PALO ALTO, Calif. -
Reflecting on the scandal du jour, this one at Dutch food conglomerate Royal Ahold, I'm reminded how our painful re-education about business is teaching some strange lessons.
To wit, so many principles of the "new" way of doing business turn out to be such rubbish.
Take the maxim that the best kind of business is a low-cost, centrally administered operation. No doubt being lean is good. But only, it seems, if there are still enough folks left watching the till in the provinces. In other words, sometimes the streamlined company is exactly the one you don't want to invest in.
Take a tidbit I picked up while reporting a favorable piece on Sysco (SYY: Research, Estimates), the largest food distributor in the United States. An analyst who follows the food industry closely told me that Sysco's organic growth -- meaning it doesn't come from acquisitions -- was increasing year over year, while volumes at U.S. Foodservice (which Ahold owns) were declining.
The problem, as far as this analyst could tell, was that U.S. Foodservice thought it could make the food-distribution business more efficient. It's been busy taking out costs in the hopes of boosting profits.
Sysco, in contrast, ran a lean shop but hardly a centralized one. It didn't aim to be the low-cost food provider because it realized that customer service needed to be delivered regionally. In other words, the Sysco guy in central Jersey who's been handling the company's business with Wendy's needs to own that relationship. Not some suit in Houston, where Sysco is headquartered.
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The fact that U.S. Foodservice was taking too many costs out of its system may or may not have had anything to do with Ahold's current problems. It appears that Ahold was cutting corners in its willingness to account too aggressively for promotional allowances from food suppliers. Perhaps that knowledge would have helped an investor identify Ahold as a stock to avoid. Perhaps not.
But what's curious is that in a situation like this you'd typically expect some collateral damage. When the No. 2 player, as well as several smaller players, are revealed to be in hot water with regulators, you'd expect some heat on the No. 1 player, Sysco.
Nope. Sysco's stock rose Tuesday, to about where it was when I wrote about it in late January. Check your favorite news listings for articles on concerns about how Sysco is accounting for its promotional allowances. You won't find them.
Not the low-cost provider. Not run by a genius at headquarters. Not implicated in the latest scandal. Talk about back to basics.
A word on HP
Merrill's Steve Milunovich was off by just $2 million when he predicted that HP's enterprise systems group would record about $81 million in operating losses last quarter, a signal the situation at HP was improving. The actual figure was $83 million, down from $129 million the previous quarter. At Tuesday's close, the stock is up about $1.50 since Milunovich's note to clients. These days that's a big gain.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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