ANTITRUST: NATIONAL FOOD DISTRIBUTORS GO ON A DIET

In 2014 Sysco Foods was the largest food distributor in America, selling $46.5 billion in food and services from 75 distribution centers to about 425,000 hospitality restaurants. In all, Sysco is the source for about 500 million meals served to Americans outside their home every day. At the time, the company offered approximately 400,000 different food service items.

The number two supplier was U.S. Foods. It made $22 billion in sales from 61 distribution centers to about 200,000 customers in the hospitality industry. It offered approximately 350,000 different food items.

The two companies are the only food distributors with a national footprint.

In December of 2013 the companies announced a proposed merger, with Sysco paying U.S. Food $8.2 billion in cash and stock. When completed, the merged company would be a $65 billion enterprise controlling 75% of all food sales to larger chain restaurants and more than 50% of all food sales in at least 32 major cities.

Attorney General Swanson analyzed the proposed deal and took issue with its negative impact on competition. In particular, she noted that smaller and mid-sized chains lacked the clout to divide their contracts among multiple distributors, giving larger chains more clout and lower prices. She expressed reservations about schools, universities and hospitals that no longer would be able to solicit bids from the two competitors. If only one bid was solicited, she reasoned, the cost for these institutions would inevitably increase.

In February 2014 Swanson became the first state Attorney General to join in the FTC lawsuit trying to stop the merger. For the next year and a half, Swanson’s antitrust attorneys conducted nationwide depositions and participated in several pretrial motions before Judge Amit Mehta in the District of Columbia.

In February of 2015, to make the merger more palatable to regulators, Sysco proposed to sell 11 distribution centers (located primarily in the western United States) to Performance Foods Group, a regional distributor primarily located in the eastern United States and ranking a distant third in size. Performance only offered approximately 150,000 different food items.

Swanson said she would still oppose the merger, noting that the limited offering of Performance food items would inhibit some restaurants and food chains from getting competitive bids on specialty foods or foods that support certain restaurants.

The litigation process was quite lengthy. Eventually, a dozen or more state Attorneys General got involved in the process. Lawyers representing the FTC and Swanson made arguments to the Judge in favor of a preliminary injunction to stop the merger.

In late June of 2015 the Judge issued a preliminary injunction to stop the merger. Shortly after the injunction was issued, Sysco dropped the proposal. According to analysts, the proposed merger and litigation had major positive impact on the food industry. Analysts applauded the decision as a vehicle to maintain some degree of competition in the industry.

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