Readers who know me well know I was editor of a magazine covering foodservice distribution before I joined Food Management, and a number of them have called me in the weeks since Sysco announced its plan to acquire US Foods.  

Some can’t believe significant anti-trust issues won’t be raised over such a merger. Others are worried about the potential for price increases. To those in the supplier community, it brings a great sense of uneasiness: for them it means their largest customer will be much larger still. (That uneasiness is shared by many within Sysco, who worry about the “synergies” always sought in mergers). The proposed size and scope of the new company simply astounds many people. 
 
There are lessons for all of them in the past and in other industries. Consolidation in foodservice distribution was already an inexorable force when the very first issue of my earlier magazine was published in 1987, and had been long before that. 
 
As one example, in just the last 30 days of 1986, Kraft’s Foodservice Group (one of Sysco’s main competitors at the time) acquired eight independent regional distributors and signed letters of intent to acquire two more. In all, Kraft acquired 18 companies over two years.
 
It was an era far more frightening to customers in many ways, as long-familiar regional houses like Rosenblum & Sons, Craig Distributing, Feldman, Holleb and American Fruit and Produce suddenly became part of a new world of corporate distributor giants.
 
At about $3 billion in sales in 1986, Sysco’s earlier acquisitions had already made it the nation’s largest distributor, but its closest competitors— CFS Continental, Kraft, Sara Lee’s PYA/Monarch division and Rykoff-Sexton—were all over $1 billion and also looking to grow aggressively the same way. 
 
A $1 billion foodservice distributor doesn’t seem that large today. And pretty soon, it wasn’t very large then, either. 
 
In 1988, when parent Tate & Lyle put CFS on the block, Sysco’s acquisition of it (out from under Kraft) helped it grow to $7 billion and sealed the broadliner’s bid to offer the 100-percent national market coverage that founder John Baugh had always envisioned. (Putting that into perspective, a combined Sysco/USF today would technically have $65 billion in sales and more than 250 distribution centers).
 
In the following years, Kraft’s distribution business was sold off and became Alliant. Unifax was formed from independents like Bevaco and Biggers Brothers. Private equity firms entered the fray and White Swan and Unifax were merged to become the original US Foodservice. Another corporate mega-distributor, Performance Food Group, for formed from another group of large regional independents. USF merged with Rykoff-Sexton in 1996. USF was eventually combined with JP Foodservice.  Sysco and Gordon used major aquisitions to enter the Canadian market.  
 
In 1999, Royal Ahold acquired US Foodservice and in 2001 also bought Alliant, merging the two companies to become the forerunner of the US Foods that exists today. Over those same years, the buying groups that represented independent distributors also evolved through mergers: Nifda and North American Foodservice Companies merged to become ComSource. Code became EMCO. ComSource, Nugget and EMCO eventually merged to become today's UniPro. The consolidation never stopped. 
 
But it’s important to remember that consolidation also never happens in a vacuum. Over the same period, we’ve seen dramatic changes in the manufacturer, broker and operator communities as well. 
 
Iconic foodservice brands like Nabisco, Pillsbury and Quaker became part of larger firms. National broker networks evolved. Chains dramatically increased their share of the commercial market. Sodexo, Compass and Aramark grew to dominate outsourced noncommercial operations. And GPOs, once a small localized force, today are immense demand-aggregators, offering comparative scale to all varieties of independent operators.
 
What’s ahead? To those worried about pricing, I’d observe that distribution margins today are lower than they’ve ever been, a trend Sysco would clearly like to reverse. But Sysco also will have a vested interested in protecting the existing market share of both companies. Those customers will be watching pricing and service terms closely. There are a few markets (southern California, and parts of Florida and Colorado come to mind) where options would be more limited than elsewhere, and it could well be that some divestiture of operating distribution centers may be considered as as federal antitrust issues are evaluated.
 
Notably, the scale of so-called “super regional” independent distributors  like Gordon, Shamrock, FSA and Reinhart is much larger than it once was, and I expect many will become much more familiar as strong alternatives to Sysco. Smaller independents—sometimes overlooked—can also be very capable in terms of competitive service and pricing, especially to large noncommercial accounts. 
 
Still, the merger will have significant implications for the longer term, especially for management companies, GPOs and manufacturers. These organizations rely upon the very broad product and ingredient inventories and the national contract coverage that both USF and Sysco can provide.
 
All have sought in various ways to play the interests of these two large distributors against one another. Those business models will have to change, perhaps returning  to distribution strategies that offer regional as well as national options. Healthcare in particular will face an unknown landscape in this new future.
 
I’m interested in our readers’ thoughts on this topic. You can post them in the comment section below...  
 
This version of the January 2014 editorial page is slightly longer than the original and has had some details clarified to better identify the distributor merger activity in the 1990s.