Sysco’s proposed acquisition of US Foods could lead to higher prices for restaurant meals and significantly reduce competition among suppliers
January 22, 2014 Leave a comment
A Potentially Harmful Merger
By THE EDITORIAL BOARDJAN. 20, 2014
A proposed merger between two of the largest suppliers of food to restaurants, hotels and school cafeterias could significantly reduce competition and drive up prices of the meals Americans eat outside their homes. Of all the money consumers spend on food, nearly half is spent at restaurants.Sysco, the country’s largest distributor of food, last month offered to buy its biggest competitor, US Foods, in a deal valued at $8.2 billion. The combined business would have $65 billion in annual revenue and would be five timesbigger
than its next biggest competitor, which would give it power in a fragmented business known for having thousands of small firms. The merged company would control about 25 percent of the total food distribution business in the country.
By reducing meaningful competition, the new company would be able to demand higher prices to deliver food to restaurants and cafeterias, forcing them to charge their customers and users more. Sysco and US Foods have argued that the merged company would be able to offer customers more products in more parts of the country.
That would mean little to restaurant owners who depend on the competition between the companies to keep costs down. When one supplier raises prices or cannot fill an order, they turn to the other. The merger would be particularly damaging to independent restaurants that do not have the buying power that chains have to negotiate lower prices and guaranteed supplies in long-term contracts.
The harm would be greatest where the companies’ operations overlap significantly. In states like Nevada and North Carolina, the combined company would own more than half of big distribution centers that serve food-service establishments, according to an analysis by Food & Water Watch, a Washington-based research group. There is another potential problem. Some restaurants and government agencies have accused food distributors of fraudulently inflating invoices. Such practices could be harder to detect if the industry became more concentrated.
The Federal Trade Commission or the antitrust division of the Department of Justice will review the merger. If they find that it would hurt competition by giving the combined company greater market power then they should consider blocking the deal or requiring the companies to first divest parts of their distribution networks.
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