of Greenville, SC had sales of $614 million, John Sexton & Company
of Chicago, IL had sales of $350 million. S.E. Rykoff & Co.
of Los Angeles, CA was generating $320 million strictly on the west coast.
By 1982, institutional foodservice distribution was a $69 billion industry. The five companies considered "national distributors," were PYA/Monarch, John Sexton & Company
,($360 million in sales) a division of Beatrice Foods, Sysco
Corporation of Houston ($1 billion in sales), CFS Continental, Inc. ($1 billion in sales), and Kraft Foodservice. The five companies had a total of 168 distribution centers covering major portions of the country. Despite the geographical dominance, these five multi-branch distributors reported combined sales in 1982 of $4.8 billion – 7 percent of the industry.
Over the next several years, the big distributors made major acquisitions. S.E. Rykoff bought John Sexton & Company
in 1983 for $84.5 million, in what was then the largest acquisition in the industry. The renamed Rykoff-Sexton took fourth place among foodservice distributors with $800 million in sales. CFS Continental's purchase of Publix Fruit and Produce moved it into third place, with sales in the $1.1 billion range. Number one Sysco
acquired B.A. Railton along with Pegler, increasing its volume to over $2 billion. In Meanwhile, in Greenville, South Carolina, number two PYA/Monarch bought Fleming Foodservice of Austin, Texas, raising its 1984 sales volume to an estimated $1.3 billion. By the end of its fiscal year in June 1984, PYA/Monarch was serving some 70,000 foodservice operators, and its 22 distribution centers blanketed 60 percent of the United States.
PYA/Monarch was one of the first distributors to compete as a provider of services as well as products. "The day of the distributor who merely warehouses, delivers, and takes orders for products a customer wants is over," company management told Institutional Distribution in a 1984 article. PYA/Monarch's mission statement revealed its goal: "... to be a premier company in every area of operations, providing products and services that can enable a customer to run a more efficient and profitable business."
Using the largest computer in the industry, PYA/Monarch phased in a new state-of-the-art data processing system. Totally centralized, the system made it possible for headquarters to carry out data processing for each of the 22 branches, whose computers now gathered data.
The 1980s saw a tremendous change in the eating habits in the United States. By 1986, Americans were spending one-third of every food dollar outside the supermarket, and the foodservice distribution had grown to a $78 billion industry.
By April 1989, Sara Lee Corporation had decided to sell off the northern division of PYA/Monarch, citing dissatisfaction with its performance. Although the southeast division was the top food distributor in its region, overall PYA/Monarch ranked third behind Sysco
and Kraft, and Sara Lee was committed to being first or second in each of its businesses.
In June 1989, members of PYA/Monarch management incorporated a new entity, JPF Holdings, Inc. Two weeks later, on July 3, JPF Holdings acquired all the capital stock of the Sara Lee subsidiary, JP Foodservice Distributors Inc, including the mid-Atlantic and northeastern operations of PYA/Monarch Inc. Under the terms of the leveraged buyout, Sara Lee retained ownership of PYA/Monarch, now operating in the southeast, as well as 47 percent of the shares in JP Foodservice.
Headed by James L. Miller, who had been executive vice-president of PYA/Monarch's northern division, the new company immediately sold three of its branches – Los Angeles, Little Rock, and Paducah – to Kraft Foodservice. The result was a major regional operation with nine distribution centers serving a territory from Virginia north to Maine and west to Nebraska.
JP Foodservice Distributors passed the $1 billion mark in its first year, with sales for fiscal 1990 of $1.02 billion. That was a jump of more than 12 percent from the division's sales in fiscal 1989, and made the new company number five among the top 50 distributors selected by Institutional Distributor. But Miller and the other managers had borrowed over 95 percent of the $317 million they paid for the company. With that amount of debt, and with a soft economy, JP concentrated on building the lowest cost structure in the industry. The company invested primarily in improving facilities, adding a new $15 million replacement center between Washington, D.C., and Baltimore and building an addition at its Allentown, Pennsylvania warehouse that doubled freezer and cooler capacity. It also used technology to cut costs and provide greater service to its customers. For example, a hand-held electronic device allowed JP customers to monitor their inventory and send information to the company.
JP Foodservice had more than 21,000 customers in 25 states in the Mid-Atlantic, Midwest, and Northeast regions of the country and was the sixth largest food distributor. It provided customers with a broad line of products, including canned, dry, frozen, and fresh foods, paper products, detergents, and light restaurant equipment. With its debt problems resolved, the company set a new growth strategy which, in addition to increasing internal growth, included acquiring smaller distributors. Its first purchases were Tri River Foods, Inc. and Rotelle Inc., two Pennsylvania distributors. JP's strategy also called for increasing its line of private label products, which included Hilltop Hearth breads, Cattlemen's Choice meats, and Roseli Italian foods.
Foodservice distribution had grown to become a $124 billion industry, and the ten largest distributors accounted for 18 percent of the business. JP's business, which for fiscal 1995 reached $1.12 billion, was about 55 percent independent (hospital cafeterias, family-owned restaurants) and 45 percent chains. The increasing product demands and bigger menus of the chains and large restaurants were important factors fueling consolidation among distributors.
