FTC files lawsuit to block merger of Sysco and US Foods, America’s two biggest food distributors
The two largest food distributors in America, Sysco and US Foods, agreed to terms on a proposed merger more than a year ago and the federal government has now sued to block the deal.
The Federal Trade Commission filed a complaint (PDF) charging that the merger would violate antitrust laws, totaling more than 75 percent of national sales for “broadline foodservice distribution services” in the United States, and would dominate many local markets. The FTC alleges the deal would lead to higher prices, less choice and reduced service to customers.
The company provides many services to large kitchens such as restaurants, hospitals, hotels, and schools, meaning the end consumer also suffers. Sysco and US Foods offer national-brand and private-label food products over flexible daily delivery nationwide, and other value-added services like menu planning and nutritional information.
“This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” said Debbie Feinstein, Director of the FTC’s Bureau of Competition. According to the agency’s complaint, the merger is likely to harm competition in 32 local markets, in addition to the nationwide market. Attorneys general from 10 states and the District of Columbia have joined the complaint.
The FTC will seek a temporary restraining order and preliminary injunction to stop the merger from continuing as the trial is scheduled to begin on July 21.
The companies had proposed the sale of 11 US Foods distribution centers as a concession to add capacity to the next largest company Performance Food Group, but the FTC determined that PFG would not be able “to replace US Foods as a competitor” of similar scale. In some cases, the two companies are the only meaningful alternatives for many institutions. Broadline foodservice not only affects large corporations and institutions but many independent restaurants and non-profit organizations.
The infrastructure and supply lines of the two companies are also key components of the current GMO ingredient dominated landscape.