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Fragmentation in the food services distribution industry
Hello, and thank you for your request for information on the fragmentation of the US foodservice distribution industry. The most useful sources were IFDA, Owler, and SeekingAlpha. In short, there are approximately 16,500 companies in the industry, generating $268BN in annual revenue. Based off of 2016 revenue data, the top 8 foodservice distributors account for 41% of the market. While data specific to small distributors (staff of 10 or less) is not publicly available, we were able to determine that in the NAICS category under which the distribution industry falls, these companies represented 66.5% of the total number of active firms in this sector, but made up only 5.9% of the sector's revenue.
INDUSTRY OVERVIEW
The IFDA defines foodservice distributors as organizations that deliver "food and other products that professional kitchens need." Not just responsible for fresh, frozen and packaged food goods, distributors also provide "beverage programs, paper supplies, and sanitation products," according to the IFDA. As of 2015, there were an estimated 16,500 companies generating annual revenues for the industry of an estimated $268BN. In 2016, Technomic reported annual revenues for the industry of $280BN.
A 2016 article from Technomic, a market research company indicates that the foodservice distribution market is quite fragmented. The article says that because customers, or operators as the article calls them, "know it’s risky to over-trust a distributor, they buy from many to 'keep them honest,' a system that costs independents dearly. To achieve a desired balance of selection, quality, and price, operators buy from 2-3 broadline and 6-7 (and often more) specialty distributors, meaning there are 15-25 orders to manage weekly."
Many of today's largest foodservice distributors are family owned companies that can trace their history back to "mom and pop" businesses that were started in the mid-1800s. Gordon Food Service is a prime example of this.
A 2016 Technomic report says that many of the newer companies in the industry are "technology firms offering software that replicates in nanoseconds what would otherwise take hundreds of man-hours to figure out. Powerful algorithms scour price offers from competing distributors and calculate 'optimum orders,' the best possible order allocation to an operator’s distributor network that accommodates his/her preference for product brand, quality, and performance." TradingTable is one such example.
In their 2015 Annual Report Sysco says that while they "compete primarily with local and regional distributors, some organizations compete with us on a multi-region basis. In addition, these local, regional and multi-regional distributors can create purchasing cooperatives and marketing groups to enhance their competitive abilities by expanding their product mix, improving purchasing power and extending their geographic capabilities." It is also interesting to note that under the new Trump administration, experts believe the proposed merger between Sysco and US Food may be revived. The FTC did not approve the merger in 2015.
MARKET SHARE ANALYSIS
The top foodservice distribution companies (based on 2016 revenue) are Sysco, U.S. Foodservice, Performance Food Group, and Gordon Food Service according to SeekingAlpha. With an 2016 annual industry revenue of $280BN, we can calculate the market share for each of these top companies (company annual revenue divided by industry annual revenue).
Sysco
Market Share: 18%
US Foodservice
Market Share: 8%
Performance Food Group
Market Share: 5.8%
Gordon Food Service
Market Share: 4.3%
Ben E. Keith
Market Share: 2.8%
Maines Paper & Foodservice
Market Share: 1.2%
Shamrock Foods
Market Share: 1%
Based off this information, we can say that the top 8 foodservice distributors account for $115.5BN, or 41% of the industry's 2016 annual revenue of $280BN. Two other major players in the industry are Food Services of America (a part of Services Group of America) and Reinhart (a part of Reyes Holding). As they are both part of larger corporations who do not publish division specific revenue data, we are not able to calculate their share of the industry's revenue.
Sysco says that the foodservice distribution industry faces competition from wholesale outlets (i.e. clubs stores like Sam's Costco and BJs.) and online retailers. Technomic reports that this segment of the industry holds 10% of the market share with approximately $25BN in revenue, with a significant portion of the 500,000 users coming from independent restaurants.
MOM AND POP DISTRIBUTORS
After thorough search of industry trade publications, market research data and news reports, we found that information on the number of "mom and pop" foodservice distributors is not publicly available. We did, however, find some information that may be useful for your white paper.
The NAICS code that encompasses foodservice distributors is 4244 - Grocery and Related Product Merchant Wholesalers. Using that code, we can then look at US Census data, the latest being from 2012. If we define "mom and pop" companies as those with ten or fewer employees, we find that these companies represented 66.5% of the total number of active firms in this sector, but made up only 5.9% of the sector's revenue. This data is not exclusive to foodservice, as the NAICS category also includes retail distributors, but is serves to show how market share is divided across the industry.
While an much older source than we typically like to present, this 2010 Hale Group White Paper forecasting industry trends through 2020 provided some interesting and still applicable insights. As of 2010, broadline distributors, the "everything you need on one truck" companies accounted for 58% of all sales. Sysco is one such company. System distributors, or those delivering to chain restaurants among others, accounted for 11% of sales. Specialty distributors accounted for 19% and Alternative distributors like warehouse clubs held 12%.
The Hale Group report highlights the vast difference in revenues between the largest distributor in 2010 and the 50th largest. Sysco at number one had $38.5BN whereas Broadliner Cedar Farms only brought in $100M.
CONCLUSION
To sum it up, there are approximately 16,500 companies in the industry, generating $268BN in annual revenue. The top 8 foodservice distributors account for 41% of the market. Small distributors dominate the industry in numbers, but only account for a small amount of its total revenues.
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