Toward the end of 1995, the company and its former parent, Sara Lee Corporation, began talks about exchanging PYA/Monarch, Sara Lee's southeastern foodservice subsidiary, for JP stock worth about $946 million. Yet, the two companies failed to reach agreement on several factors, including valuation (JP's stock price had gone up in expectation of the merger), structure, and dilution of earnings to existing shareholders, and the deal fell through in February 1996. The experience left both sides bitter, and JP was expected to find a way to reduce Sara Lee's presence or end its investment in the company all together.
That separation occurred before the end of 1996, when JP held a public offering involving the sale of all the common stock held by Sara Lee. On December 31, 1996, JP Foodservice moved to the New York Stock Exchange, trading under the symbol JPF.
JP continued buying smaller companies, paying for them with $66 million raised by another stock offering. Acquisitions included Valley Industries of Las Vegas, Arrow Paper and Supply Company, based in Connecticut, Squeri Food Service of Cincinnati, and Mazo-Lerch Company, Inc., the 70-year-old food distributor based in northern Virginia that had held the first food fair in 1953. By the end of the fiscal year in June, net sales were up 17 percent to $1.7 billion, with acquisitions accounting for about six percent of the increase and the remaining 11 percent from internal growth. JP's growth was significantly higher than the three percent for the foodservice distribution industry. The JP Foodservice company credited its internal growth to sales training and promotions and to the expansion of its private and signature brands.
The resulting combined entity had five operating subsidiaries: White Swan, Bevaco Food Service, Kings Foodservice Inc., Roanoke Restaurant Service and Biggers Brothers Inc, thus operating foodservice distribution centers in Pennsylvania, North Carolina, Tennessee, Virginia, Texas, Ohio, West Virginia, Oklahoma and Florida. Merrill Lynch Capital Partners, a wholly owned subsidiary of Merrill Lynch & Co., owned a controlling ownership in both White Swan and US Foodservice, by virtue of its funding each company's leveraged buyouts – White Swan in 1988 and Unifax Inc in 1992. The US Foodservice management team will include Frank Bevevino, president and chief executive; Thomas G. McMullen and Peter Smith, vice presidents; David F. McAnally, vice president and chief financial officer; and William Griffin, vice president of administration.
In 1995, US Foodservice of Wilkes Barre, PA was the 4th largest broadline foodservice distributor, according to Institutional Distributor Magazine, behind Sysco (#1), S.E. Rykoff/John Sexton (d.b.a. Rykoff-Sexton) (#2), and Kraft Foodservice (#3), and just ahead of JP Foodservice (#5), and PYA/Monarch (#6).
Within the next 12–24 months, S.E. Rykoff/John Sexton would establish a solid hold of this #2 spot by acquiring Continental Foods of Baltimore, MD, H&O Foods of Las Vegas, NV, and US Foodservice. Rykoff-Sexton management created the Rykoff-Sexton Funding Corporation to finance the acquisition of their near competitor US Foodservice, and by the end of 1996 the newly renamed and much larger corporation was now trading on the New York Exchange as Rykoff-Sexton Inc.
US Foodservice had now become a division of Rykoff-Sexton Inc. The Rykoff-Sexton Inc. parent corporation was now operating a handful of divisions, a broadline foodservice distribution division (d.b.a. "US Foodservice" after combining with the S.E. Rykoff and John Sexton & Co distribution divisions), a private label manufacturing division (historical foodservice brands like John Sexton and SERCO), a foodservice contract and design division (historically known as Finegolds), and foodservice equipment and supply (2nd in size at the time to only Edward Don & Company).
Rykoff-Sexton Inc management was not done yet, negotiations were already underway in 1997 to combine with JP Foodservice. Mark Van Stekelenburg, then Chairman of the Board and Chief Executive Officer of Rykoff-Sexton Inc, and the former President and Chief Executive Officer of G.V.A., Inc, the largest food service distributor in the Netherlands and a subsidiary of Royal Ahold N.V., had led the 2nd largest food distributor Rykoff-Sexton Inc. into the combination of the industry's #2, #4, and #5 largest corporations in less than 24 months.
In early 1997, Mark Van Stekelenburg said, "Rykoff-Sexton Inc./U.S. Foodservice will be the number 1, number 2, or number 3 player in every market in which it serves the broadline foodservice distribution business."
In late 1997, JP Foodservice ($1.7 billion in revenues) jumped into second place among foodservice distributors with the consummation of a merger with rival Rykoff-Sexton Inc (with just under $5 billion in revenues) for $1.4 billion. Unlike previous acquisitions that JP Foodservice had undertaken, the merger with Rykoff-Sexton was much bigger. Sales were expected to triple, to $6 billion, and the number of JP Foodservice customers ballooned to 130,000. As a result, Standard & Poor's added JPF to the S&P MidCap 400 Index. The merger also changed JP Foodservice from a major distributor in the East and Midwest into one operating coast to coast. New territories included the Southeast, the Sun Belt, and the West Coast.
of the JP Foodservice Board, and President of JP Foodservice, gave the reins of the corporation to Jim Miller, and returned to Royal Ahold N.V., (NYSE: AHO [ADR]), the leading international food provider with major operations in the US, Europe and Latin America. Shortly after the departure of Mark Van Stekelenburg, JP Foodservice changed its name to U.S. Foodservice. Thus the reemergence of the U.S. Foodservice corporation, previously privately held in 1995, as of Monday, March 2, 1998, the trading symbol was changed from "JPF" to "UFS" and was now being traded publicly on the New York Stock Exchange.
