As you know, the law does not impact mom-and-pops. It’s a national chain law. And you’ve seen those companies announce that they’re going to reduce the number of new door openings. We’re seeing plenty of growth in other states. The South, in particular, they’re seeing lots of new door starts in the South and a lot of population moving from California, frankly, to other states and smart restaurant operators tend to follow the puck where it’s going and focus their new door growth elsewhere. Kelly, back to you if you have a follow-up.
Kelly Bania: Thanks. That’s helpful. I guess, can you also just talk about how mix or trade down is impacting kind of net pricing or what you’re seeing in a sequential basis relative to last quarter in terms of price points among the different like customer cohorts?
Kevin Hourican: Yes. I think the notable callout that I provided today is that QSR in our book of business is soft versus the others, and I point you to the SYGMA data that we shared today to give that illustration. We are not seeing meaningful trade down within concepts to lower-cost proteins as an example. That’s something actually we think is appropriate and should occur, and it’s something that we can do and we can help our customers do that so that they can, in fact, provide value to their customer who’s coming into that restaurant. And that’s something our sales force, the largest in the industry, works with customers on. We work with them on portion size. We work with them, alternative proteins. We work with them to provide alternative Sysco brand cuttings, as I mentioned earlier, that can help them save money.
So we’re not seeing a trade down within restaurant concepts. It’s more about that lower-income consumer being pinched right now, and that’s showing up in the sales results.
Operator: And our next question comes from Jeffrey Bernstein with Barclays.
Jeffrey Bernstein: Great. Thank you very much. My first question is just on the cost savings that you talked about. It sounds like we’re up to $120 million or more for this fiscal year. So you were able to increase it by $20 million pretty quickly when you saw sales perhaps a little bit more challenged. I think you mentioned 500 roles were eliminated and yet, you’re still able to invest in what sounds like accelerating the sales force. So just to clarify, sounds like all of these incremental cost savings are back of house with no customer impact. And if that’s the case, what’s the future opportunity for cost savings and the supply chain if sales remain challenged. I’m wondering if you have any order of magnitude in terms of the potential incremental cost savings going into next year if you were to see these sales challenges persist.
Kenny Cheung: Hey Jeff, it’s Kenny. I’ll take that one. So first thing is first, and you called it. We are very proud of our leadership team, taking proactive actions given the softer macro backdrop. And the good news is we have a lot of levers in our P&L. In particular, to your question around the $120 million of cost out, let me give a bit more color. As I mentioned, last quarter, it was roughly $100 million. That’s increased by $20 million to the $120 million for FY2024. If you double click on that P&L, Jeff, if you look at GSP or corporate operating expense that was $220 million for Q3 and that was down 6% year-on-year. If you look at it quarter-over-quarter between Q2 to Q3, it was down 8%. So the cost is coming out of the P&L.
And you are correct. That does include most recent 500 elimination of positions, which is predominantly on the corporate side. So that is correct. We did not impact client-facing roles in our USFS business. In terms of other periods, what are some of the areas of opportunities? There’s more room to go. As a company, we continue to have a pipeline of initiatives and savings. I’ll give you a couple of examples, but just put color on it. Last quarter, meaning Q3, we rolled out the full implementation of Canada. Sure, Service Center under Mayor and that has yielded accretive savings for our company. And if you think about just pure SG&A, yes, part of its headcount, but we have a big bucket. That’s what I call third-party indirect sourcing, and we are making good strides on that one as well.
Be a vendor consolidation and rate reduction as well. So there’s still a lot of room to go. As Kevin mentioned earlier, on the supply chain side, we saw a record level of productivity this quarter. With that said, we are not back in 2019 levels yet, and we still have room to go on that front as well in terms of P&L accretion from a cost standpoint.
Kevin Hourican: Yes. Just Jeff, this is Kevin, I’ll add two things to that. Salesforce, we’re investing in our salesforce. So — and we’re investing in specialty, as Kenny said in his prepared remarks, within supply chain operations, we will flex our staffing to the volume. So if the volume declines, we flex staff accordingly. But we’re not talking about things like furlough and drivers. I mean the business is robust and it’s healthy. It’s growing. It’s nothing like what we were continuing back in COVID. It’s more about, over time, flex it down. It’s about part-time labor flex it down and we’re getting very good at flexing our supply chain labor to macro volume. And in fact, that’s why March was as strong as it was.
Jeffrey Bernstein: Understood. And then just my follow-up, Kevin, I know you highlighted on the slide deck, your 17% market share, and I know we’ve talked about the big three, maybe having still sub-40%. So it does seem like the focus is predominantly on taking further share from the other 60%. I know it doesn’t necessarily require M&A. But just — can you talk about that opportunity to take market share? I would think that opportunity would accelerate if the competition is struggling. I know we’ve talked about the restaurant industry perhaps struggling. But can you just talk about maybe the other 60% of the foodservice distribution industry, and what you’re seeing there in terms of your competition and maybe the greatest opportunity you see there to gain share?
Kevin Hourican: I think your main point is the strong gets stronger when times are tougher. And yes, that is the case. And if you look at the time of COVID, we performed extremely well versus the industry at large, top and bottom line versus the industry during that period of time, and I think that would continue in a softer macro environment. I tend to focus more on the vectors of growth where we are meaningfully focused is in specialty. We have the most robust specialty offering by far in the industry coast-to-coast. It is unmatched by anyone in the industry. And our market share in specialty is well below our U.S. Broadline market share. So we have the product offering. We have the geographic coverage, the market share growth opportunity in specialty is substantial, and we’re making investments in specialty to be able to bring that market share capture to life.
The net 400 sales professionals that I talked about today includes increases in specialty protein and specialty produce sales experts we are going to talk in more detail about the opportunities in specialty at our Investor Day at the end of May.
Operator: And we have our next question from Kendall Toscano with Bank of America.
Kendall Toscano: Hi, thanks for taking my question. The quick clarification point was on; I know you gave the impact from Edward Don. But just to make sure I understand, would it have been that the total case growth on an organic basis was plus 0.2% in local would have been down 1.2%.
Kevin Hourican: That’s correct. Your math is correct.
Kendall Toscano: Okay. Got it. That’s helpful. And then another quick one is just when you talk about lowering menu prices and working with your suppliers on that, are there any specific product categories that you would have in mind on that? Would it be more commodities focused for non-perishable items?
Kevin Hourican: Center of plate is what drives the purchase ticket in any restaurant. So we’re focused on is providing value, good, better, best options, alternative proteins, portion size, center plate is what drives any restaurants purchasing cost. And then commodities is the place that a customer will go to help save themselves money and they’ll price shop distributor A versus B. So we need to be, as I said earlier today, right on price on commodities. And we can do so intelligently by leveraging our pricing tool, purchasing those commodities that rates that are industry-leading. And it’s a basket of goods they buy from us. And as John Heinbockel asked about, it’s managing the elasticity across that book and nobody is better positioned to be able to do that work than Sysco.
Operator: And we have reached our allotted time for our question-and-answer session today. This does conclude today’s program. Thank you for your participation. You may now disconnect.
