Analysis: Biggest impact of Sysco-US Foods merger to stem from sales force

Caroline Perkins, president of The Foodservice Content Company, offers her view on the recent merger

The news that Sysco Corp. plans to acquire US Foods (USF) has sent shock waves throughout the industry.

From investors to customers, the conversation is swirling around the possible ramifications of the acquisition. The merger potentially could have an impact on suppliers, brokers, headquarters employees, warehouse people, drivers, sales reps and customers. The big question being asked in every corner is, “What will this mean for me?”

For the time being, the theory (stated by Sysco) is that it will be business as usual for the two distributors. The deal is not expected to close until the third quarter of 2014, and nothing substantial in terms of change can happen before that time. In the meantime, human nature being what it is, industry players who may be affected — mostly on the supplier side — will be jockeying to maintain whatever position they now hold with one or the other distributors.

In my book, the most significant effect will be a result of the inevitable consolidation of the sales force. This is where the competitive enmity resides. In case you doubt this, check out the Inside Food forum for foodservice professionals [6]. A quick sample of comments: “I would not trust Sysco as far as I could throw them,” or conversely, “Of the two, Sysco has always been the most ethical.”  

Street business could be affected by the inevitable trimming of the combined sales force. Research has demonstrated the strength of the bond between operators and their primary sales reps. This relationship is built on trust over time and is based on the value that a rep provides customers in terms of helping run the business profitably. If sales reps are laid off and go to another distributor, all things being equal, customers may follow. It’s been known to happen.  

Tip O’Neil’s famous aphorism, “all politics is local,” can be said of foodservice distribution. An operator does business with a local distribution center, whether it is a national distributor like Sysco or a regional like Reinhart or a smaller independent company. Furthermore, the main reason an operator does business with a particular distributor is usually the sales rep. Every distributor essentially sells the same products at roughly the same price. The only way any kind of brand equity can be built is through customer service and the experience of the sales rep.

The service that street operators demand goes beyond just getting the right products at the right price at the right time. They expect distributors to provide a wide variety of value-added services, like menu analysis, product information, waitstaff training, culinary support and business reviews.

Sysco and USF have both designed sophisticated customer service strategies. Each has advanced technology solutions to online ordering, culinary support and onsite systems, such as customer loyalty programs. The key will be for the new Sysco to maintain the degree of service demanded by operators during the consolidation period. It is this point of weakness that has the regional distributors and smaller independents seeing opportunity. When operator frustration, dissatisfaction or just plain concern about the merger occurs, these distributors’ reps will be there at the back door ready to offer their services.

Theoretically, the merger of the two business models will take the best of each, making the combined value proposition to customers stronger. Both companies have been involved in multi-year business transformation projects designed to streamline operations and control costs. Both provide customers with culinary support and business reviews. Sysco has its own redistribution system. USF has several cash ‘n’ carry stores open to the public. Both have strong private label programs. Sysco is even building its brand with consumers via its sponsorship of the Food Network show Restaurant: Impossible.

The consolidation of all the programs, systems and personnel will take months, perhaps years. Decisions will have to be made on a market-by-market basis. Should the distribution centers be merged? How many managers are needed to run the local business? How many sales reps and which ones? How many drivers?

Sysco will be looking for economies of scale. In fact, the company has stated that it’s looking to achieve $600 million in efficiency savings. The only way to do this is to consolidate.

If customer service or attention slips during this prolonged process, there will be customer flight. This is a challenge that Sysco will have to manage. The new Sysco will have to convince existing Sysco and USF customers that the value proposition they bring to the table is one that provides the best service and deserves their loyalty. If Sysco and US merge the best of their business models successfully, the new entity will be a formidable competitor in the marketplace.

Caroline Perkins is president of The Foodservice Content Company