Restaurant Suppliers Hope to Pick Rivals’ Plate

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Restaurant Suppliers Hope to Pick Rivals’ Plate
Going His Way?: Michael Dodo at Norwalk’s West Central

The food distribution industry’s Goliaths could soon merge – but its Davids still likes their chances.

As Sysco Corp., the country’s largest food distributor, heads to court this week to fight with federal regulators over its proposed acquisition of No. 2 supplier US Foods Inc., smaller distribution companies in Los Angeles are cheering on the deal, saying it could boost their business.

“Sysco and U.S. Foods – they’re the Wal-Mart of the business and they want volume,” said Michael Dodo, chief executive of Norwalk food distributor West Central Produce Inc. “They don’t want to pull a 48-foot truck outside a little restaurant that holds 80 people. But that’s my core business.”

That’s why Dodo thinks an even bigger Sysco will mean more, not less, business for West Central. And he isn’t alone, as other local restaurant suppliers see the pending merger as an opportunity to snatch additional business. They see Sysco and US Foods as unwieldy giants and think they can compete by offering better service.

Todd Arutunian, president of downtown L.A. distributor Astro Food Service Inc. said smaller distributors can service restaurants in a way that larger companies can’t.

“If a restaurant says, ‘We messed up, we forgot to order two boxes of French fries,’ the independent supplier will say, ‘No problem. We’ll get that over to you right away,’” Arutunian said. “Ask Sysco to do that and they’ll laugh.”

He said the Sysco-US Foods merger might hurt distributors in some markets. But in Los Angeles, home to an ample supply of boutique restaurants that are already less likely to work with the giant distributors, he thinks Astro and other small businesses will actually gain clients if the giants combine.

One-stop shop

West Central, founded in 1968, used to deliver produce. But since 2012, when Dodo bought the company, it’s been expanding into other product lines, essentially putting it into direct competition with Sysco and US Foods – and putting the company in position to benefit should the merger cause those companies’ clients to look for a new distributor.

The big national distributors have long sold customers on the ease of getting everything they need – from steaks to receipt paper – from a single supplier, but Dodo thought he could do the same on a more local level.

“I looked into the L.A. market and saw there was a gap,” Dodo said. “You have Sysco and US Foods, who are what we call the big broadliners, but you don’t really have a small or boutique broadliner.”

Along with adding more products, he adjusted the company’s routes, having drivers start at midnight to beat morning traffic and expanded delivery service to as many as six days a week – giving it a competitive edge over bigger distributors, which often deliver just twice a week.

After two years of hiring up, the company has a staff of 322. It owns 73 trucks, which make deliveries to its more than 1,000 clients such as universities, restaurants and even convalescent homes. Late last year, West Central expanded its headquarters after moving from downtown Los Angeles to Norwalk.

“We’ve been able to double the size of the company in the last two years,” Dodo said.

Now, the company is focused on expanding its relationships with existing clients to get them to purchase more of its products and to handle the increase in business it expects to receive should the Sysco-US Foods merger go through.

Small versus big

Sysco announced its plan to buy US Foods in a $3.4 billion deal more than a year ago. At the time, Sysco said it would sell off some of its assets to the nation’s No. 3 distributor, Performance Food Group Co. in Goochland County, Va.

But the move hasn’t appeased antitrust regulators, and federal court hearings are expected to begin this week in the Federal Trade Commission’s lawsuit against the merger.

Though the FTC might think otherwise, Jack Russo, a senior analyst at financial services firm Edward Jones in St. Louis who follows Sysco, said Dodo and other smaller distributors are likely right to believe they will gain if Sysco and U.S. Foods merge.

“I think they’ll pick up some business,” Russo said. “Let’s say you own three or four restaurants and Sysco was your supplier, but you think their service might become lousy once this merger comes through because they’re going to be too big. You might decide to get another distributor.”

That’s exactly the scenario Dodo and Artunian are banking on.

Arutunian said every restaurant owner in the country knows Sysco – and if they don’t work with the company, there’s probably a reason for it.

“My feeling is, if you’re buying from US Food it’s because you don’t want to buy from Sysco,” he said. “If the merger happens, at least a portion of the customers currently buying from US Foods are now forced to buy from Sysco and they will leave and go to independent distributors.”

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