U.S. Foodservice starts selling via the Internet; Columbia firm expects revenue to rise by $500 million after year; Top rival already is on Web; Institutional sales


James Miller, chief executive officer of U.S. Foodservice, yesterday sketched a bold vision of how a foray into the Internet will transform the Columbia company.

He said the venture will trim overhead, improve customer service and help the company gain market share on its chief rival, Sysco Corp. of Houston.

Miller expects the company to save a penny a share, or $101 million, next year through Internet sales of kitchen and cooking equipment to its institutional customers.

Miller also expects the move into electronic commerce to help the company become the dominant player in the equipment niche of the industry, surpassing Sysco, the nation's No. 1 food and equipment supplier.

The executive predicted Internet sales would generate $500 million in revenue in the first year of its Web site, NextDayGourmet.com.

U.S. Foodservice earned $83 million on $6.2 billion in revenue during its most recent fiscal year, which ended Aug. 24. Wall Street's reaction to the development was muted. Shares in U.S. Foodservice closed yesterday at $19.50, up 31.25 cents.

"[NextDayGourmet.com] takes us light years in front of the competition to build brand equity and market share," Miller said.

U.S. Foodservice's move to the Internet can also be seen as partly defensive.

Sysco, which booked $18.5 billion in sales last year, already is conducting sales of kitchen equipment and food through its Web site, Sysco.com. A Sysco spokeswoman did not return a call for comment yesterday.

U.S. Foodservice's purchase earlier this month of kitchen equipment supplier Superior Products Mfg. Co. of St. Paul, Minn., was seen by analysts as a move to better compete against Sysco. (U.S. Foodservice declined to disclose the Superior purchase price, but must do so early next year when it announces second-quarter earnings.)

Cost savings from the Internet are expected to reduce paperwork for orders and billings and lower shipping errors, Miller said during a conference call.

Other savings are expected from consolidating the inventory of restaurant equipment and supplies -- now stocked in 37 warehouses nationwide -- into warehouses in Minneapolis and Indianapolis, he said. Restaurant equipment and supplies account for less than 5 percent of sales.

Internet purchases are to be shipped next-day delivery via United Parcel Service.

Distribution and delivery is "a very costly process with lots of room for error," said Miller. The company, he said, will continue to control the distribution of kitchen equipment and supplies, rather than shifting them to product manufacturers, as some online sales ventures have done.

Miller said the company believes that many of its 130,000 restaurants, hotels and other institutional customers will embrace ordering equipment through NextDayGourmet. He said a company survey of customers found that about 80 percent are equipped to conduct business via the Internet.

The company also plans to allow general consumers to order from the NextDayGourmet Web site, although growing that segment of the business will not be a priority.

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