Industry risk report: food services
You can survive without sex, and perhaps you can even survive without shelter, but you can’t survive without food. So, when you give thanks on Turkey Day next month, remember the managers in the food services industry and what they went through so you could enjoy a square meal. From the minimum wages paid to grocery store clerks to preventing spoilage during transcontinental journeys to dealing with tough U.S. Food and Drug Administration regulators, it’s a wonder produce ends up fresh on our plates at all. For the most part, the food industry has done a good job feeding the public–perhaps too good a job given the obesity epidemic we’re in. Yet, when things go wrong, mistakes in this industry can cost you your life.
COMPASS GROUP PLC.
Charlotte, N.C. (U.S. office)
U.K.-based Compass Group is the world’s largest foodservice company with annual revenues of more than $10 billion and more than 375,000 employees in more than 90 countries around the world. Compass is the parent company of a number of world leading sector and foodservice brands.
CHIEF RISK EXECUTIVE Marlene Wilson, VP, Corporate Insurance Department
CEO Michael J Bailey
CFO Andrew P Lynch
BOARD AUDIT CHAIR Peter E B Cawdron
NET REVENUE $18,805 million
NET INCOME $306 million
NUMBER OF EMPLOYEES 412,574
PRIMARY BROKER Willis
CAPTIVE Queen’s Wharf insurance Services Ltd. (Isle of Man)
RISK EXPOSURES Liquidity risk; foreign currency risk
RISK STRATEGIES To manage interest rate and foreign currency risk, Compass uses derivatives such as interest rate and currency swaps and forward currency contracts
ARAMARK CORP.
Philadelphia, Pa.
Aramark Corporation is a leading provider of a broad range of outsourced services to business, educational, healthcare and governmental institutions and sports, entertainment and recreational facilities. The company maintains strong leadership positions in food and support services and uniform and career apparel services.
CHIEF RISK EXECUTIVE John Upright, Manager, Risk Analysis
CEO William Leonard
CFO L Frederick Sutherland
BOARD AUDIT CHAIR Robert J Callander
NET REVENUE $9,447 million
NET INCOME $501 million
NUMBER OF EMPLOYEES 200,000
PRIMARY BROKER Aon
CAPTIVE Aramont Insurance Co, Ltd. (Bermuda)
RISK EXPOSURES Unfavorable economic conditions and increased operating costs adversely affect results of operations and financial condition; profitability could be adversely affected if faced with cost increases for food, fuel, utilities, insurance, wages, clothing and equipment; significant increases in labor costs which could have an adverse effect on business, financial condition and results of operations; uncertainty surrounding expansion strategy
RISK STRATEGIES The company is exposed to the impact of interest rate changes and manages this exposure through the use of variable rate and fixed-rate debt and by utilizing interest rate swaps
SYSCO CORP.
Houston, Texas
SYSCO has sales and service relationships with more than 420,000 customers and remains committed to helping them succeed in the foodservice industry and satisfy consumers’ appetites. Operating from 148 locations throughout the contiguous United States and portions of Alaska, Hawaii, and Canada SYSCO’s product lines are as diverse as the 47,700 employees who support its daily operations. Products include not only the ingredients needed to prepare meals, but also the numerous ancillary preparation and serving items.
CHIEF RISK EXECUTIVE Stephen Broderick, Senior Risk Manager
CEO Richard J Schnieders
CFO John K Stubblefield
BOARD AUDIT CHAIR Richard G Tilghman
NET REVENUE $26,140 million
NET INCOME $778 million
NUMBER OF EMPLOYEES 47,400
PRIMARY BROKER Withheld
CAPTIVE No
RISK EXPOSURES Current economic environment; SYSCO’s leverage and debt risks; the successful completion of acquisitions and integration of acquired companies; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; construction schedules; labor issues
RISK STRATEGIES SYSCO maintains a self-insurance program covering portions of workers’ compensation, group medical, general liability and vehicle liability costs. The amounts in excess of the self-insured levels are fully insured. Liabilities associated with these risks are estimated in part by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. In an attempt to mitigate the risks of workers’ compensation, vehicle and general liability claims, safety procedures and awareness programs have been implemented.
MCLANE CO. INC.
Temple, Texas
Founded in 1894 in Cameron, Texas, McLane Co. has grown from a local merchant to an international distribution and logistics leader The company provides services to more than 50,000 customer locations around the world including convenience stores, mass merchandisers, quick service restaurants, drug stores and movie theaters. From its 32 grocery and foodservice distribution centers, McLane Co. services every state and county in the United States.
