[Federal Register Volume 84, Number 181 (Wednesday, September 18, 2019)]
[Notices]
[Pages 49106-49108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20182]
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FEDERAL TRADE COMMISSION
[File No. 181 0215]
US Foods Holding Corp.; Analysis of Agreement Containing Consent
Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement; Request for Comment.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis of Agreement Containing Consent Orders to Aid
Public Comment describes both the allegations in the complaint and the
terms of the consent orders--embodied in the consent agreement--that
would settle these allegations.
DATES: Comments must be received on or before October 18, 2019.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write: ``US Foods Holding
Corp.; File No. 181 0215'' on your comment, and file your comment
online at https://www.regulations.gov by following the instructions on
the web-based form. If you prefer to file your comment on paper, mail
your comment to the following address: Federal Trade Commission, Office
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex D),
Washington, DC 20580, or deliver your comment to the following address:
Federal Trade Commission, Office of the Secretary, Constitution Center,
400 7th Street SW, 5th Floor, Suite 5610 (Annex D), Washington, DC
20024.
FOR FURTHER INFORMATION CONTACT: Sophia Vandergrift (202-326-2208),
Bureau of Competition, Federal Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34,
notice is hereby given that the above-captioned consent agreement
containing a consent order to cease and desist, having been filed with
and accepted, subject to final approval, by the Commission, has been
placed on the public record for a period of thirty (30) days. The
following Analysis to Aid Public Comment describes the terms of the
consent agreement and the allegations in the complaint. An electronic
copy of the full text of the consent agreement package can be obtained
from the FTC Home Page (for September 11, 2019), on the World Wide Web,
at https://www.ftc.gov/news-events/commission-actions.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before October 18,
2019. Write ``US Foods Holding Corp.; File No. 181 0215'' on your
comment. Your comment--including your name and your state--will be
placed on the public record of this proceeding, including, to the
extent practicable, on the https://www.regulations.gov website.
Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online through the https://www.regulations.gov website.
If you prefer to file your comment on paper, write ``US Foods
Holding Corp.; File No. 181 0215'' on your comment and on the envelope,
and mail your comment to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610 (Annex D), Washington, DC 20580; or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex
D), Washington, DC 20024. If possible, submit your paper comment to the
Commission by courier or overnight service.
Because your comment will be placed on the publicly accessible
website at https://www.regulations.gov, you are solely responsible for
making sure that your comment does not include any sensitive or
confidential information. In particular, your comment should not
include any sensitive personal information, such as your or anyone
else's Social Security number; date of birth; driver's license number
or other state identification number, or foreign country equivalent;
passport number; financial account number; or credit or debit card
number. You are also solely responsible for making sure that your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health information.
In addition, your comment should not include any ``trade secret or any
commercial or financial information which . . . is privileged or
confidential''--as provided by Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including in
particular competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request, and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on the public FTC website--as legally required by FTC Rule
4.9(b)--we cannot redact or remove your comment from the FTC website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at http://www.ftc.gov to read this Notice and
the news release describing it. The FTC Act and other laws that the
Commission administers permit the collection of
[[Page 49107]]
public comments to consider and use in this proceeding, as appropriate.
The Commission will consider all timely and responsive public comments
that it receives on or before October 18, 2019. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Analysis of Agreement Containing Consent Orders To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment, subject to final approval, an Agreement Containing
Consent Orders (``Consent Agreement'') from US Foods Holding Corp.
(``USF''), and Services Group of America, Inc. (``SGA'') (collectively,
``Respondents''). The purpose of the Consent Agreement is to remedy the
anticompetitive effects that otherwise would result from USF's
acquisition of SGA's Food Group of Companies (the ``Proposed
Acquisition'') in and around Boise, Idaho (hereafter ``Eastern
Idaho''), in and around Bismarck, North Dakota, (hereafter ``Western
North Dakota''), in and around Fargo, North Dakota (hereafter ``Eastern
North Dakota''), in and around Kent, Washington (hereafter the
``Seattle Area''), and nationwide for multi-regional and national
customers.
Among other things, the proposed Consent Agreement requires USF to
divest certain of SGA's distribution centers and broadline distribution
assets, including employees and tangible assets that are necessary to
the operation of the businesses in Eastern Idaho, Western and Eastern
North Dakota, and the Seattle Area to Shamrock Foods Co.
(``Shamrock''), Cash-Wa Distributing (``Cash-Wa''), and Harbor
Wholesale Foods (``Harbor''), respectively.
