Sysco’s in-person meetings with the Federal Trade Commission didn’t have the desired effect. The foodservice supply giant wanted approval for its planned acquisition of competitor U.S. Foods, but the FTC thinks that Sysco wants to gobble up too much of the market. The commissioners voted 3-2 to block the merger.

The FTC argues that a merger of the two largest national food suppliers would create a foodservice Voltron that would raise prices for food service businesses, which in turn would raise prices for consumers. Okay, they didn’t say “Voltron,” but that was the idea.
“This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” the head of the FTC’s Office of Competition explained in a statement about the decision. “Consumers across the country, and the businesses that serve them, benefit from the healthy competition between Sysco and US Foods, whether they eat at a restaurant, hotel, or a hospital.”

In general, the food supply industry is quite competitive, and most of the volume comes from local distributors of items like produce and meat. Both U.S. Foods and Sysco are “broadline” distributors, which means that they offer an extensive catalog of goods that include foodservice versions of items that you buy in a grocery store (for example: mini boxes of Lucky Charms on a hotel buffet.) Broadline distributors also sell their own private-label items for restauranteurs (for example: the frozen ravioli that a disappointing Italian restaurant serves you.)

Sysco planned to acquire U.S. Foods for $3.5 billion, and proposed selling distribution centers that take in more than $4 billion of revenue per year a competing broadline distributor to ease the FTC’s concerns about the company dominating the national foodservice industry too much.

FTC Files Lawsuit Challenging Sysco-US Foods Merger [Wall Street Journal]

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