Sysco’s power play, local sourcing, and an acute driver shortage are just some of the hot-button issues for restaurant supply chains.
Very little is set in stone for 2015 foodservice distribution. What can be said with certainty is that the distribution paradigm is undergoing scrutiny, speculation, and—at least to some degree—consolidation and segmentation. While some of the flux results from decisions driven by restaurants—such as the propensity for sourcing fresh, seasonal, and local product—much of the turmoil is beyond the control of restaurant operators and chefs. Labor challenges, government regulations, margin constriction, even the new requirements surrounding menu labeling—all are changes in the marketplace that impact the efficiency of foodservice distribution.
The looming question, however, is just how big the elephant in the room is going to become: Will Sysco’s planned acquisition of US Foods, which was announced in December 2013, create a veritable 800-pound Goliath, or will it, as the company has stated, simply drive more efficiency and cost-reduction in its supply chain?
Conventional wisdom says it will do both, and while the Federal Trade Commission evaluates potential ramifications, many in the industry see the merger as both inevitable and imbued with opportunity.
The president and CEO of the International Foodservice Distributors Association (IFDA), Mark S. Allen Jr., says, “From our standpoint, the foodservice distribution industry, with nearly 15,000 distributors, is incredibly competitive and robust. If the Sysco-US Foods merger goes through, I don’t see it having a huge impact on the marketplace initially. … I think the merger will continue to put pressure on the rest of the industry to make investments and keep pace with Sysco’s efficiencies, but we see it as continuation of how the industry has always been, which is just incredibly competitive and efficient.”
For Sysco, which reported sales of $46.5 billion for its fiscal year that ended June 28, the anticipated $8.2 billion investment to acquire US Foods would be a lucrative move, with company sales expected to top $65 billion after the merger.
“Full-service restaurants represent a substantial portion of Sysco’s customer base, and— while we will continue to vigorously compete for customers—the merger really is about bringing together the best of both companies to better serve customers,” says Sysco spokesman Charley Wilson. “For our restaurant customers—both independents and chains—the merger enables us to reduce costs in areas such as management and logistics. The combined company will be better positioned to respond to changing market dynamics.”
According to industry analyst Technomic, at the end of 2014 Sysco had 17 percent of the total U.S. foodservice market and US Foods had 10 percent, so theoretically the merged entity would hold 27 percent.
“But, they wouldn’t keep all of it,” says Bob Goldin, Technomic executive vice president. “They’ve already announced there would be some divestitures, and there will be some customer attrition. A number of distributors see it as a window of opportunity because the [merged entity] will be in an integration mode, which can create turmoil.”
He acknowledges this perception may be unduly optimistic, as Sysco will clearly be intent on keeping, and ultimately growing, its business. “For most distributors, I don’t think it will mean very much—I think it will be a neutral to a positive impact, not a negative,” Goldin adds.