WEBVTT - Sysco CEO Kevin Houracan Talks Food Inflation

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Well, from coffee to cattle to cocoa, it feels like

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<v Speaker 2>the price of everything is getting higher right now, and

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<v Speaker 2>that's a real problem for large food manufacturers, including for

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<v Speaker 2>Kevin Hurricane. He is the CEO of Cisco. He is

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<v Speaker 2>a food distribution company that services restaurants, educational facilities, and

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<v Speaker 2>hospitals around the world. So, Kevin, you have a really

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<v Speaker 2>unique view into some of these supply constraints that are

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<v Speaker 2>impacting different parts of the commodity world. And I'm curious

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<v Speaker 2>about how you at Cisco are handling a market and

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<v Speaker 2>different parts of that market, from cattle.

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<v Speaker 3>All the way to coffee.

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<v Speaker 2>What does that mean for Cisco?

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<v Speaker 1>Yady, good morning.

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<v Speaker 3>It's a pleasure to be with you on the show

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<v Speaker 3>and with your audience today to understand inflation and where

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<v Speaker 3>we are at the spot moment.

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<v Speaker 4>I think it's helple to just take a quick step

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<v Speaker 4>back over the past a couple of years, as you decid,

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<v Speaker 4>we're what's called the food away from home business, so

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<v Speaker 4>everything outside of the grocery store, restaurants, hostibles, education facilities, sports.

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<v Speaker 1>Venues in the life coming out of COVID, demand.

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<v Speaker 3>Was far outpacing supply. We saw significantly increased inflation. In fact,

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<v Speaker 3>it peaked at about eighteen percent a couple of years ago,

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<v Speaker 3>again with demand far out pacing the ability of producers

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<v Speaker 3>to supply a product. We follow that with deflation actually

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<v Speaker 3>where the costs were coming down, and we've settled at

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<v Speaker 3>about two percent. So at the spot moment today, inflation

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<v Speaker 3>cogs increase inbound to CISCO is at about two percent,

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<v Speaker 3>which is in a reasonably normal status.

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<v Speaker 1>And that's across all categories.

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<v Speaker 3>But that doesn't mean that our individual categories like chicken

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<v Speaker 3>as an example, where we're seeing elevated inflation because of

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<v Speaker 3>again the lack of supply versus demand. So we're seeing

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<v Speaker 3>a bit of a normal environment at the current moment.

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<v Speaker 1>The challenge that consumers are facing is the following.

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<v Speaker 3>If you look about cumulatively over the past two to

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<v Speaker 3>three years, menu prices where we go to a restaurant

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<v Speaker 3>are up about thirty to forty percent versus twenty nineteen.

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<v Speaker 3>So I think that's the pain that we're all feeling

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<v Speaker 3>when we go to a restaurant. We SISCO are taking

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<v Speaker 3>actions with our supplier community and within our own book

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<v Speaker 3>of business to.

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<v Speaker 1>Help bring those prices.

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<v Speaker 3>Down, so we can help restaurants lower menu prices will

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<v Speaker 3>still hit the profitability targets that those individual business owners

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<v Speaker 3>are hoping to achieve.

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<v Speaker 5>Right, it seems like consumers who are looking forward to

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<v Speaker 5>a spate of deflation are looking at a December even

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<v Speaker 5>alone where cocoa coffee up almost forty percent more than

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<v Speaker 5>ten percent, respectively. And if there is something you could

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<v Speaker 5>do to bring those prices lower, what exactly is it

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<v Speaker 5>at the end of the day, or do you simply

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<v Speaker 5>just see consumers shifting their preferences to goods that are cheaper.

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<v Speaker 3>Sure, that's a great question, I appreciated, and we view

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<v Speaker 3>ourselves as a part of the solution, not the problem,

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<v Speaker 3>and have a four part plan if you will, to

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<v Speaker 3>help decrease the pain that that consumers feeling when they

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<v Speaker 3>go out. The first and foremost is to work with

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<v Speaker 3>our supplier community to bring down costs.

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<v Speaker 1>We are the largest purchaser of food and the food

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<v Speaker 1>away from home segment, so leaning in hard with our

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<v Speaker 1>suppliers to help them be more efficient.

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<v Speaker 3>Be that how we buy, the frequency that we buy,

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<v Speaker 3>creating competitive environments to have suppliers of like product compete

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<v Speaker 3>for our business so we can get to a lower

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<v Speaker 3>netline and price and again pass that value and savings

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<v Speaker 3>on to our end customers so they can lower menu price.

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<v Speaker 1>Step two is Cisco brand.

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<v Speaker 3>We offer a private label product under the Cisco banner,

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<v Speaker 3>and that product is very high quality and it enables

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<v Speaker 3>our customers.

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<v Speaker 1>To save money. We say, save them time, save them money.

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<v Speaker 3>It may surprise you that fifty percent five zero fifty

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<v Speaker 3>percent of what we sell to a mom and pop

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<v Speaker 3>independent restaurant is a Cisco branded product and we can

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<v Speaker 3>lean in harder there. We call them swap and save opportunities.