Acquisitions continued even as the new U.S. Foodservice (NYSE: UFS) worked to assimilate the Rykoff-Sexton operations, adding Sorrento Food Service, Inc., of Buffalo, Westlund, a Minnesota custom cut meat specialist and a number of other smaller foodservice companies.
By mid-1998, Chairman and CEO Jim Miller was proud of the accomplishments, telling the Baltimore Sun, "We not only successfully completed the largest merger ever in our industry, tripling the size of our company, we did so achieving record earnings and meeting or exceeding virtually every goal set out in our merger plan." In the 3rd quarter of the calendar year 1998, U.S. Foodservice announced it was selling the assets of its Rykoff-Sexton manufacturing division as part of its plan to shed its non-core operations.
The successful integration of the larger Rykoff-Sexton company made U.S. Foodservice a favorite among analysts, and the company itself indicated it was still on the lookout for purchases in the highly fragmented foodservice industry.
One year later, 1999, fiscal 2000, U.S. Foodservice is generating sales that exceed $7 billion and has caught the attention of Royal Ahold N.V. (NYSE: AHO [ADR]). Within the first quarter of calendar year 2000, Royal Ahold has filed a tender offer, filed by Ahold Acquisition, Inc. and Koninklijke Ahold N.V. with the U.S. Securities and Exchange Commission, to purchase all outstanding shares of U.S. Foodservice.
To strengthen its presence in the southeastern United States, U.S. Foodservice acquired former sister company PYA/Monarch for $1.57 billion on December 5, 2000. The acquisition meant U.S. Foodservice's sales would now reach $12 billion annually.
In November 2001, the U.S. Foodservice division of Ahold, acquired Alliant Exchange Inc., parent company of Alliant Foodservice. This greatly expanded the geographical range of its activities. In fact, U.S. Foodservice said Alliant would give it access to 21 new U.S. markets. This $2.2 billion purchase gives U.S. Foodservice distribution centers and food processing facilities in areas that are serving 100,000 customers—including independent and multiunit restaurant operations, hotels, contract foodservice operations and healthcare facilities. In 2000, Alliant Foodservice reported revenues of $6.6 billion. (Kraft Foodservice became Alliant Foodservice in 1996 after Clayton, Dubilier & Rice, Inc. purchased the Kraft Foodservice division from the Philip Morris Corporation).
After the Alliant acquisition, U.S. Foodservice was now generating combined total revenues of approaching $14 billion. U.S. Foodservice growth was 600% over the last 6 years, from about $2 billion in revenues in 1995, to $14 billion in late 2001.
The making of U.S. Foodservice reflects the trends of its industry: from retail to institutional customers; from specific products to a broadline of offerings; from single distribution centers to multi-unit branches; increased professionalism and customer service; and, most pronounced, the continuing and aggressive expansion through acquisition.
This was consistent with many larger going concerns in the United States that appeared to be headed away from being publicly traded in what many believed was an attempt to avoid the requirements of the Sarbanes-Oxley Act of 2002. After the internal accounting controls and procedures struggles that U.S. Foodservice had gone through over the past 3 years—the very same that the Sarbanes-Oxley Act of 2002 was designed to address—one had to wonder if U.S. Foodservice being privately held was the proper path toward a transparent valuation of the company.
On May 2, 2007, Clayton, Dubilier & Rice, Inc. (CD&R) and Kohlberg Kravis Roberts & Co. L.P. (KKR) announced a definitive agreement to acquire U.S. Foodservice from Royal Ahold. Funds affiliated with CD&R and KKR are equal partners in the transaction, valued at $7.1 billion. The Washington Post quoted Robert S. Goldin, an executive vice president at Technomic, a food consulting firm in Chicago, as saying, "When Ahold acquired U.S. Foodservice, the industry consensus was that it overpaid." Industry analysts had previously estimated U.S. Foodservice could be worth $5.1 billion to $5.7 billion, the Post reported, adding that industry experts now agreed that Ahold got top dollar.
"For Ahold this is a reasonably good end to what's been a pretty unsuccessful foray into U.S. food distribution," Goldin continued. "It's been a sore spot for them. They overpaid for the business and never rationalized it. I would imagine they are pretty happy to put this one behind them."
The Post added that "Ahold was forced to restate more than $800 million in earnings after it came to light that U.S. Foodservice executives had inflated promotional rebates from suppliers to meet earnings targets. The scandal caused the parent company's shares to plunge."
"Ahold settled with the Securities and Exchange Commission two years ago and agreed to pay $1.1 billion to resolve shareholder lawsuits."
In October 2011, the company launched a dynamic, new brand identity reflecting its strategic focus on creating a better food offering and an easier service experience for customers. In conjuction, US Foods introduced more innovative products, exclusive brands and specialized services to help drive customer growth. The company’s new tagline, “Keeping Kitchens Cooking,” emphasizes its strong focus on making customers more successful.
