The Federal Trade Commission and commercial food supplier Sysco are meeting in court today over Sysco’s right to acquire its next biggest national competitor, US Foods. Does America need a food service Voltron? Sysco is defending its proposed acquisition, but the FTC stands against it. Arguments in federal court started today, and could last for more than a week.

While food supply is a fragmented market, Sysco and US Foods are the dominant national suppliers. That means they have relationships with hotels and restaurants that are national brands. The FTC’s argument is that while the marketplace may be pretty diverse on a local level, it isn’t so diverse for companies that have nationwide contracts with one supplier or the other. “Sysco and US Foods are the only broadline distributors with a truly national footprint,” the FTC noted after challenging the merger back in February, “and [the two companies] compete vigorously with each other to meet the needs of customers with foodservice locations dispersed nationwide or across multiple regions of the country.”

There are 32 markets that the FTC has identified where customers really only have a choice between Sysco and US Foods. While the FTC can force one of the merging companies to sell off its business in that market as a condition of approving the merger, that is not at all helpful for national customers that would be left with only one provider if the merger went through. The FTC argues that the companies would do business in about 75% of the country, which is unacceptably large.

Sysco’s counter-argument is that there are more than 16,000 food service providers nationwide, and plenty of competition. Together, the merged Sysco-US Foods would have about 27% of the commercial food-service market.

Sysco Fights FTC in Antitrust Showdown to Save US Foods Deal [Bloomberg News]

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