Attention, food shoppers! The recent steep surge in U.S. food prices will end soon, predicts Kevin Hourican, chief executive of Sysco, a food-distribution giant. “I expect food inflation to decrease over the next year at both the grocery store and in our business of food away from home’’ as product availability improves, he says.
Hourican should know.
The 49-year-old veteran retailer leads the nation’s biggest distributor of food and related items to restaurants, schools, and other food-service operations. Sysco delivers food to more than 700,000 locations worldwide.
Hourican, who has been CEO since early 2020, has devised a sweeping strategy focused on the expansion of team-based sales, technology investments, and a revamped supply chain. One result: Sysco resumed growing its market share, reversing declines between fiscal 2010 and 2020. The Houston company saw sales soar nearly 34% to $68.6 billion during the fiscal year ended July 2, 2022.
The 6 ft. 8 in. Hourican played on the 1994 national championship volleyball team for Pennsylvania State University. Equipped with an economics undergraduate degree, he pursued a master’s there in supply chain management partly because he enjoyed learning to manage inventory during his summer job in a hotel kitchen supplied by Sysco. Hourican began his full-time career running the overnight shift at a Sears warehouse. He went on to become an executive for Sears, Macy’s, and CVS Health. He was overseeing CVS’s $85 billion retail business when Sysco hired him.
TIME recently spoke with Hourican about supply-chain crisis aftershocks, his transformational strategy that’s dubbed “Recipe for Growth,” Sysco’s possible diversification, and how an executive coach strengthens his effectiveness.
How does your supply chain management graduate degree help you cope with Sysco’s latest supply chain headaches?
We’re one of the largest supply chains on the planet, [with] a mostly blue-collar workforce. Having deep supply chain experience as the leader of Sysco allows me to be credible up and down the spectrum of our associates.
Our business has been steadily recovering from the COVID disruption. We’ve had a shortage of people and product when consumer demand has been robust. In August 2021, we found ourselves understaffed versus the volume we were doing and hiring at a much faster rate than normal. One outcome is that roughly 50% of our employees in supply chain positions have been in their jobs for under a year. That’s pretty extraordinary. Productivity for that group is below normal. That shows up in the speed with which we can get product out and higher costs.
[Meanwhile,] product shortages made it difficult to ship on time and in full. That is our metric of success. Product availability has been hurt due to factors such as China shutdowns during strict COVID-19 restrictions. Some protein suppliers have had meaningful staffing challenges. You couldn’t get chicken wings for a period last year.
We are now sufficiently staffed, and our suppliers’ ability to ship has steadily improved. We [still] need to improve productivity. Our new folks will get more productive over time as we provide training, coaching, and support to do their roles.
The downturn triggered by COVID-19 forced you to permanently lay off or furlough about 33% of your employees. As a novice CEO, why did you consider the pandemic an opportunity to revamp Sysco through a radical shakeup called Recipe for Growth?
The global pandemic is a terrible tragedy. What’s the overused expression? Don’t let a crisis go to waste. We leveraged the moment to move faster on a customer facing strategic transformation we wanted to do. Sysco is the largest and most profitable company in our space. But we had not grown faster than the market for years. I was recruited to create a growth platform. We needed to make some changes. Recipe for Growth is a five-part plan.
At profitable big companies, there’s reluctance to change things that have worked for a long time and [instead do] things like converting to a more digital method of interacting with customers. The COVID crisis had such a dramatic impact on our business that resistance to change [was] meaningfully reduced. Associates understood we needed to move fast, and why the changes would help us better serve customers. We regionalized our business, changed our compensation program, meaningfully advanced our customer-facing technology tools, and made bold supply chain changes. As an example, we eliminated order minimums. We’re the only company in our industry of restaurant food delivery to have done that.
The transformation is ahead of schedule. We had a goal this past [fiscal] year to grow 1.2 times the industry. We grew [more than] 1.3 times. We’ve created an efficient, large company that’s more customer focused, agile, and growth oriented. We still have substantial runway in front of us on the Recipe for Growth, however.
