Sysco + US Foods Means a New Foodservice Landscape

Sysco+US FoodsSysco buying US Foods gives the foodservice industry a completely different complexion.  Any company competing for market share with this newly-made colossus will be affected.  Some will prosper, others not so much.   The implications will be clearer in the coming days as the news sinks in across the many organizations that make up a competitive foodservice industry.  In the mean time, I thought it would be fun to put some numbers in front of you.

Sysco+US Foods

The combined companies expects annual sales of $65 billion – roughly a 25% share of the foodservice market.

US Foods is not a public company.  Its earnings are not made public.  For the purposes of the table above, I assumed US Foods earnings would be the same % of revenues as Sysco’s earnings are.

If no revenue leaks to its competitors, Sysco will add $0.51 billion in additional earnings in return for its purchase price of $8.2 billion.  On this alone, the investment will pay for itself in about 16 years at a leisurely 6% rate of return.

Needless to say, this is not the sexiest return, particularly when there is some risk that it may not be able to retain the sum of each company’s sales once its merger is complete.

Acquisition “synergies” to the rescue!  Sysco promises to create $600 million in annual operating savings from combining the two organizations.  According to Bloomberg News, Sysco’s leadership could not say how these savings will happen as they are only now beginning to figure that out.  But trust them: $600 million is the right number.

Vague references to merchandising and supply chain appear in the news articles covering the story.  But Sysco’s leadership promise to find efficiencies equivalent to boosting earnings by 33%.  That’s a Herculean task and will require:

  • Rationalizing sales departments and reducing the number of sales territories
  • Cutting SKUs, consolidating buying responsibilities
  • Shutting down duplicate and/or marginal distribution centers

With ruthless determination, Sysco could make this happen in the 3 – 4 year time frame it promises.  However, success or failure in the endeavor will be heavily marked by the company’s ability to keep its business as it makes such a massive overhaul.

Therein lies the first opportunity for Sysco’s competitors.

Blog, Foodservice, Industries, Market share, Payback

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