Performance Food Group said Monday it will acquire rival Reinhart Foodservice for $2 billion in a move that reflects consolidation pressures on food distributors amid rising transportation costs.
The acquisition of Reinhart, the second-largest privately held food distributor in the U.S., will create a company with $30 billion in net sales. Reinhart is currently owned by Reyes Holdings, which is also the parent of a McDonald’s distributor and a beer distributor.
Richmond, Va.-based Performance Food said it expects to achieve approximately $50 million in annual run-rate cost synergies in the third year following the close of the transaction.
“We believe the addition of Reinhart and its complementary strengths will expand Performance Foodservice’s broadline presence, improve our network efficiency and help us achieve our long-term growth goals,” CEO George Holm said in a news release.
“This transaction provides us with greater overall scale, a diverse customer base, including a solid base of independent customers, and builds upon our strong distribution platform,” he said.
Reinhart’s customer base includes independent restaurants and companies in healthcare, education and other segments while Performance Food’s current customers include Subway, Bloomin’ Brands, and Burger King.
As Reuters reports, food distributors “are facing shrinking margins as transportation costs have surged in recent years, with drivers preferring to work in the construction and manufacturing industries in an expanding U.S. economy.”
US Foods, Performance Food, Spartan Nash, and SysCo have all reported rising costs in recent quarters as record-low unemployment has forced them to boost wages for drivers, pay more in overtime, and offer six-figure signing bonuses.
Distributors are “especially sensitive to cost pressures,” The Wall Street Journal said, noting that their operations are “less automated than those of some other businesses, increasing their exposure” to worker shortages and rising wages.
In March, Performance Food announced it would acquire Eby-Brown, a family-owned convenience store products distributor. Following the merger with Reinhart, the company may cut some corporate-level jobs but will retain all employees at distribution centers, Holm said.