Twenty-five chief executives you approached during your first 90 days suggested developing your team faster than you thought you should. Is that why you hired a chief financial officer and three other executives during your first year who today are among your 11 direct reports?
I took sound advice from my CEO peers to be candid in the assessment of talent, then make timely decisions. I moved pretty quickly. Now, my best advice to someone coming into the CEO job is, “Don’t do it all at once. Prioritize.” If you change too many top jobs at the same time, you can lose the company and the trust of tenured associates. I’ve seen CEOs come into companies and not have sufficient respect for tenure, history, or culture.
As your industry’s dominant player, Sysco could afford to swallow a sizable competitor. But in 2015, a court blocked its proposed takeover of big player US Foods. Will you again pursue a major rival? Or will you stick to buying relatively small firms like the three acquired since 2021?
We don’t need to buy a big competitor to drive growth. Our strategy for growth externally is about making us a more capable organization. The most attractive acquisitions domestically fill needs such as geographic white spaces where we’re not sufficiently competitive and there are product voids in our assortment. Internationally, we’re more successful and mature in select geographies. Those would be higher on my priority list for future acquisitions. We need to prove through our international results that we will be successful. As we do, the appetite for international acquisitions will go up.
Might Sysco also diversify into related areas? Some think your huge fleet could make home food deliveries.
Home delivery is a tough business. So, I don’t believe Sysco will be in any hurry to [deliver] food to the average consumer’s home. But we are reviewing options to diversify. We’re uniquely qualified to provide restaurants with a lot of support. Adjacent businesses are interesting. For example, there’s a very large supplies and equipment space. Restaurants use things like cups, cutlery, plates, and cookware. We’re in that through our very small Supplies on the Fly business. Would we want to go into supplies and equipment full way?
What else do restaurants want? Many don’t like back-office stuff. Could we provide restaurants with things like HR services? It’s [another] area to think about, though we’re not actively pursuing it.
Your college volleyball team lost the national title the year after winning it. What’s the best lesson you’ve gleaned from such failures?
I remember the title loss more than the win. In a moment of challenge, difficulty, and defeat, you learn even more about what to do better and differently next time. That’s applicable in sports or business. Where can we improve? How do we need to improve? Those are all capability builds.
In my career, I have found leadership behaviors tend to decline when the going gets the toughest. The complete opposite needs to happen. I try to be my best version of myself when challenges are the most substantial. I’m getting better 1% every day and never declare victory.
Do you keep getting better because you’ve worked with an executive coach since taking Sysco’s highest job?
Everyone should have a coach, especially a CEO. You need to make some tough calls. You can’t manage through consensus. On the most substantial decisions, I talk to my coach and share my perspective on where I’m leaning. My coach has worked with hundreds of other CEOs. I ask, “What have others like me considered? Are there constituents I need to engage so I make the right decision?’
Describe one situation where your coach assisted you in handling a complicated issue as a first-time CEO.
Board interactions are an example of where he was most useful early in my tenure. My coach helped me bucketize decision making into three tiers. What topics should a CEO bring to the board? What topics are purely managerial decisions, and you don’t even need to notify [board members]? Tier three is a decision that has meaningful repercussions. You should engage the board, evaluate their input, and align on a decision. A big part of the reason why I’ve got a good rapport with our board is that we found a nice rhythm. And we leverage their strengths and expertise.
You recently said your challenge for Sysco’s business team is, “How do we push each other to take our game to the next level?” What will that level look like?
Our next level is to be even more customer centric. If [customers] want deliveries seven days a week, we’re there. The challenge for a company like ours is, “How do you have flexibility and efficiency?” In the past in our industry, it’s been perceived that those are contrarian points. You could be productive or customer agile. We want to be both.
What steps will you take to make sure your colleagues up their game so Sysco reaches that next level?
Listen to our frontline associates. Ask them, “What can we do better to help you do your jobs better? What customer needs aren’t being met?” Then, we should get inspiration from new hires. We can apply other industries’ best practices to Sysco.