Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Sysco/US Foods merger would create dominant firm, Antitrust Institute warns FTC, (Feb 25, 2014)

By John W. Arden, J.D., LL.M.

The proposed merger of Sysco and US Foods would create a dominant firm, or even a monopoly, in the broadline foodservice market, the American Antitrust Institute (AAI) stated in a February 25 letter to FTC Chairwoman Edith Ramirez. AAI Vice President Diana Moss urged careful scrutiny of the proposed merger.

Sysco and US Foods are the two largest national “broadliners” that sell to foodservice outlets such as schools, hospitals, restaurants, and hotels, the AAI said. Those outlets, in turn, supply meals away from home to the consuming public.

The AAI letter outlines the markets affected by the proposed deal and its possible adverse effects on foodservice outlets and consumers, food suppliers, and the increasingly consolidated U.S. food supply chain. The fact that the proposed merger follows a series of large mergers in the U.S. agriculture and food industries amplifies its significance, Moss wrote.

“The merger would likely result in higher prices; lower quality, reliability, and food safety; and less innovation—to the detriment of foodservice outlets and consumers of food that is prepared away from home,” she maintained. “The proposed merger also raises the specter of enhanced buyer market power and higher entry barriers for smaller, innovative or alternative food producers and systems.”

The AAI urged the FTC and state attorneys general investigating the proposed merger to collaborate with the Department of Justice. The letter set forth the key competitive issues of the proposed merger, as well as context and background, from the AAI’s viewpoint. These issues include the consolidation and weakened competitive health of the U.S. agricultural and food supply chains—including producers, processors, and manufacturers—and the supply-chain consolidation in food distribution.

The Sysco/US Foods combination raises a number of specific issues, wrote Moss, such as the perpetuation of “domino-like” consolidation in the supply chain; the fact that the two firms are likely each other’s closest rivals for foodservice outlets that require national broadline distribution; the significant adverse effect of the merger on regional and geographic markets; and the likely enhancement of buyer power and the raising of barriers to entry for alternative food producers and systems.

The American Antitrust Institute is an independent, Washington-based non-profit education, research, and advocacy organization. Its stated mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy.

News: Antitrust FederalTradeCommissionNews