A generation ago, the foodservice distribution industry had a runaway performance leader in Sysco. Their 16% market share coupled with superior operating processes, high gross margins, and unparalleled economies of scale translated to a bottom line equal to (or possibly greater than) the entire balance of the industry combined…truly remarkable.
But the industry matured, and others caught up, not entirely, but surely collectively. Independents emulated Sysco and other leaders (US Foods, Gordon, PFG) greatly improving their operations and results. And as commonly occurs in large, mature industries, three mega-players emerged at the top. We call them the “Big 3.”
To be fair, while organic growth fueled progress and scale-building, the “Big 3’s” ability to acquire strategically situated independent competitors played an equally important role. Sysco founder John Baugh’s ingenious vision spawned a nine-company roll-up that became a publicly traded firm within the year, setting the stage for crazy-fast growth powered by swapping SYY common shares for founder/owner equity at valuations which in turn multiplied geometrically in the years that followed.
Furthermore, each of the “Big 3” executed blockbuster M&A deals over time. Sysco acquired then #2 CFS Continental in 1988. Serial acquirer US Foods, initially spun out of Sara-Lee’s PYA Monarch as JP Foodservice merged with “Unifax-Swan” (hence, “US”), then Rykoff-Sexton, and later Alliant (formerly Kraft) Foodservice, former parent PYA Monarch, and SGA. PFG routinely scooped up regional players as well as powerhouses Reinhart Foodservice and Cheney Bros. And lest we forget, Sysco spent 18 months and a $½ billon attempting to acquire USFoods in 2013-15, a deal the FTC squashed out of a distaste for the thought of “Big 3” becoming “Big 2.”
While all this consolidation was occurring, the industry continued chugging along and independent distributors by the thousands were improving their businesses, and in many cases, starting new ventures to leverage demand for differentiated products and services in the space left by homogenization at the top. So, while one can argue the industry is “concentrated,” it remains highly fragmented with nearly one-third of its volume transacted by firms with less than one tenth of one percent market share, a number which in 2025 I find to be every bit, and much more delightfully, as remarkable as Sysco’s market dominance at the turn of the century.
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Written by Board Member, Barry Friends.