Sysco/US Foods merger: The small independent restaurant just got smaller

By John Davie

President and CEO of Dining Alliance

The upcoming merger of the two biggest food distributors in the nation — Sysco and US Foods — has raised many questions regarding the effect of the merger on supply of goods, choices available and pricing. Understandably, this has caused concern among independent restaurant operators and regional chains.

Sysco's acquisition of US Foods is yet another sign that the industry is consolidating at all levels, not only the distributor level. Manufacturers are consolidating and so are the mid-size and large chain restaurants. Forty years ago there were many, many more manufacturers and distributors; at that time a Group Purchasing Organization would have been less critical to the profitability of operators. This merger will give Sysco a 35 percent share of the market, when you take liquor out of the equation.

The question that independent restaurants need to ask themselves is: What will the industry look like in 5 years? What direction should they take to keep their costs down and the quality and variety of their foods and other supplies high?

With fewer options and much larger suppliers focusing on the larger buyers, having more buying leverage is going to become even more important to the local independent restaurateur. Competition and choices are so critical to keeping large companies honest and their pricing fair. The gap between the large and mid-size distributor just got larger.

Now with so many fewer options for distributors and manufacturers, a smaller operator without the support of a GPO, regardless of purchase volume, has much less leverage. Where will these large companies sacrifice their margins? Or more important, where will they make up their margins? As always, the independents will pay the price. The small independent restaurant just got smaller.

The good news is that more independent restaurants every day are joining together to pool their purchasing through organizations (such as Dining Alliance), in order to leverage better deals and gain protection against price spikes and lack of or reduction of choice. The best thing small restaurants can do is band together. With a GPO, the restaurant owner has transparency and security in pricing.

Transparency is one of the most important aspects of controlling costs, and consolidation of the industry doesn't create more transparency, but less. There will be more layers of logistics and cost, making it harder to get to the bottom of what true cost is.

The official merger will not fully take place until late 2014. Even now they are still working to get past anti-trust laws, and this will take time. In the meantime, consider a GPO to protect the quality, availability, and pricing of your food and supplies.

John Davie is president and CEO of Dining Alliance, a foodservice partnership for independently-owned restaurants, with over 15,000 independent restaurant members across the country.

Photo provided by Wikimedia.

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User Comments – Give us your opinion!
  • Robert Olivieri
    8957559
    This is not good news!! Sysco seems like it is monopolizing the food distribution industry and that means they will have greater control on wide-spread prices that consumers will pay. What happened to our Anti-Trust Laws!!!!
  • Robert Olivieri
    8957516
    This is not good news!! Sysco seems like it is monopolizing the food distribution industry and that means they will have greater control on wide-spread prices that consumers will pay. What happened to our Anti-Trust Laws!!!!
  • Pj Prafke
    8932552
    Agree, very not good for the small independent restaurants. Sysco has a long history of over charging small shops in michigan. Unlike other areas of the county, we only have 4 dist. in the state. And Sysco as been clearly attempting to control the market, charging the independent much more than the big boxes. We had them increase shrimp price (over night) $22.00 a case for 8oz. bags with the big boxes paying the same price. Our stock came in the same box with a sticker on the box changing the product code. We need the States, Federal Admin., and FTC to block this action or we are going to have small shops close down. The public will not take any more increases in the small shops, they will just stay home!!!
  • Kenneth Weiss
    8073494
    I encourage all small restaurant owners to call or email their member of the House of Representatives, Senators, and Secretary of the Federal Trade Commission. All emails sent to the Secretary of the FTC become part of the record as they determine weather or not this deal is done.
  • Kenneth Weiss
    8073474
    I encourage all small restaurant owners to call or email their member of the House of Representatives, Senators, and Secretary of the Federal Trade Commission. All emails sent to the Secretary of the FTC become part of the record as they determine weather or not this deal is done.
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