Kevin Hourican: On the national side, I’ll start with the answer to your question. Then I’ll toss to Kenny if he has anything else that he would like to say. Our share count with an existing national customer is very high. For many of them, it’s 100%. The opportunity for profit improvement with those accounts are things like penetrate further with Sysco brand. Sysco brand under penetrates with national brand customers versus local customers. But we’re making progress on that. Now we’re lining up our chief merchant with the chief purchasing officer for those top customers and where can we win together? Where can we partner, move a product over to Sysco brand, share in some of those savings with that national brand customer so that we win together?
Other examples would be dropped size incentives. How can we do things in a win-win nature with those customers where if we can be more efficient through a decision that they make, we can share in some of the savings created from that efficiency improvement? Again, just back to why are we winning in national sales? If the contract is not win-win, it’s short lift. We need to have contracts that are win for us, win for them, structure the contract that way and then these great sustainable, long-term partnerships. Reminder, these contracts are three to five years in nature. And our retention rate for our national sales customers is extremely high, in large part because we’re doing an even better job of having that win-win contract provision where again where we can be more efficient, we will share in some of those savings with that partner.
That helps them be more profitable, it helps Sysco be more profitable as well. With that rigorous, disciplined ROIC lens that Kenny mentioned, he mentioned it in SYGMA, we had a customer not to be named that wasn’t willing to actually have a contract that was win-win. We walked away. We’re more profitable because of it. We’re not growing for the sake of growing. We’re finding the right partners in national across restaurants, healthcare, education and hospitality. We’re focusing on how we serve them better. And we’re having a lot of success with that. Kenny, I’ll toss to you for any additional comment you’d like to make.
Kenny Cheung: Yes, you covered it well, Kevin. The only couple of things I’d say is that you’re right, John. The share of wallet can grow the most profitable cases, the extra case on the truck, if that’s one piece. And the other piece, as I mentioned earlier, national growth, we’re watching very carefully. We’re doing very well. But for us, it’s all about sustainable, profitable growth.
John Heinbockel: Okay. Thank you.
Kevin Hourican: Thank you, John.
Operator: And we’ll take our next question from Kendall Toscano with Bank of America. Your line is open.
Kendall Toscano: Hi. Thanks for taking my question. One thing I just wanted to clarify was whether margin expansion for Sysco in fiscal ’24 should be primarily driven by gross margin expansion or operating expense leverage. It looks like in the first quarter you saw pretty impressive gross margin expansion while operating expenses were flat as a percent of sales, which was kind of the opposite of how The Street was modeling it. So just any help on how to think about that going forward for the year would be really helpful. Thanks.
Kenny Cheung: Yes. So without going to actual numbers, the way that I would model and think about this, we should drive bottom line accretion through both on the GP side and the operating expense side. And what does that mean? If you look at Q1, as I mentioned earlier, Q1 gross profit growth rate was actually higher than sales, meaning the work that we’ve done around call it the strategic sourcing, Sysco brand penetration, proper mix of our business that will drive accretion between your sales and your GP line. In terms of operating expense at the low GP, you have two things working in favor for us. One is the continuation of supply chain productivity, as Kevin described earlier. This is tied to productivity. This is tied to better retention for our employees.
We try to better productivity yield on the warehouse side and delivery side. And this also dovetails nicely into the productivity work that we’ve done on the corporate side, which is $100 million I referenced earlier. As I mentioned, we’re not stopping there. So to answer your question directly, it is both the GP line and the operation expense line.
Kevin Hourican: Yes, I just want to add one thing. I 100% agree with what Kenny just said. I think the rate of inflation in sales a year ago is causing a little bit of perhaps year-over-year compare challenges because when I look at the actual core drivers, our transportation costs per piece year-over-year improved. Our warehouse costs per year-over-year improved. Maintenance costs year-over-year improved. Shrink improved, retention improved. These are the drivers that actually impact cost per piece and those metrics in our core U.S. business, all of them improved year-over-year. And we’re not yet back to 2019. There’s actual continued additional progress that can be made that will be made. We’ve built that into our guide for the year. And we are very focused as a leadership team on continuing to make those improvements.
Kendall Toscano: Great. That’s really helpful. Thank you.
Kevin Hourican: Kendall, thank you.
Kenny Cheung: Thank you.
Operator: Thank you. We have reached our allotted time for questions. I will now turn the program back over to our presenters for any additional or closing remarks.
Kevin Hourican: Great. Thank you all for joining us. Please feel free to reach out to the Investor Relations group if you have any follow-up calls. Thank you.
Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at anytime.
