Feb. 19, 2015 – CHICAGO — Food industry consulting firm, Blueberry Business Group, says impacts on food manufacturers is a lost feature in media and analyst discussions surrounding Sysco Corporation’s proposed merger with US Foods.
Last week, Sysco agreed to divest 11 facilities in a bid to secure FTC approval for the merger. These facilities reportedly represent annual volume of $4.6B and would be acquired by Performance Food Group for $850M.
Sources say the FTC is balking at the proposal amid complex monopoly concerns. Yesterday, the WSJ reported that Sysco hired legal representation in anticipation for a possible FTC suit to block the merger.
Blueberry says discussion about merger effects have focused on competing distributors and operators–the industry term for away-from-home eating locations such as restaurants, hospital cafeterias, university dining halls or military feeding–while impacts on manufacturers that produce food and non-food products for the industry through the distributor system haven’t been given much press.
“Merger delays bear down on thousands of companies collectively producing many billions of dollars in products for the industry,” says Blueberry President Debra Bachar. “Game-changing decisions around resource investments and where to place bets to drive their own growth are in limbo.”
Foodservice distribution has historically been straightforward. Producers sold and shipped products supported by promotion funds to distributors that stock tens to hundreds of thousands of products for re-sale to operators on a mark-up.
While still in practice, Ms. Bachar says the supply system has now exploded into many new options available to manufacturers to push products into the market and in turn, for operators to source products from manufacturers. “Margins are under pressure as manufacturer resources are spread across many routes and gateways including powerfully growing regional distributors, Cash & Carry, group purchasing organizations and e-commerce.”
“Manufacturer CEOs have generally been dissatisfied with their organizations’ growth and returns on investment over the last few years. Unknown outcomes of the mega merger and other events around the corner translate into substantial risk and uncertainty for their companies.”
Blueberry associate Bill Pierrakeas agrees, “There’s no foodservice precedence for what’s happening now. Manufacturer mindsets must assume zero market share in the new paradigm to build new practices into every growth strategy.”
“Successful manufacturers are ‘students’ in supply system economics, including those driven by consolidation. Getting the facts on how money is now made and lost in the end-to-end stream must be factored into every growth strategy to re-configure value,” says Blueberry associate Scott Norman, underscoring the industry’s new economics element.
Lastly, Ms. Bachar shares a reality. “The foodservice industry is undergoing the most profound change in its history. A number of excellent manufacturers will come face-to- face with consolidation fallout and won’t make the cut. Those will be having hard discussion about business contraction, from selling off assets to looking closely at their own M&A options.”
Her advice to food industry CEOs? “Select an unbiased food industry expert with an extraordinary handle on current events to assess and quickly help your company get on the right track as developments continue.”
Debra Bachar, President