On December 9, 2013, the two biggest U.S. food-distribution companies, Sysco Corporation (“Sysco”) and US Foods, Inc. (“US Foods”) announced an agreement to merge, creating a company which will control some 25% of the U.S. market, roughly five times the size of its next largest competitor, Performance Food Groups with just 5% market share.
The Federal Trade Commission (“FTC”) will conduct the regulatory review to analyze if the merger is anti-competitive or monopolistic in nature. There are two areas of concern. First, Sysco and US Foods are arguably the only two companies which can provide food service distribution to national foodservice chains. Second, the two firms overlap in many geographic areas throughout the country so it is possible that the combined entity may be one of two distributors that provide a one stop shop to small local restaurants, catering firms, and hotels in certain local markets. Industry insiders note that local competition is intense with some 15,000 local food providers. That being said, the local competition may not have the same breadth of products that Sysco or US Foods can provide and may not price as competitively because their prices are higher.
Notably, Sysco Chief Executive Bill DeLaney acknowledges that the deal will provide increased purchasing power and that the company might need to sell parts of the business to satisfy antitrust regulators. Therefore, even the parties to the deal believe that some competition concerns exist in certain local markets or in a national market.