The Commission and the Respondents have also agreed to an Order to
Maintain Assets. This order requires USF and SGA to maintain the assets
that the Consent Agreement requires divestiture of, pending their
divestiture. The Commission's Complaint alleges that the Proposed
Acquisition, if consummated, would violate Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. 45, by substantially lessening
competition in the market for broadline foodservice distribution in
Eastern Idaho, Western North Dakota, Eastern North Dakota, the Seattle
Area, and nationwide for multi-regional and national broadline
distribution customers.
The Consent Agreement has been placed on the public record for 30
days to solicit comments from interested persons. Comments received
during this period will become part of the public record. After 30
days, the Commission will review the comments received and decide
whether it should withdraw, modify, or finalize the Consent Agreement.
II. The Respondents and the Transaction
USF, headquartered in Rosemont, Illinois, is the second-largest
distributor of food and food-related products in the United States. USF
operates 61 distribution facilities throughout the United States, all
of which provide broadline distribution, and some of which serve
national chain customers (providing more of a systems-type service). In
fiscal year 2017, USF generated approximately $24 billion in sales to
over 200,000 customers nationwide. Nearly $6 billion of those sales
were to independent (i.e., non-chain) restaurants.
Headquartered in Scottsdale, Arizona, Services Group of America,
Inc. is a holding company made up of six operating companies. SGA is
comprised of Food Services of America (``FSA''), a broadline
foodservice distributor (notably, FSA is the only SGA business unit
that generates competitive concern); Systems Services of America
(``SSA''), a systems distributor; Amerifresh, a specialty produce
distributor; Ameristar Meats, a specialty meat processor; and GAMPAC, a
supply chain and logistics company. In fiscal year 2017, SGA generated
approximately $3.2 billion in sales. SGA has nine broadline
distribution centers, three systems distribution centers, and three
specialty facilities. FSA and SSA are members of Distribution Market
Advantage (``DMA''), a supply chain and marketing cooperative owned by
eight independent regional foodservice distributors who are also its
members. Through DMA, FSA is able to serve national accounts in
coordination with other large regional distributors.
On July 28, 2018, USF entered into a Stock Purchase Agreement with
SGA. Pursuant to the agreement, USF will purchase all of the
outstanding common stock of SGA's Food Group of Companies in an all-
cash acquisition valued at $1.8 billion.
III. Broadline Foodservice Distribution in Eastern Idaho, Western North
Dakota, Eastern North Dakota, the Seattle Area, and Nationwide
Broadline foodservice distribution and broadline foodservice
distribution to national customers are the relevant product markets in
which to assess the effects of the Proposed Acquisition. Broadline
foodservice distribution involves the sale and distribution of a broad
range of national-brand and private-label food and foodservice-related
products (such as paper towels, disposable cups, etc.) to a range of
customers who serve food-away-from-home to consumers, such as
restaurants, hospital cafeterias, stadiums, and schools. Broadline
distributors offer customers a distinct combination of products and
services that are not replicated by other foodservice distribution
channels, including a wide array of stock keeping units (SKUs) to
provide customers with product breadth and depth, a broad selection of
private-label (i.e., distributor-branded) food products, a frequent and
flexible delivery schedule (including next-day delivery), and other
value-added services, such as order tracking, menu planning, and
nutritional information. Customers value the ability to purchase this
bundle of products and services from a single broadline distributor.
There are four local relevant geographic markets in which to
analyze the transaction's effects: (1) Eastern Idaho, (2) Western North
Dakota, (3) Eastern North Dakota, and (4) the Seattle Area. Competition
to serve broadline customers plays out locally. The business of
broadline distribution involves regularly loading food (much of which
is perishable) and related items onto trucks, driving to customer
locations, unloading the merchandise, and returning to the distribution
center in time to repeat this process for the next day's deliveries.
Customers, therefore, select from among broadline distributors within a
reasonable radius of their location. Likewise, broadline distributors
are limited in their distribution radius by cost and service
considerations. USF and FSA compete from proximate distribution centers
to serve customers in Eastern Idaho, Western North Dakota, Eastern
North Dakota, and the Seattle Area, and these are thus appropriate
geographic markets. FSA serves both North Dakota markets out of its
Fargo distribution center, but other distributors serving the Eastern
North Dakota market do not serve Western North Dakota, and thus the
competitive conditions are different
[[Page 49108]]
and it is appropriate to define two geographic markets within the
state.
USF and FSA compete closely to serve local broadline customers in
Eastern Idaho, Western North Dakota, Eastern North Dakota, and the
Seattle Area. The transaction would eliminate a key broadline
distributor in each of these markets, limiting customers' ability to
switch between distributors and leverage them in order to obtain more
competitive pricing and better service. The few remaining competitors
in the relevant markets would be insufficient to alleviate competitive
concerns. As a result, the Proposed Acquisition will likely lead to
higher prices and diminished service for local broadline customers in
the four local markets.
