- WHITE PAPERS
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.