CHIEF RISK EXECUTIVE Mark Bennage, Director of Risk Management
CEO W. Grady Rosier
CFO Kevin J Koch, vice president of accounting, tax finance and treasurer
NET REVENUE $13,743 million
NUMBER OF EMPLOYEES 14,461
PRIMARY BROKER IAS Ltd.
CAPTIVE RDM Insurance Group Ltd. (Cayman Islands)
RISK STRATEGIES Withheld
RISK EXPOSURES Withheld
SUPERVALU INC.
Eden Prairie, Minn.
Supervalu is one of the largest companies in the United States grocery channel. As of the close of the fiscal year, the company conducted its retail food operations through a total of 1,485 stores. Supervalu also serves as the primary grocery supplier to 2,470 grocery stores in 48 different states.
CHIEF RISK EXECUTIVE Barb Farrel, General Director, Risk Management
CEO Jeffrey Noddle
CFO Pamela K Knous
BOARD AUDIT CHAIR Garnett L Keith, Jr
NET REVENUE $20,209 million
NET INCOME $280 million
NUMBER OF EMPLOYEES 55,200
PRIMARY BROKER Marsh, Aon
CAPTIVE Market Insurance Co Ltd. (Bermuda); Suvaco Insurance International Ltd. (Bermuda)
RISK EXPOSURES Market risks such as interest rate risk; economic conditions such as food price deflation or inflation, softness in local and national economies, increases in commodity prices and the availability of favorable credit and trade terms; competition and its effects on prices and sales volume; adverse business trends caused by the uncertain future of labor relations and employee benefit costs; domestic security. Wartime activities, threats, and acts of terror directed at the food industry as well as related security costs can affect consumer behavior and spending as well as customer orders
RISK STRATEGIES The company is primarily self-insured for workers’ compensation and general and automobile liability costs. It is the company’s policy to record its self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported, discounted at a risk free interest rate
NASH FINCH CO.
South Minneapolis, Minn.
Nash Finch Co. is one of the leading food retail and distribution companies in the United States, with nearly $4 billion in fiscal 2003 annual revenues. The company owns and operates a base of over 80 retail stores, principally supermarkets under the Econofoods, Family Thrift Center and Sun Mart trade names. In addition to its retail operations, Nash Finch Co.’s food distribution business serves independent retailers and military commissaries in 27 states, the District of Columbia, Europe, Cuba, Puerto Rico and Iceland.
CHIEF RISK EXECUTIVE William Weisbrod, Director, Risk Management
CEO Ron Marshall
CFO Robert B Dimond
BOARD AUDIT CHAIR John E Stokely
NET REVENUE $3,971 million
NET INCOME $55 million
NUMBER OF EMPLOYEES 10,570
PRIMARY BROKER Withheld
CAPTIVE No
RISK EXPOSURES Adverse effects of intense market competition, such as general price lowering to remain competitive in market; susceptible to national and regional economic trends, especially those that influence consumer confidence and activity; consumer credit risk; uncertain future concerning expansion and acquisitions; changes in military commissary system
RISK STRATEGIES The company is primarily self-insured for workers’ compensation, general and automotive liability and health insurance costs; stop-loss coverage to limit exposures on a per-claim basis
PERFORMANCE FOOD GROUP CO.
Richmond, VA
Performance Food Group is one of the nation’s largest foodservice distributors, and is a leading fresh-cut produce processor. The company provides superior service to our customers through three operating segments.
CHIEF RISK EXECUTIVE Joseph Black, Jr, Director, Risk Management
CEO Robert C. Sledd
CFO John D Austin
BOARD AUDIT CHAIR N/A
NET REVENUE $5,519 million
NET INCOME $74 million
NUMBER OF EMPLOYEES 10,000
PRIMARY BROKER Withheld
CAPTIVE No
RISK EXPOSURES Foodservice distribution is a low-margin business and may be sensitive to economic conditions; prices of high quality, fresh produce can be volatile and supplies may be limited due to, among other things, factors such as weather, disease and level of agricultural production; uncertain forecasts concerning growth and acquisitions
RISK STRATEGIES Performance Food Group maintains a self-insurance program covering portions of general and vehicle liability, workers’ compensation and group medical insurance. The amounts in excess of the self-insured levels are fully insured, subject to certain limitations and exclusions
U.S. FOODSERVICE INC.
Columbia, Md.
U.S. Foodservice is one of the largest broadline foodservice distributors in the United States. The company distributes food and related products to more than 250,000 customers, including restaurants, health care facilities, lodging establishments, cafeterias, schools and colleges.
CHIEF RISK EXECUTIVE Lori Stevens, Financial Risk Manager
CEO Lawrence S Benjamin
CFO Robert L Fishbune
BOARD AUDIT CHAIR Dean R Silverman
NET REVENUE $19,819 million
NUMBER OF EMPLOYEES 23,282
PRIMARY BROKER Withheld
CAPTIVE No
RISK EXPOSURES Withheld
RISK STRATEGIES Withheld
ROUNDY’S INC.
