[PLUG-TALK] Food & Power - How Ecolab Cleans Up the Competition in Keeping U.S. Restaurants Sanitary (fwd)

[Rich Shepard]

FYI

Rich

---------- Forwarded message ----------
Date: Sat, 23 Jul 2022 03:15:35 +1000
From: Claire Kelloway <info at openmarketsinstitute.org>

How Ecolab Cleans Up the Competition in Keeping U.S. Restaurants Sanitary
By Amy Huo, Open Markets Agriculture Policy Intern

The cost of dining out keeps rising. The USDA’s Economic Research Service
estimates that food-away-from-home  prices
[https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings/#:~:text=In%202022%2C%20all%20food%20prices,between%208.5%20and%209.5%20percent.]
will increase seven percent this year. Rising food and labor costs are the
biggest reasons, but there’s another less well-known factor lurking in your
menu price: monopoly pricing of cleaning supplies.

Restaurants spend a significant part of their overhead on
industrial-strength degreasers, sanitizers, and dishwasher detergents. With
razor-thin profit margins, independently owned restaurants are particularly
vulnerable to any increase in the price of these items. Yet, that’s exactly
what is happening now thanks to corporate concentration among cleaning
manufacturers and suppliers.

To see why, it’s useful to know a bit about how this business works. Most
restaurants order cleaning products through third-party distributors known
as “broadliners,” while some buy directly from the chemical manufacturer
itself. Either way, they are dealing with players who yield enormously
concentrated market power and the ability to dictate prices.

Start with the broadliners. The term refers to the broad line of products
these middle-man corporations provide to restaurants, from raw and processed
food products to dishwasher soap. But while broadliners offer restaurants
the advantages of “one-stop shopping,” dealing with them also has a serious
drawback. The sector is now dominated by just three firms,  Sysco
[https://investors.sysco.com/annual-reports-and-sec-filings/news-releases/2022/02-08-2022-130612352#:~:text=About%20Sysco&text=With%20more%20than%2058%2C000%20associates,of%20more%20than%20%2451%20billion.],
US Foods
[https://www.sec.gov/ix?doc=/Archives/edgar/data/1665918/000166591822000008/usfd-20220101.htm#i0663277f609544689e71a73026f21479_19],
and  Performance Food Group
[https://www.morningstar.com/stocks/xnys/pfgc/quote], which together make up
an estimated 50 to 60 percent of the domestic market. Sysco is the biggest
of the Big Three, controlling 42 percent of the market according to  CSI
Market
[https://csimarket.com/stocks/compet_glance.php?code=SYY#:~:text=Overall%20company%20Market%20Share%20Q1%202022&text=Sysco%20Corporation%20improved%20its%20market,segment%2C%20to%20approximate%2042.69%20%25.].

Like other Big Food players, the Big Three broadliners can use their market
power to extract lower prices, or  rebates
[https://www.foodandpower.net/latest/2018/09/13/big-food-paybacks-to-cafeteria-operators-spark-controversy?rq=cafeteria],
from their suppliers But these giants don’t necessarily pass along savings
to their restaurant customers, especially their smaller ones. Why should
they when they face so little competition amongst themselves?

Restaurants can bypass the Big Three by buying directly from the
manufacturers. But when they try to purchase cleaning supplies this way,
they face an even more dominant market player.

That player is  Ecolab [https://www.ecolab.com/about/our-businesses], a
multinational conglomerate based in St. Paul, Minnesota. Its largest
shareholder is Bill Gates’s family investment firm, Cascade Investment,
which  owns
[https://www.yahoo.com/video/kind-shareholders-own-ecolab-inc-125449157.html]
more than a tenth of the company. The corporation employs 47,000 people
globally and takes in its $13 billion in revenue selling hygiene products
ranging from water treatment chemicals to soaps used in health care, food
and beverage processing, and the food service industry. Their dominance in
this last category is overwhelming.

Ecolab controls 60 to 70 percent of the restaurant cleaning supply industry,
according to Larry Vassil, a 41-year chemical cleaning industry veteran and
COO of Accurate Chemical Companies, a rival struggling to compete with the
much larger Ecolab. The giant is so dominant in this sector that it even
holds a lock on the private-label cleaning products marketed by Sysco and US
Foods, which are just repackaged Ecolab products. Moreover, large food
service players like Sodexo exclusively name
[https://sodexhoinfo-usa.com/cleaning/approved_products.htm] Ecolab as their
preferred provider. Diversey [https://diversey.com/en], plus a smattering of
regional companies, are Ecolab’s only major competitors in restaurant
cleaning supplies. One reason is that smaller chemical firms can hardly
match the favors Ecolab bestows on selective customers in return for
exclusive contracts. Brad Zall, founder and president of Accurate Chemical
Companies, alleges that he lost a restaurant client after Ecolab swooped in
and offered to buy the restaurant a new $100,000 point-of-sale cashier
system in return for dropping him as a supplier.

Food & Power reached out to Ecolab to inquire whether offering new equipment
to entice customers away from competitors is a typical business practice. An
Ecolab spokesperson stated the company is not aware of “offering something
outside of Ecolab’s own solution portfolio to gain a new customer,” adding
that providing a point-of-sale system is not standard practice.

Meanwhile, independent restaurants are particularly vulnerable to Ecolab’s
market dominance. According to multiple sources, Ecolab charges small
restaurants roughly 20 percent more for cleaning products than it charges
big chain restaurants or conglomerate firms. Last December Ecolab issued a
press release announcing a 15%  increase
[https://www.ecolab.com/news/2021/11/ecolab-industrial-segment-announces-price-increase]
in the list prices of its industrial cleaning supplies, which was more than
double the rate of general inflation.

Some restaurateurs also charge that Ecolab’s lack of competition allows the
corporation to get away with subpar service. In Paris, Texas, for example, a
coffee shop pursued Ecolab for over six months trying to set up chemicals
and dispenser services. Instead, Ecolab sent incorrect materials and
overcharged for unneeded chemicals.

Another instance comes from Minneapolis, where a local restaurant manager
complains that an Ecolab regional rep told her that if she did not meet a
four-case minimum order, an extra $75 fee would be charged to their account.
Even though the manager says she did not accept, she reports that the
representative nonetheless ordered her $800 worth of chemicals and is now
unresponsive to her phone calls to get the order corrected. The manager said
she wants to find another company to provide their service and cleaning
chemicals, but as of yet, is unable to do so.

Unchecked, operating behind the scenes, monopolies creep into every part of
the restaurant experience – even the dish pit.