U.S. Foodservice, the second-largest national food-service distributor, announced the signing yesterday of a purchase agreement to acquire a Minnesota-based company that will enable it to significantly expand its food-service-equipment and supply business.
The purchase of Superior Products Mfg. Co., which generated sales of $127 million in its past 12 months of operation, is scheduled to close by Oct. 29.
The acquisition is expected to help Columbia-based U.S. Foodservice break into the Internet sales business, analysts said.
Superior is a leader in catalog marketing and serves its customer base of more than 160,000 food-service operators from a nationwide network of facilities.
"It gives us a new dimension to our business, because they have retail," said Bonna Walker, a spokeswoman for U.S. Foodservice. "We sell equipment and supplies as well. The part of the country that they're strong in, we're weak in."
Superior has 16 retail operations, Walker said.
"Their strength is in the catalog and retail business, but it segues into an area that we're interested in," Walker said. She declined to comment on the possibility of a launch into Internet sales.
Equipment and supply sales represent about 3.5 percent or 4 percent of U.S. Foodservice's business, a number expected to grow to 5.5 percent or 6 percent after the acquisition, Walker said. U.S. Foodservice has found it difficult to manage the inventory for that side of its business, because the equipment takes up a lot of space in warehouses and moves slowly when compared with food products, according to Robert J. Cummins, a food analyst with Schroder & Co. Inc. in New York.
"So this is an opportunity to market those products more effectively," he said. "It ties in very well with their Internet strategy. It expands their position in equipment and supplies, and gives them a different way to market them."
Lee D. Wilder, an analyst with J. C. Bradford in Atlanta, said he expects U.S. Foodservice to be doing Internet sales within the first six months of 2000.
"I think they want to be a full-service supplier to their customers," Wilder said. "They have a toe in the water with Rykoff-Sexton."
U.S. Foodservice acquired Rykoff-Sexton Inc., a food distributor in Wilkes-Barre, Pa., in December 1997.
"With Superior, they gain a large customer base used to making purchases from a paper catalog," Wilder said.
U.S. Foodservice markets and distributes more than 43,000 national, private-label and signature-brand items to more than 130,000 food-service customers and employs more than 13,000 food-service professionals. Its shares fell 43.75 cents to $17.9625 yesterday.
The purchase of Superior is unusual in that the U.S. Foodservice strategy of expansion through acquisition traditionally has involved merging with regional distributors to strengthen regional coverage or gain a competitive edge, Cummins said. In contrast, Superior is a very specialized company.
The market U.S. Foodservice serves, which includes restaurants and institutions, is huge and largely untapped because the industry is primarily one of regional distributors, Cummins said.
Houston-based Sysco Corp., the distributor currently in first place, has just 11 percent of the market share. U.S. Foodservice, in second place, has 4 percent, he said.
"There are tremendous opportunities for each," he said.
Pub Date: 10/02/99