News: CJ Exclusives

Incentives Grant Frustrates Competitor

Goldsboro-based company competes with Sysco, recently awarded state subsidy

The owners of Pate Dawson Company, a Goldsboro food distributor that has been doing business in North Carolina for 120 years, is wondering how the state can justify giving the company’s main competitor, Texas-based Sysco Inc., $10 million to build a distribution center in Johnston County.

“I’ve been hearing rumors for a long time that Sysco has been thinking of building a new distribution center either in the eastern part of the state or Virginia, but only last August did I learn they may be trying to get money from the state,” said Mac Sullivan, president and COO of Pate Dawson.

Sullivan is well aware of Sysco’s “fold out” strategy, in which they first develop business in a region and then fold out a new distribution center to serve it. “The fold-out concept of building new facilities in an area with an established sales base that has been served by a distant Sysco company has been integral to the success of Sysco’s internal growth strategies and enabled us to provide more localized service to customers in those areas,” Sysco Chairman and CEO Richard Schnieders said in a recent press release.

The same press release says Sysco is North America’s largest food-service marketer and distributor and does almost $30 billion in sales through 155 distribution centers like the one the company wants to build in Selma — with the help of North Carolina taxpayers.

Gov. Mike Easley said he wants North Carolina’s taxpayers to be business partners with Sysco via the state’s Job Development Investment Grant initiative, a partnership Sullivan thinks is not fair to companies like his and others that have been in the state and paying taxes for a long time.

“They chose North Carolina because of our excellent workforce, our strong and continuing support of education, and our business-friendly climate,” Easley says in a press release that includes an announcement that Sysco is expanding because of a JDIG grant.
Sysco officials say the Johnston County distribution center will be 395,000 square feet and is expected to create 600 jobs by 2010, the same job prediction that Easley uses.

But Sullivan considers the job predictions fictional at best. “Even if Sysco does have that many employees in Selma, a lot of those jobs will be filled by people Sysco already has on the ground in North Carolina,” he said. “Sysco is a very large company that has gotten that way, in part, by gobbling up smaller competitors,” said Sullivan. He said Sysco, would just be moving existing jobs to Selma.

“Our industry is growing four to five percent a year and all the current customers are being served by distributors already doing business in North Carolina,” Sullivan said. “For Sysco to come to this part of the state they’ve got take jobs from somewhere. In fact, they are already trying to hire some of our employees away.

“Truck drivers are already in short supply, especially short-haul drivers like the ones food distributors employ,” Sullivan said. “Where will the new drivers Sysco will need come from?”

In asking this question, Sullivan said he wants to bring into question the economic benefits the JDIG programs supposedly provide to the state. If economic incentives create jobs where a shortage of qualified workers exists, then what is the economic benefit?

Sullivan understands the dynamics of job creation. Pate Dawson Co. employs 290 people and recently added 82. The new jobs, he said, have come from newly acquired accounts that were taken from competitors. This implies that these jobs came from some other company and are not “new” jobs, he said.

Sullivan’s concerns mirror those recently expressed by some Charlotte business leaders. The Charlotte City Council approved a $218,866 incentive grant for Sysco to expand its Charlotte warehouse, according to the Associated Press. A Sysco official said that 80 of those new jobs would have come without incentives, according to the article.

“I want to be clear that I harbor no ill will toward Sysco, they are a well-run company trying to make a profit,” Sullivan said. “It’s state government I have a complaint with.”

When asked about what legal action his company intends to take, Sullivan is uncertain. He cites cases in other states where similar incentives have been found illegal, but he wants to look further into what action his company will take.

“I’ve found out that even our own elected officials don’t want to take action against state government, so we will probably look to some other organization that can help us,” said Sullivan, referring to the possibility of a class-action lawsuit against the state. “And what we need is legislation put in place to stop this kind of unfairness, not just lawsuits,” he said.

Sullivan also questions the true benefit of JDIG if class-action lawsuits are brought against the state. “How much will that cost the taxpayers; how much will that cost companies who bring them?” he asks.

“Companies should want to come here because we are a good state to do business in, not because of tax giveaways,” he said “The state should be embarrassed that it is taking North Carolina jobs and giving them to Houston, Texas.”

Johnny Kerr is a contributing editor of Carolina Journal.