Sysco says independent restaurants are doing better, but some independents disagree. | Photo courtesy of Sysco.
Early this month, we wrote about our interview with Kevin Hourican, the CEO of Sysco, who said that independent restaurants have an advantage in this market.
He argued that mom-and-pop restaurant chains were performing better than national chains, saying their scrappiness and flexibility has helped them keep ahead despite a challenged economy. “In the span of averages,” he said, “local restaurants are doing better at this time.”
One group is not buying it: The Independent Restaurant Coalition.
“It was a generous portrait,” the coalition said in a rebuttal sent on Friday. “The data does not support his claims.”
The coalition pointed to Technomic data noting a 2.3% decline in the number of independent restaurants last year, or a net closure of 9,500 locations. Chain restaurants, on the other hand, grew by 1.4%. The number of full-service independent restaurants shrunk by 2.6%.
The coalition’s own survey in February found that 71% of independent operators are at “serious risk of closure” while just 5% consider themselves to be “thriving.”
“Sysco’s purchasing data can tell you the volume of supplies an operator is buying,” the coalition says. “It cannot tell you what their lease says, how much COVID-era debt they’re still carrying, or whether they’re personally guaranteeing a rent check they can’t afford.”
In the coalition’s survey, 93% of operators cited rising food and supply costs as a challenge and 76% reported declining traffic.
“A restaurant buying food from Sysco, while quietly drowning in debt, looks, in a distributor’s dataset, like a healthy account,” they said.
Sysco has an agreement to buy Jetro Restaurant Depot, the owner of the cash-and-carry retail chain aimed at restaurants, for $29.1 billion. The blog about independent restaurants was one of two stories we published from our interview with Hourican.
His comments came in response to a question we asked about the condition of independent restaurants, because we always ask distributors that question if we get a chance. Independent restaurants are a notoriously difficult group to get a full grasp on, and we expect that distributors have better data on their performance than we do.
The first story carried Hourican’s promise not to raise prices at Restaurant Depot once the deal is finalized, assuming it gets through regulatory muster.
Sysco is the country’s largest broadline distributor. Its proposed acquisition would be funded with a lot of debt, and there are questions about whether the distributor could effectively operate a retailer.
The IRC almost immediately asked the FTC to block the deal, saying that Sysco would effectively eliminate Restaurant Depot. It argues that the retailer has become a crucial way for many small restaurants to save money on crucial supplies. And it apparently saw Hourican’s comments on independent restaurants at an attempt at flattery.
“Independent restaurants are not asking for flattery,” the IRC said. “What Mr. Hourican said isn’t optimism. It isn’t data. It’s a convenient story told by someone with a $29.1 billion deal to justify, entirely negating the 9,500 restaurants that closed last year and who can’t defend themselves against it.”
Sysco has long engendered skepticism from a broad swath of the restaurant industry because of its dominance. A planned merger years ago with US Foods was ultimately defeated. And the Restaurant Depot proposal has elicited plenty of concern among operators worried about what Sysco may do.
(You can check out our in-depth look at the merger here, and our podcast with Technomic’s David Henkes here.)
As for the performance of independent restaurants, it’s possible, even likely, that both happen to be right.
The kinds of independent restaurant that use a distributor like Sysco are likely performing well right now, for the same reasons Hourican mentioned. And so their purchases of goods may be increasing.
Higher-end consumers who are flush with cash may be flocking to a number of independent restaurants, and those operators do have plenty of flexibility to adapt to a tough market like this.
But that doesn’t mean a lot of independent restaurants aren’t struggling. They clearly are, because the business of operating a restaurant, chain or independent, is a lot harder right now.
Profitability is broadly down throughout the industry, because of rising food and labor costs, new technology demands, insurance and the growth of high-cost, third-party delivery services.
Closures have become commonplace. Valuations of restaurant operating companies are down. And even the best independent restaurants are a couple of bad months away from closure, even if they are buying more from Sysco.