History
The history of US Foods encompasses the story of how (and where) Americans purchase the food they eat. It reflects the development of an entire industry, shifting from small entrepreneurial wholesalers supplying retail grocery stores to large regional and national distributors offering a broad line of products to institutional clients.Early history
Several of the entities that comprised what is now US Foods started in the 19th century. Monarch Foods, for example, traced its roots to Reid-Murdoch Co., a Dubuque, Iowa, company founded in 1853 to provision wagon trains heading west. Reid-Murdoch was a major sponsor of the "The Teenie WeeniesThe Teenie Weenies
The Teenie Weenies was a comic strip created and illustrated by William Donahey that first appeared in 1914 in the Chicago Tribune and ran for over 50 years. It consisted of normal-size objects intermingled with tiny protagonists. The comic strip characters were two inches tall and lived under a...
" comic strip.
John Sexton & Company
Sexton Foods
John Sexton & Company, also known as Sexton Quality Foods, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses and truck fleets located in major metropolitan areas of the United States. Sexton Quality Foods eventually...
began as a retail tea and coffee merchant in Chicago, IL in 1883. John Sexton soon discovered hotels and restaurants were his biggest customers. By 1887, Sexton closed his four Chicago retail locations to focus on his institutional customers. By 1891, Sexton began manufacturing private label pickles, salad dressings, preserves, and jellies as well as roasting coffee in downtown Chicago. In addition, Sexton established a food testing laborartory to guarantee that his products had a uniform high level of quality. Sexton also developed an extensive national institutional sales force in all major metropolitan areas as well as a catalog mail order grocery business. All national orders were shipped via rail or parcel post from Sexton’s Chicago warehouse. Chicago delivers were by Sexton horse & wagon fleet and after 1924 Sexton electric and diesel truck fleets. By 1930, Sexton dropped the catalog mail order business and concentrated on the institutional customers throughout the United States. In 1933, Sexton opened a warehouse and truck fleet in Brooklyn, NY to support the New York Sexton salesforce. By 1949, John Sexton & Co. was operating branch warehouses and truck fleets in Atlanta, Chicago, Dallas, Detroit, Long Island City, Philadelphia and Pittsburgh to support the Sexton national salesforce. In 1962, John Sexton & Co. was listed as a public company on the Over the Counter Stock Market with $79 million in sales and $2 million in profits. In 1968, John Sexton & Co. had $90 million in sales , which represented 5% of the total institutional foodservice industry. In 1968, Sexton warehouses and truck fleets were located in Atlanta, Boston, Chicago, Cincinnati, Dallas, Detroit, Los Angeles, New York, Orlando, Philadelphia, St. Louis and San Francisco with a regional salesforce covering the majority of the United States. This gave Sexton a coast to coast distribution and sales network to service their 70,000 customers. In late 1968, John Sexton & Co. was purchased by Beatrice Foods for $37.5 million in Beatrice preferred shares and assumption of Sexton debt. Beatric operated Sexton as an independent division until 1983, when Beatrice sold Sexton to S.E. Rykoff & Co of Los Angeles, CA for $84.5 million.
L. H. Parke Company started in 1889 as a partnership of Louis H. Parke and William P. M. Irwin. The partnership took over the small provision-pushcart business of Samuel Irwin, a civil war vet. who had lost his arm in the Battle of Winchester, Virginia. Parke started as a seller of coffee, tea and spices. The company grew to be a major institutional wholesale seller of canned goods and had five locations (Philadelphia, Pittsburgh, Washington, DC, Albany, New York and Richmond, VA.) by the time it sold out to Consolidated Foods in 1962. Donald Irwin Jr., President of Parke became the first president of Monarch Institutional Foods at that time.
Los Angeles-based S.E. Rykoff
S.E. Rykoff
S.E. Rykoff & Co., also known as SERCO, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses, sale forces and truck fleets located primarily on the west coast of the United States. S.E. Rykoff & Co. eventually became US...
& Co. was established in 1911, and the Mazo and Lerch families started their business in Northern Virginia
Northern Virginia
Northern Virginia consists of several counties and independent cities in the Commonwealth of Virginia, in a widespread region generally radiating southerly and westward from Washington, D.C...
in 1927. Most of these wholesalers tended to specialize, selling items to local grocery stores. In the early 1930s, distributors, including Mazo-Lerch Company, began offering frozen foods, primarily frozen French fries and orange juice.
Post World War II
Foodservice distributors served institutional clients that provided food away from home, unlike retail distributors, who sold to grocery stores. The first distinction between the two groups came about in 1951, with the formation of the Association of Institutional Distributors. With fighting going on in Korea, the federal government reinstituted price controls, including a 16 percent ceiling on food distributors' gross profits. About a dozen companies met in Chicago to respond to that action. Because it cost more to distribute to their institutional customers than to grocery stores, the distributors wanted to be considered separately from grocery wholesalers and to have their ceiling raised to at least 21 percent. They were successful in their lobbying efforts.The federal government also helped open up foodservice markets. Five years earlier, in 1946, the U.S. Congress passed the National School Lunch Act. Suddenly, large numbers of schoolchildren were eating cooked meals away from home, and school cafeterias became the first institutional mass market. One of the few distributors to focus on schools was the Pearce-Young-Angel Company (PYA) in the Carolinas. That same year, Consolidated Foods Corp., the precursor of Sara Lee Corporation, acquired Monarch Foods.
