A proposed megamerger that would substantially consolidate hospitals' food-service supply chain is now on ice.
Food service isn't small potatoes for hospitals. The average facility feeds thousands of patients and visitors every day.
Earlier this week, a federal judge issued a preliminary injunction halting Sysco Corp.'s planned acquisition of US Foods, a deal that would have combined the nation's two largest distributors of ingredients and supplies for commercial kitchens. Together the companies control 75% of what's known as broadline food distribution.
The judge sided with the Federal Trade Commission, which argued the deal would undermine the head-to-head competition that delivers customers better service and higher quality products at lower prices.
The legal setback may cause the companies to walk away from the deal, which was two years in the making.
Many hospital group purchasing organizations, healthcare food service contractors and independent hospital food-service operations are customers of Sysco and US Foods.
Premier and Novation, two of the largest healthcare GPOs, have national contracts with US Foods.
Right now, US Foods appears to be the largest provider of foodstuffs in the healthcare industry, and Sysco may have seen the deal as an opportunity to gain business in healthcare, said Chris Stainton, vice president of supply chain at Unidine, which operates kitchens at over 30 U.S. hospitals. Sysco, Stainton said, most likely will find another way to grow in his sector. “I expect them to be out there aggressively looking to find a bigger presence in healthcare.”
A failed merger will keep the healthcare space competitive and might even encourage smaller suppliers such as Gordon Food Service, Reinhart and Performance Food Group to steal some market share, which could mean lower prices, Stainton said. Sysco serves most of Unidine's needs, though the company has contracts with US Foods in the Midwest.
Aramark Corp. and Sodexo, two of the largest food-service contractors servicing hospitals, declined to comment on the judge's decision. Premier, Novation and other large healthcare GPOs also declined to comment. A Premier vice president was called by the FTC to testify during a hearing on the government's injunction request.
Peter Cayan, senior director at Amerinet, a St. Louis-based GPO, said the injunction is “very favorable” to his customers.
Food isn't a large part of Amerinet's business because food-service contractors such as Aramark and Sodexo often have their own purchasing contracts, Cayan said.
But some hospitals with contracted kitchens will require that the vendor use the hospital's GPO.
Having Sysco and US Food remain separate companies “allows a member to have differentiation so that they can purchase products from both of them,” Cayan said. “Each of them has an ability to serve different types of products and services, so it allows variation and flexibility in distribution channels.”
