Datassential, The Hale Group release early results from the operator purchasing impact report
When Sysco and US Foods announced plans to merge late last year, the news sent shockwaves through the industry — they are, after all, the top two foodservice distributors in the U.S., respectively. If approved, the merger will create a combined company with an estimated $65 billion in annual sales.
But what does the proposed merger mean for players throughout the industry? And how will it affect operator purchasing decisions — Sysco alone reports approximately 425,000 customers. In order to understand the far-reaching effects of the proposed merger, Datassential worked with leading industry consulting firm The Hale Group to create a series of three reports focusing on who operators buy from, what they buy, and why they buy in order to understand which operators will be impacted most and how they will alter their behavior.
According to early data from the first report in the series, which focuses on current purchasing behavior and operator expectations, operators are generally optimistic about the proposed merger. Over half of the 500+ operators we surveyed believe they will have a wider product selection after the merger, while only 35% were concerned about price increases. Indeed, Sysco and US Foods have repeatedly reported that price decreases will be a major benefit of the combined company, with projected savings of at least $600 million after three to four years due to supply chain efficiencies, merchandising activities, and cutting overlap leading to lower prices.
Yet, while operators don’t anticipate any price increases, they also report that pricing is a constant concern and a top factor in choosing a distributor. In fact, fair pricing and customer service were the top two factors in distributor selection — nearly 70% of operators considered them to be important.
Surprisingly, awareness of the proposed merger is generally low, particularly with smaller operators (those purchasing less than $250,000 a year). Most operators reported that their sales representatives were their primary source of information about the merger, noting that representatives were either positive or neutral on the merger’s impacts on the operator’s business. “She made me aware [of the merger] and made it sound very positive,” said one operator of their sales representative. “Bigger company, better buying power, lower pricing.”
The comprehensive report also looks at operators concerns on brand availability, breaks down pricing concerning by segment, covers alternate broadliner usage, looks at sentiment and behavior of non-Sysco/non-US Foods customers, and even takes an initial look at whether operators are already making any purchasing changes.
“Given the size and scope of this merger, operators will be very sensitive to anything that could adversely affect them,” said Brian Darr, Managing Director at Datassential. “By knowing what operators expect, supply chain partners can avoid major missteps and speak to the key benefits that the operator customer base expects.”
The merger is currently under review by the Federal Trade Commission, with some initial reports stating that the agency has concerns about the resulting company’s size. But Sysco president and CEO Bill DeLaney says that the company is “engaged in a productive dialogue with the FTC” and reports that the “review is proceeding as expected.” If approved, the company expects the transaction to close later this year.
In preparation, the second part of this special report series will be released this fall, exploring how the merger will affect category purchase decisions, with a final report on the merger’s lasting impacts scheduled for early 2015.
Maeve Webster is the senior director of Datassential, a supplier of trends, analysis, and concept testing for the food industry. For more information about ordering the Sysco/US Foods Proposed Merger Report, contact Brian Darr at [email protected] or 312-655-0594.
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