By the late 1950s, most distributors had added frozen foods to their product lines. In 1958, Mazo-Lerch held the first food show, and was one of the first distributors to offer both custom-cut meats and beverage dispenser programs. The diversification trend continued over the years, as foodservice distributors provided disposable items such as napkins and tablecloths, followed by china and glassware, then light and heavy equipment.
The 1960s
In 1965, Americans spent just 20 cents of every food dollar for food away from home. Total distributor sales that year were an estimated $9 billion, and the average institutional distributor had an annual volume of $1.5-$2 billion. Institutional Distributor, in its first survey of the foodservice distribution industry, found that the average order size of respondents was $80.40, and the average number of customers was 572. The survey also found that nearly half of the respondents sold to both grocery and institutional customers. In 1962, John Sexton & CompanySexton Foods
John Sexton & Company, also known as Sexton Quality Foods, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses and truck fleets located in major metropolitan areas of the United States. Sexton Quality Foods eventually...
went public and its shares traded on the Over the Counter Stock Market (NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
) with $79 million in sales and $2 million in profits.
The 1970s
The decade of the 1970s saw the move to broadline, multi-branch organizations. Consolidated Foods bought the old Pearce-Young-Angel distribution network in 1971 and merged it with its Monarch Foods subsidiary to form PYA/Monarch. SyscoSYSCO
Sysco Corporation is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses...
was established in 1970 by combining five independent wholesale grocery companies. Sysco
SYSCO
Sysco Corporation is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses...
went public in 1970 with $115 million in annual sales and shares were traded on the NYSE. Continental Coffee Company established in 1915 by the Cohn family (CFS Continental) went public in 1970. S.E. Rykoff & Co.
S.E. Rykoff
S.E. Rykoff & Co., also known as SERCO, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses, sale forces and truck fleets located primarily on the west coast of the United States. S.E. Rykoff & Co. eventually became US...
was generating $1.9 million in profits with revenue of $75.9 million and went public in 1972. In 1973, Continental Coffee Company changed their name to CFS Continental, Inc.
CFS Continental
CFS Continental, Inc. was a wholesale food distributor started in 1915 by Jacob Cohn in Chicago as the Continental Coffee Company which now part of SYSCO.- History :...
to reflect the growing importance of foodservice to their traditional coffee business. By the end of 1979, SYSCO
SYSCO
Sysco Corporation is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses...
of Houston, TX has sales of $895 million. CFS Continental of Chicago, IL had sales of $775 million. PYA/Monarch of Greenville, SC had sales of $614 million, John Sexton & Company
Sexton Foods
John Sexton & Company, also known as Sexton Quality Foods, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses and truck fleets located in major metropolitan areas of the United States. Sexton Quality Foods eventually...
of Chicago, IL had sales of $350 million. S.E. Rykoff & Co.
S.E. Rykoff
S.E. Rykoff & Co., also known as SERCO, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses, sale forces and truck fleets located primarily on the west coast of the United States. S.E. Rykoff & Co. eventually became US...
of Los Angeles, CA was generating $320 million strictly on the west coast.
The 1980s
The distribution industry went through a difficult period during the early 1980s, with companies under pressure as a result of inflation and economic slowdown. However, people still needed to eat, and much of the pressure was from competition. Speakers at national conferences focused on customer service, productivity, and professional development. Computers were playing a greater role in the business, enabling a distributor to provide customers with information to help control inventory, determine menu costs, and analyze profitability. As distributors became more professional, restaurant chains such as Marriott and Howard Johnson folded or reduced their self-distribution activities and focused on their restaurant operations.By 1982, institutional foodservice distribution was a $69 billion industry. The five companies considered "national distributors," were PYA/Monarch, John Sexton & Company
Sexton Foods
John Sexton & Company, also known as Sexton Quality Foods, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses and truck fleets located in major metropolitan areas of the United States. Sexton Quality Foods eventually...
,($360 million in sales) a division of Beatrice Foods, Sysco
SYSCO
Sysco Corporation is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses...
Corporation of Houston ($1 billion in sales), CFS Continental, Inc. ($1 billion in sales), and Kraft Foodservice. The five companies had a total of 168 distribution centers covering major portions of the country. Despite the geographical dominance, these five multi-branch distributors reported combined sales in 1982 of $4.8 billion – 7 percent of the industry.
Over the next several years, the big distributors made major acquisitions. S.E. Rykoff bought John Sexton & Company
Sexton Foods
John Sexton & Company, also known as Sexton Quality Foods, was a broad line national wholesale grocer that serviced the restaurant, hotel and institutional trade from regional warehouses and truck fleets located in major metropolitan areas of the United States. Sexton Quality Foods eventually...
in 1983 for $84.5 million, in what was then the largest acquisition in the industry. The renamed Rykoff-Sexton took fourth place among foodservice distributors with $800 million in sales. CFS Continental's purchase of Publix Fruit and Produce moved it into third place, with sales in the $1.1 billion range. Number one Sysco
SYSCO
Sysco Corporation is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses...
acquired B.A. Railton along with Pegler, increasing its volume to over $2 billion. In Meanwhile, in Greenville, South Carolina, number two PYA/Monarch bought Fleming Foodservice of Austin, Texas, raising its 1984 sales volume to an estimated $1.3 billion. By the end of its fiscal year in June 1984, PYA/Monarch was serving some 70,000 foodservice operators, and its 22 distribution centers blanketed 60 percent of the United States.