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<v Speaker 3>They can clear on our ordering website. Make it clear

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<v Speaker 3>with you our set one thousand person plus salesforce to

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<v Speaker 3>share that value with our customers, to educate them if

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<v Speaker 3>they swap.

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<v Speaker 1>They can say. Thing number three is to take time

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<v Speaker 1>out of the kitchen.

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<v Speaker 3>Help them with the opportunity to take labor costs out.

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<v Speaker 1>So we have prepared foods in the light that we

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<v Speaker 1>can lean in by cutting.

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<v Speaker 3>The meat in advance of it arriving in the kitchen,

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<v Speaker 3>cutting the vegetables in advance of it reviving in the kitchen,

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<v Speaker 3>and those prepared foods are a good opportunity for our

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<v Speaker 3>customers to.

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<v Speaker 1>Take labor costs because those are the two things that

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<v Speaker 1>have increased the most for a restaurant.

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<v Speaker 3>Their food costs are up, their labor costs are up.

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<v Speaker 3>We can help with providing both of those opportunities. The last,

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<v Speaker 3>but not least, is lower cost alternatives. If the one

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<v Speaker 3>protein category is spiking, we can help that customer understand

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<v Speaker 3>make the following changes through your menu. You can shift

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<v Speaker 3>your consumer purchasing to a lower cost of food. Helps

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<v Speaker 3>the end consumer save money, helps that restaurant lower their

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<v Speaker 3>food costs.

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<v Speaker 2>Interesting perspective there, especially when it comes to switching out

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<v Speaker 2>proteins to maybe save on cost a little bit. We're

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<v Speaker 2>talking about input costs, of course, the actual cost of chicken, cattle,

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<v Speaker 2>et cetera. But I want to talk about tariffs and

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<v Speaker 2>the potential there. You think about food packaging, for example,

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<v Speaker 2>you think about produce coming from Mexico and other places.

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<v Speaker 2>A lot of unknowns right now. Of course, Donald Trump

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<v Speaker 2>isn't even in office yet. How do you possibly plan

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<v Speaker 2>ahead for some of the potentials that are being talked

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<v Speaker 2>about right now?

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<v Speaker 3>Though this is a very important topic and appreciate the question,

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<v Speaker 3>I think the main point of what you said is accurate,

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<v Speaker 3>which is it's not actually certain what will happen. It

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<v Speaker 3>is uncertain what specifically will occur. But if I take

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<v Speaker 3>again a giant step back and start with them at

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<v Speaker 3>some facts, the vast majority of food that is consumed

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<v Speaker 3>within the United States is purchased within the United States.

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<v Speaker 3>And we're a global company. We do business in over

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<v Speaker 3>ninety countries around the world. In each country that we

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<v Speaker 3>operate in, the majority of the food is actually purchased

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<v Speaker 3>within that country. So the impact our space, the industrer

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<v Speaker 3>and is less than select other spaces.

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<v Speaker 1>But you mentioned one, which is produce.

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<v Speaker 3>Of course, during the winter months, a lot of produce

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<v Speaker 3>that's consumed in the United States comes from Mexico.

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<v Speaker 1>Yes, we're paying.

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<v Speaker 3>Attention to what incoming President Trump has said about tariffs

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<v Speaker 3>from China to specifically most recently Canada and Mexico, and

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<v Speaker 3>we're taking prepared measures and actions to put ourselves in

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<v Speaker 3>a position to succeed in helping our customers if those tariffs.

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<v Speaker 1>Come to realization.

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<v Speaker 3>There's some fundits saying that it's a bit negotiating strategy.

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<v Speaker 3>We don't know is the honest truth. So here are

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<v Speaker 3>the things that we need to deliver for our end customers.

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<v Speaker 3>Thing one assurances and continuity of supply. Regardless of what

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<v Speaker 3>happens with tariffs. We need to ensure that we Cisco

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<v Speaker 3>can ship on time and in full to our end

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<v Speaker 3>customers so that they can keep their doors open and

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<v Speaker 3>satisfy their end consumers.

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<v Speaker 1>So that's thing number one, assurance of supply.

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<v Speaker 3>Because we've purchased more food than anyone in our space,

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<v Speaker 3>we can provide our customers with that confidence that we.

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<v Speaker 1>Will have what they need when they needed. Thing two

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<v Speaker 1>is affordable at a cost.

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<v Speaker 3>And if a select individual country sees a spike in tariffs,

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<v Speaker 3>let's just say we're China.

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<v Speaker 1>Can we source that product from somewhere else.

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<v Speaker 3>We're working aggressively with our global supplier community in exactly

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<v Speaker 3>that regard, and we will pivot. We will take actions,

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<v Speaker 3>the charge and comment on the specifics at this time

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<v Speaker 3>when none of us know exactly what those terras will be.

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<v Speaker 5>Kevin, we thank you so much for joining us today.

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<v Speaker 5>Of course, a balanced view here on what's going on

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<v Speaker 5>in the world of food and restaurants, that is Kevin

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<v Speaker 5>Harkin of Cisco