It has been a year of acquisitions, and the latest is Sysco’s $3.5 billion deal to buy US Foods. According to the Wall Street Journal’s review of the Securities and Exchange Commission (SEC), the buyout could constitute a monopoly and thus a game changer for food manufacturers who have most of their eggs in one basket.
If the government allows the buyout to go through by the end of next year, the deal would mean that Sysco would be the only national foodservice distributor. For national restaurant chains that want specified food products delivered to their restaurants in Maine as well as New Mexico, for example, that would be a significant advantage.
Picking up number two US Foods would also give Sysco better relationships with non-commercial operators and other foodservice segments who have typically chosen US Foods as their broadline distributor.
If you are a food manufacturer now selling products to both distributors, the clock is ticking on pitching Sysco within a totally new business environment. According to the SEC filing, Sysco will enjoy about $600 million in expected synergies by picking up US Foods’ customers or closing US Foods distribution centers and other duplications of service. Sysco will also likely perform a complete rationalization of its product line – leaving some food manufactures out in the cold.
For restaurant operators, the hazard could be higher food costs from a less competitive environment.
The potential impact is so great that Sysco has agreed to pay US Foods $300 million if the SEC blocks the sale due to anti-trust issues and is willing to sell off $2 billion of its lines of business to assure the government that it will not harm commerce because of the merger.
If you are a food manufacturer that doesn’t have a plan in the works to face a new distributor environment that has Sysco as the dominant force in the marketplace, you should get to work on the plan. Or, do nothing and start 2015 projections with a downturn in your foodservice business. This is a big deal for everyone in the food business.