PYA/Monarch was one of the first distributors to compete as a provider of services as well as products. "The day of the distributor who merely warehouses, delivers, and takes orders for products a customer wants is over," company management told Institutional Distribution in a 1984 article. PYA/Monarch's mission statement revealed its goal: "... to be a premier company in every area of operations, providing products and services that can enable a customer to run a more efficient and profitable business."
Using the largest computer in the industry, PYA/Monarch phased in a new state-of-the-art data processing system. Totally centralized, the system made it possible for headquarters to carry out data processing for each of the 22 branches, whose computers now gathered data.
The 1980s saw a tremendous change in the eating habits in the United States. By 1986, Americans were spending one-third of every food dollar outside the supermarket, and the foodservice distribution had grown to a $78 billion industry.
By April 1989, Sara Lee Corporation had decided to sell off the northern division of PYA/Monarch, citing dissatisfaction with its performance. Although the southeast division was the top food distributor in its region, overall PYA/Monarch ranked third behind Sysco
SYSCO
Sysco Corporation is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities, hotels and inns, and other foodservice and hospitality businesses...
and Kraft, and Sara Lee was committed to being first or second in each of its businesses.
In June 1989, members of PYA/Monarch management incorporated a new entity, JPF Holdings, Inc. Two weeks later, on July 3, JPF Holdings acquired all the capital stock of the Sara Lee subsidiary, JP Foodservice Distributors Inc, including the mid-Atlantic and northeastern operations of PYA/Monarch Inc. Under the terms of the leveraged buyout, Sara Lee retained ownership of PYA/Monarch, now operating in the southeast, as well as 47 percent of the shares in JP Foodservice.
Headed by James L. Miller, who had been executive vice-president of PYA/Monarch's northern division, the new company immediately sold three of its branches – Los Angeles, Little Rock, and Paducah – to Kraft Foodservice. The result was a major regional operation with nine distribution centers serving a territory from Virginia north to Maine and west to Nebraska.
JP Foodservice Distributors passed the $1 billion mark in its first year, with sales for fiscal 1990 of $1.02 billion. That was a jump of more than 12 percent from the division's sales in fiscal 1989, and made the new company number five among the top 50 distributors selected by Institutional Distributor. But Miller and the other managers had borrowed over 95 percent of the $317 million they paid for the company. With that amount of debt, and with a soft economy, JP concentrated on building the lowest cost structure in the industry. The company invested primarily in improving facilities, adding a new $15 million replacement center between Washington, D.C., and Baltimore and building an addition at its Allentown, Pennsylvania warehouse that doubled freezer and cooler capacity. It also used technology to cut costs and provide greater service to its customers. For example, a hand-held electronic device allowed JP customers to monitor their inventory and send information to the company.
The 1990s
In November 1994, five years after it was created, the company adopted the name JP Foodservice, Inc. and went public in November, listed on the NASDAQ under the symbol JPFS. Sara Lee Corporation now held 37 percent of JP common stock. The public offering raised $86 million, and JP restructured and paid off much of its debt.JP Foodservice had more than 21,000 customers in 25 states in the Mid-Atlantic, Midwest, and Northeast regions of the country and was the sixth largest food distributor. It provided customers with a broad line of products, including canned, dry, frozen, and fresh foods, paper products, detergents, and light restaurant equipment. With its debt problems resolved, the company set a new growth strategy which, in addition to increasing internal growth, included acquiring smaller distributors. Its first purchases were Tri River Foods, Inc. and Rotelle Inc., two Pennsylvania distributors. JP's strategy also called for increasing its line of private label products, which included Hilltop Hearth breads, Cattlemen's Choice meats, and Roseli Italian foods.
Foodservice distribution had grown to become a $124 billion industry, and the ten largest distributors accounted for 18 percent of the business. JP's business, which for fiscal 1995 reached $1.12 billion, was about 55 percent independent (hospital cafeterias, family-owned restaurants) and 45 percent chains. The increasing product demands and bigger menus of the chains and large restaurants were important factors fueling consolidation among distributors.
Toward the end of 1995, the company and its former parent, Sara Lee Corporation, began talks about exchanging PYA/Monarch, Sara Lee's southeastern foodservice subsidiary, for JP stock worth about $946 million. Yet, the two companies failed to reach agreement on several factors, including valuation (JP's stock price had gone up in expectation of the merger), structure, and dilution of earnings to existing shareholders, and the deal fell through in February 1996. The experience left both sides bitter, and JP was expected to find a way to reduce Sara Lee's presence or end its investment in the company all together.
That separation occurred before the end of 1996, when JP held a public offering involving the sale of all the common stock held by Sara Lee. On December 31, 1996, JP Foodservice moved to the New York Stock Exchange, trading under the symbol JPF.
