Sysco and US Foods: The Aftermath
Last month, a Federal judge put the nail in the coffin of the Sysco-US Foods merger when he issued a preliminary injunction blocking the merger. Last week, Sysco finally announced it would abandon plans to acquire its long-time rival. We asked Bob Sala, founder and former president of DMA, a privately held corporation whose owners are several regional distributors, what he thought of the Sysco announcement.
Bob Sala: It was not too surprising given the fact that no companies have ever gone to trial after a judge grants a temporary restraining order to a regulator. What surprises me is Sysco fought the FTC after the complaint was filed in February. The definition of the "relevant market" was critical. Sysco saw it as the entire $231 billion market, but the FTC made a strong case that it was the "national broadline" market. With Sysco and US Foods having 60-70 percent of that market, Sysco never did mount an effective argument to refute that position.
Now what? When the merger was announced it late 2013, most believed it would be approved by the regulators. Consequently, distributors, manufacturers and operators began to build into their business planning processes a world that included a single, $65 billion mega-broadline distributor. Distributors and manufacturers shifted their go-to-market strategies, expansion plans, and capital investment priorities during the elongated regulatory review.
Independent operators who were leveraging Sysco against US Foods began using other local broadline distributors to ensure that they had a new distributor to leverage against the new combined entity. Chain operators who were using US Foods were concerned their contract terms or service levels would change under the new Sysco world. They also worried their programs would be disrupted under the planned divestiture of 11 warehouses to Performance Food Group (PFG). Some acted on these concerns by terminating US Foods agreements all or in part. Others did contingency planning and in that process learned about new sources of broadline supply they had not considered or were aware of.
So, even though the merger collapsed, the genie cannot be put back in the bottle. It's hard to know now exactly how these shifts in business strategy will impact the supply chain or with what significance. But, I feel pretty confident in saying things will not go back to the way they were in December 2013.