Last month, Sysco announced its acquisition of US Foods. The stock market swooned and investment analysts uniformly praised the move to create a foodservice juggernaut with sales over $60 billion annually. In the wake of the news, LIDD reached out to our foodservice clients for their reaction. After all, these companies compete on a daily basis with one or both of them across North America.
“Game Changer” was how one vice president described the situation.
The competition agrees with Wall Street, the combined Sysco+US Foods behemoth will be a game changer for the industry, affecting each market where the two companies do business. However, the agreement mostly ends there as almost every last foodservice distributor LIDD spoke with sees terrific opportunities for them in this merger.
The president of one regional foodservice company suggested up to 1/3 of all US Foods sales would be up for grabs. That’s $8 billion. He added, “I wish I was building this new facility faster than I was so I can take full advantage”. More bravado than market analysis? Perhaps. But many foodservice distributors agreed that some US Food accounts were vulnerable.
Most foodservice accounts have multiple suppliers, regularly splitting purchases between two or three broadline distributors. Some accounts will be purchasing from Sysco and US Foods today. Those accounts will be tempted to add a new supplier once Sysco and US Foods are a single operating entity. This will accelerate once Sysco begins to harmonize variety (i.e., cut SKUs) between the two houses. Competing foodservice distributors will be there to fill that slot and grow their sales to those accounts.
Some US Foods customers are with US Foods because they are not Sysco. The merger will prompt those customers to seek alternatives.
Also, there is a potential loss of business that one would expect as a potentially messy merger – with facilities closing, migrating technology and rationalized sales teams can disrupt the service levels accounts need to keep their businesses thriving. Patience may be a virtue, but it will be in short supply during that transition.
Does this all add up to the $8 billion vanishing from US Foods top line? At this point, no one knows. For their sake, let’s hope Sysco’s shareholders have some reassuring clue on this front. In the meantime, they should not take comfort from their competitor’s eagerness.