JP continued buying smaller companies, paying for them with $66 million raised by another stock offering. Acquisitions included Valley Industries of Las Vegas, Arrow Paper and Supply Company, based in Connecticut, Squeri Food Service of Cincinnati, and Mazo-Lerch Company, Inc., the 70-year-old food distributor based in northern Virginia that had held the first food fair in 1953. By the end of the fiscal year in June, net sales were up 17 percent to $1.7 billion, with acquisitions accounting for about six percent of the increase and the remaining 11 percent from internal growth. JP's growth was significantly higher than the three percent for the foodservice distribution industry. The JP Foodservice company credited its internal growth to sales training and promotions and to the expansion of its private and signature brands.
U.S. Foodservice
The name "US Foodservice" comes from United Signature Foods, Inc., a broadline distributor based in Wilkes-Barre, PA. US Foodservice Inc was formed in March 1992 by Unifax Inc specifically to acquire the White Swan Inc, a Dallas-based distributor. The merger with White Swan Inc was completed in October 1993. Via a share exchange (shares of White Swan were swapped for shares of US Foodservice), it created one of the largest broadline distributors in the country.The resulting combined entity had five operating subsidiaries: White Swan, Bevaco Food Service, Kings Foodservice Inc., Roanoke Restaurant Service and Biggers Brothers Inc, thus operating foodservice distribution centers in Pennsylvania, North Carolina, Tennessee, Virginia, Texas, Ohio, West Virginia, Oklahoma and Florida. Merrill Lynch Capital Partners, a wholly owned subsidiary of Merrill Lynch & Co., owned a controlling ownership in both White Swan and US Foodservice, by virtue of its funding each company's leveraged buyouts – White Swan in 1988 and Unifax Inc in 1992. The US Foodservice management team will include Frank Bevevino, president and chief executive; Thomas G. McMullen and Peter Smith, vice presidents; David F. McAnally, vice president and chief financial officer; and William Griffin, vice president of administration.
In 1995, US Foodservice of Wilkes Barre, PA was the 4th largest broadline foodservice distributor, according to Institutional Distributor Magazine, behind Sysco (#1), S.E. Rykoff/John Sexton (d.b.a. Rykoff-Sexton) (#2), and Kraft Foodservice (#3), and just ahead of JP Foodservice (#5), and PYA/Monarch (#6).
Within the next 12–24 months, S.E. Rykoff/John Sexton would establish a solid hold of this #2 spot by acquiring Continental Foods of Baltimore, MD, H&O Foods of Las Vegas, NV, and US Foodservice. Rykoff-Sexton management created the Rykoff-Sexton Funding Corporation to finance the acquisition of their near competitor US Foodservice, and by the end of 1996 the newly renamed and much larger corporation was now trading on the New York Exchange as Rykoff-Sexton Inc.
US Foodservice had now become a division of Rykoff-Sexton Inc. The Rykoff-Sexton Inc. parent corporation was now operating a handful of divisions, a broadline foodservice distribution division (d.b.a. "US Foodservice" after combining with the S.E. Rykoff and John Sexton & Co distribution divisions), a private label manufacturing division (historical foodservice brands like John Sexton and SERCO), a foodservice contract and design division (historically known as Finegolds), and foodservice equipment and supply (2nd in size at the time to only Edward Don & Company).
Rykoff-Sexton Inc management was not done yet, negotiations were already underway in 1997 to combine with JP Foodservice. Mark Van Stekelenburg, then Chairman of the Board and Chief Executive Officer of Rykoff-Sexton Inc, and the former President and Chief Executive Officer of G.V.A., Inc, the largest food service distributor in the Netherlands and a subsidiary of Royal Ahold N.V., had led the 2nd largest food distributor Rykoff-Sexton Inc. into the combination of the industry's #2, #4, and #5 largest corporations in less than 24 months.
In early 1997, Mark Van Stekelenburg said, "Rykoff-Sexton Inc./U.S. Foodservice will be the number 1, number 2, or number 3 player in every market in which it serves the broadline foodservice distribution business."
In late 1997, JP Foodservice ($1.7 billion in revenues) jumped into second place among foodservice distributors with the consummation of a merger with rival Rykoff-Sexton Inc (with just under $5 billion in revenues) for $1.4 billion. Unlike previous acquisitions that JP Foodservice had undertaken, the merger with Rykoff-Sexton was much bigger. Sales were expected to triple, to $6 billion, and the number of JP Foodservice customers ballooned to 130,000. As a result, Standard & Poor's added JPF to the S&P MidCap 400 Index. The merger also changed JP Foodservice from a major distributor in the East and Midwest into one operating coast to coast. New territories included the Southeast, the Sun Belt, and the West Coast.
The reemergence of U.S. Foodservice
Mark Van Stekelenburg in early 1998, now a Director on the JP Foodservice Board, Vice Chairmanof the JP Foodservice Board, and President of JP Foodservice, gave the reins of the corporation to Jim Miller, and returned to Royal Ahold N.V., (NYSE: AHO [ADR]), the leading international food provider with major operations in the US, Europe and Latin America. Shortly after the departure of Mark Van Stekelenburg, JP Foodservice changed its name to U.S. Foodservice. Thus the reemergence of the U.S. Foodservice corporation, previously privately held in 1995, as of Monday, March 2, 1998, the trading symbol was changed from "JPF" to "UFS" and was now being traded publicly on the New York Stock Exchange.
