Tax Incentives to Texas Competitor Frustrate North Carolina Firm

Published June 1, 2005

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

“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 says he is well aware of Sysco’s “fold out” strategy, in which the firm first develops business in a region and then folds 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 January 26 news release announcing the new facility, which is expected to be operational early in 2006.

Grant Helps Biggest Player

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 (D) said he wants North Carolina’s taxpayers to be business partners with Sysco via the state’s Job Development Investment Grant (JDIG) 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 said in the January 26 news release that included 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 Easley uses.

Job Predictions Called Fictional

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 jobs already at Sysco locations in North Carolina to Selma.

Sysco already has a facility in Charlotte, which is where the jobs would be moved from, according to Sullivan.

“Our industry is growing 4 to 5 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 to 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?”

Economic Benefits Doubted

In asking that question, Sullivan said he wants to challenge the economic benefits the JDIG programs supposedly provide to the state. If economic incentives create jobs where a shortage of qualified workers exists, as in the case of the state’s short-haul truck drivers, 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. That implies the jobs themselves 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 the 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.”

Johnny Kerr ([email protected]) is a contributing editor of Carolina Journal. A longer version of this article originally appeared March 1, 2005. Reprinted by courtesy of Carolina Journal.