Milwaukee, Wis.
As of January 3, 2004, the company owned and operated 115 retail grocery stores, of which 77 were located in Wisconsin, 31 were located in Minnesota and seven were located elsewhere in the Midwest. The company distributes a full line of food and nonfood products from seven wholesale distribution centers in four Midwestern states and provides services to approximately 800 licensed and independent retail locations in Wisconsin and throughout the Midwest.
CHIEF RISK EXECUTIVE Sherry Nol, Director of Risk Management
CEO Robert A Mariano
CFO Darren W Karst
BOARD AUDIT CHAIR
NET REVENUE $4,383 million
NET INCOME $54 million
NUMBER OF EMPLOYEES 19,999
PRIMARY BROKER Aon
CAPTIVE Badger Assurance Ltd. (Bermuda)
RISK EXPOSURES Exposure to product liability claims and adverse publicity; the company faces risks commonly encountered with a growth-through-acquisition strategy; failing to assimilate the operations and personnel of acquired businesses; failing to adequately assess unknown environmental conditions; the company’s relations with the unionized portion of its workforce may not remain positive and its workforce may initiate a strike, work stoppage or slowdown in the future
RISK STRATEGIES The company is primarily self-insured for workers’ compensation. It is the company’s policy to record its workers’ compensation liability based on claims filed and an estimate of claims incurred but not yet reported
INTERNATIONAL MULTIFOODS CORP.
Minnetonka, Minn.
International Multifoods is a manufacturer and marketer of branded consumer foods and foodservice products in North America. The company’s food manufacturing businesses have combined annual net sales of nearly $940 million. Multifoods’ brands include Pillsbury baking mixes for items such as cakes, muffins, brownies and quick breads; Pillsbury ready-to-spread frostings; and Hungry Jack pancake mixes, syrup and potato side dishes.
CHIEF RISK EXECUTIVE Gregory Keup, VP and Treasurer
CEO Gary E Costley
CFO John E Byom
BOARD AUDIT CHAIR Isaiah Harris, Jr.
NET REVENUE $908 million
NET INCOME $17.5 million
NUMBER OF EMPLOYEES 2,162
PRIMARY BROKER Withheld
CAPTIVE No
RISK EXPOSURES Impact of competitive products and prices; changes in consumer preferences and perspectives of health-related issues; effectiveness of advertising and market-related efforts; market or weather conditions that may affect the costs of grain, other raw materials, utilities and fuel; the impact of labor matters and changes in laws and regulations; fluctuation in foreign exchange and interest rates; risks related to international business and trade
RISK STRATEGIES The company enters into futures contracts to hedge risks associated with milk and flour price fluctuations. To minimize the risks associated with foreign currency fluctuations, the company enters into foreign currency forward contracts. Multifoods also enters into interest rate swap agreements to mitigate interest rate fluctuations associated with the company’s borrowing activities. The company also maintains insurance to protect itself and its directors and employees from risks and liabilities
MARSH SUPERMARKETS INC.
Indianapolis, Ind.
Marsh is a leading regional supermarket chain operating 66 Marsh Food Markets, and 167 Village Pantry convenience stores in central Indiana and western Ohio. The company also operates Crystal Food Services which provides upscale catering, cafeteria management, office coffee, vending and concessions. Marsh Supermarkets feature an extended line of traditional grocery store items as well as service and specialty departments.
CHIEF RISK EXECUTIVE Withheld
CEO Don E Marsh
CFO Douglas W Dougherty
BOARD AUDIT CHAIR
NET REVENUE $1,653 million
NET INCOME $3 million
NUMBER OF EMPLOYEES 14,300
PRIMARY BROKER Withheld
CAPTIVE No
RISK EXPOSURES The entry of new stores and their impact on the company; the stability and timing of distribution incentives from suppliers; potential interest rate increases on variable rate debt; the company’s ability to control employee medical costs; its ability to predict and respond to changes in customer preferences and lifestyles; commodity price fluctuations; uncertainties regarding gasoline prices and margins; the company’s ability to control costs including labor, rent, credit card, and workers’ comp and general liability expense; uncertainties related to taxation and tobacco and environmental legislation; pension and other retirement obligations
RISK STRATEGIES The company is self-insured for most health care claims, workers’ comp claims, and general liability and automotive liability losses. Claims and related loss reserves are estimated by third-party administrators. Claims incurred but not reported are recorded based on experience and industry trends, and accruals are adjusted when warranted by changes in facts and circumstances
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