FTC Challenges Proposed Merger of Sysco and U.S. Foods for Violating Antitrust Laws

FTC Challenges Proposed Merger of Sysco and U.S. Foods for Violating Antitrust Laws
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February 19, 2015

The Federal Trade Commission (FTC) today filed an administrative complaint charging that the proposed merger of Sysco and U.S. Foods would violate the antitrust laws by significantly reducing competition nationwide and in 32 local markets for broadline foodservice distribution services.

The FTC alleges that if the merger goes forward as proposed, foodservice customers, including restaurants, hospitals, hotels, and schools, would likely face higher prices and diminished service than would be the case but for the merger.

The FTC also authorized staff, by a 3 to 2 vote, to seek in federal court a temporary restraining order and a preliminary injunction to prevent the parties from consummating the merger, and to maintain the status quo pending the administrative proceeding.

Sysco and U.S. Foods are – by far – the largest broadline foodservice distributors in the United States. Broadline distributors offer extensive product lines, including national-brand and private-label food products, and provide frequent and flexible delivery, high levels of customer service, and other value-added services such as order tracking, menu planning, and nutritional information.

According to the FTC complaint, a combined Sysco/US Foods would account for 75 percent of the national market for broadline distribution services. In addition, the parties would also hold high shares in a number of local markets.

As detailed in the complaint, the merger presents a significant risk of competitive harm for two sets of customers who rely on broadline foodservice distribution.

Sysco and U.S. Foods are the only broadline distributors with a truly national footprint, and compete vigorously with each other to meet the needs of customers with foodservice locations dispersed nationwide or across multiple regions of the country. Sysco and U.S. Foods are the only broadline distributors with numerous distribution centers spread throughout the country. Many hotel chains, foodservice management companies, and group purchasing organizations, for example, consider Sysco and U.S. Foods to be each other's closest competitor, and in some cases those customers' only meaningful alternatives, for national broadline distribution services.

Sysco and U.S. Foods also compete aggressively for the broadline business of independent restaurants and other local customers that operate in a local area or region. The merger is likely to harm competition in 32 local markets, according to the agency's complaint.

The Commission also charges that the proposed sale of 11 U.S. Foods distribution centers to Performance Food Group (PEG) would neither enable PFG to replace U.S. Foods as a competitor nor counteract the significant competitive harm caused by the merger. According to the FTC, even with the addition of 11 distribution centers, PFG would not approach the scale or competitiveness of U.S. Foods today, and therefore would not restore the competition eliminated by this merger.

The following state attorneys general have joined the FTC's complaint for a preliminary injunction to be filed in federal district court: California, Illinois, Iowa, Maryland, Minnesota, Nebraska, Ohio, Virginia, Pennsylvania, Tennessee, and the District of Columbia.