Acquisitions continued even as the new U.S. Foodservice (NYSE: UFS) worked to assimilate the Rykoff-Sexton operations, adding Sorrento Food Service, Inc., of Buffalo, Westlund, a Minnesota custom cut meat specialist and a number of other smaller foodservice companies.
By mid-1998, Chairman and CEO Jim Miller was proud of the accomplishments, telling the Baltimore Sun, "We not only successfully completed the largest merger ever in our industry, tripling the size of our company, we did so achieving record earnings and meeting or exceeding virtually every goal set out in our merger plan." In the 3rd quarter of the calendar year 1998, U.S. Foodservice announced it was selling the assets of its Rykoff-Sexton manufacturing division as part of its plan to shed its non-core operations.
The successful integration of the larger Rykoff-Sexton company made U.S. Foodservice a favorite among analysts, and the company itself indicated it was still on the lookout for purchases in the highly fragmented foodservice industry.
One year later, 1999, fiscal 2000, U.S. Foodservice is generating sales that exceed $7 billion and has caught the attention of Royal Ahold N.V. (NYSE: AHO [ADR]). Within the first quarter of calendar year 2000, Royal Ahold has filed a tender offer, filed by Ahold Acquisition, Inc. and Koninklijke Ahold N.V. with the U.S. Securities and Exchange Commission, to purchase all outstanding shares of U.S. Foodservice.
U.S. Foodservice becomes division of Royal Ahold NV
March 20, 2000, U.S. Foodservice agreed to be acquired by Royal Ahold for $26 per share or $3.6 billion.To strengthen its presence in the southeastern United States, U.S. Foodservice acquired former sister company PYA/Monarch for $1.57 billion on December 5, 2000. The acquisition meant U.S. Foodservice's sales would now reach $12 billion annually.
In November 2001, the U.S. Foodservice division of Ahold, acquired Alliant Exchange Inc., parent company of Alliant Foodservice. This greatly expanded the geographical range of its activities. In fact, U.S. Foodservice said Alliant would give it access to 21 new U.S. markets. This $2.2 billion purchase gives U.S. Foodservice distribution centers and food processing facilities in areas that are serving 100,000 customers—including independent and multiunit restaurant operations, hotels, contract foodservice operations and healthcare facilities. In 2000, Alliant Foodservice reported revenues of $6.6 billion. (Kraft Foodservice became Alliant Foodservice in 1996 after Clayton, Dubilier & Rice, Inc. purchased the Kraft Foodservice division from the Philip Morris Corporation).
After the Alliant acquisition, U.S. Foodservice was now generating combined total revenues of approaching $14 billion. U.S. Foodservice growth was 600% over the last 6 years, from about $2 billion in revenues in 1995, to $14 billion in late 2001.
The making of U.S. Foodservice reflects the trends of its industry: from retail to institutional customers; from specific products to a broadline of offerings; from single distribution centers to multi-unit branches; increased professionalism and customer service; and, most pronounced, the continuing and aggressive expansion through acquisition.
U.S. Foodservice taken private by investment funds
During 2006 there was much speculation as to which equity firm would acquire U.S. Foodservice from Royal Ahold. Ahold had refused to consider a spinoff of the subsidiary to the capital markets, and appeared to be headed toward an auction that JP Morgan would manage.This was consistent with many larger going concerns in the United States that appeared to be headed away from being publicly traded in what many believed was an attempt to avoid the requirements of the Sarbanes-Oxley Act of 2002. After the internal accounting controls and procedures struggles that U.S. Foodservice had gone through over the past 3 years—the very same that the Sarbanes-Oxley Act of 2002 was designed to address—one had to wonder if U.S. Foodservice being privately held was the proper path toward a transparent valuation of the company.
On May 2, 2007, Clayton, Dubilier & Rice, Inc. (CD&R) and Kohlberg Kravis Roberts & Co. L.P. (KKR) announced a definitive agreement to acquire U.S. Foodservice from Royal Ahold. Funds affiliated with CD&R and KKR are equal partners in the transaction, valued at $7.1 billion. The Washington Post quoted Robert S. Goldin, an executive vice president at Technomic, a food consulting firm in Chicago, as saying, "When Ahold acquired U.S. Foodservice, the industry consensus was that it overpaid." Industry analysts had previously estimated U.S. Foodservice could be worth $5.1 billion to $5.7 billion, the Post reported, adding that industry experts now agreed that Ahold got top dollar.
"For Ahold this is a reasonably good end to what's been a pretty unsuccessful foray into U.S. food distribution," Goldin continued. "It's been a sore spot for them. They overpaid for the business and never rationalized it. I would imagine they are pretty happy to put this one behind them."
The Post added that "Ahold was forced to restate more than $800 million in earnings after it came to light that U.S. Foodservice executives had inflated promotional rebates from suppliers to meet earnings targets. The scandal caused the parent company's shares to plunge."
"Ahold settled with the Securities and Exchange Commission two years ago and agreed to pay $1.1 billion to resolve shareholder lawsuits."