The effects of the Proposed Acquisition must also be evaluated in
the national market. Through its membership in a consortium of regional
distributors, DMA, FSA competes with USF for the provision of broadline
distribution services to multi-regional and national accounts. If DMA
were to lose all of FSA's distribution centers from its network, it
would be rendered a significantly less attractive competitor than it is
today to many multi-regional and national customers. As a result, the
Proposed Acquisition will likely result in higher prices and reduced
quality and service to national customers.
New entry or expansion is unlikely to deter or counteract the
anticompetitive effects of the acquisition in the Eastern Idaho,
Western North Dakota, Eastern North Dakota, Seattle Area, and national
markets. The broadline foodservice distribution industry is capital and
labor intensive, rendering entry challenging and time consuming, with
significant operational and financial risks. Prospective entrants or
expanders face three main obstacles: (1) Developing the requisite sales
forces and customer base; (2) establishing a properly outfitted
distribution center, truck fleet, and driver base for operations and
delivery; and (3) building the volume of perishable and non-perishable
SKUs necessary to serve broadline customers. To overcome these hurdles,
a new entrant or an adjacent company trying to expand must commit a
tremendous amount of capital and time to develop relationships with
potential customers, build or expand an existing facility, and assemble
the equipment required for distribution in that area. Thus, due to the
considerable time and investment required to build a functional
broadline distribution operation in a new market, entry and expansion
are unlikely to be timely, or sufficient to deter or counteract the
Proposed Acquisition's anticompetitive effects.
IV. The Proposed Consent Agreement
The proposed Consent Order remedies the likely anticompetitive
effects in each of the relevant markets by requiring divestitures to
Shamrock, Cash-Wa, and Harbor within 30 days of the Proposed
Acquisition's closing. Until the completion of each divestiture, the
Respondents are required to abide by the Order to Maintain Assets,
which requires them to maintain the viability, marketability, and
competitiveness of the divestiture assets until the divestitures are
completed. The proposed Consent Order appoints a Monitor to ensure the
Respondents' compliance with the Order to Maintain Assets, Consent
Order, and Divestiture Agreements in anticipation of and following the
divestiture.
Additionally, the proposed Consent Order requires the Respondents
to provide transitional services to the approved acquirer for at least
24 months after the divestiture, as needed, to assist the acquirer with
the transfer and operation of the divested assets. Finally, the
proposed Consent Order contains standard terms regarding the acquirer's
access to employees, protection of Material Confidential Information,
and compliance reporting requirements, among other things.
A. Eastern Idaho
The proposed Consent Order remedies the likely anticompetitive
effects in Eastern Idaho by requiring the divestiture of FSA's
distribution center in Boise to Shamrock. The divestiture assets and
rights include the distribution center and selected broadline
distribution assets, including employees and tangible assets necessary
to operate the business.
B. Western and Eastern North Dakota
The proposed Consent Order remedies the likely anticompetitive
effects in both Western and Eastern North Dakota by requiring the
divestiture of FSA's distribution center in Fargo to Cash-Wa. The
divestiture assets and rights include the distribution center and
selected broadline distribution assets, including employees and
tangible assets necessary to operate the business.
C. The Seattle Area
The proposed Consent Order remedies the likely anticompetitive
effects in the Seattle Area by requiring the divestiture of FSA's
distribution center in Kent to Harbor. The divestiture assets and
rights include the distribution center and selected broadline
distribution assets, including employees and tangible assets necessary
to operate the local broadline distribution business. Although the
proposed Consent Order only requires USF to divest one of FSA's two
Seattle-area broadline distribution centers, this remedy will prevent
any increase in market concentration levels and preserve the status quo
in the Seattle Area broadline distribution market because three major
broadline distributors will remain.
D. National
The proposed Consent Order remedies the likely anticompetitive
effects in the national market by replacing the loss of FSA from DMA's
network with divestiture of the Kent, Boise, and Fargo distribution
centers to three purchasers that are existing members of the DMA
consortium. The divestiture assets and rights that Shamrock, Cash-Wa,
and Harbor will acquire will enable each buyer to operate the local
broadline distribution businesses in their respective local markets,
but also to provide effective coverage to the DMA network in these
regions so that DMA can continue to be an attractive option to, and
effective competitor for, multi-regional and national customers.
The proposed Decision and Order will have a term of ten (10) years.
The sole purpose of this analysis is to facilitate public comment
on the proposed Consent Agreement. This analysis does not constitute an
official interpretation of the proposed Consent Agreement or modify its
terms in any way.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019-20182 Filed 9-17-19; 8:45 am]
BILLING CODE 6750-01-P