David didn’t beat Goliath by chance - Burnt’s take on the Sysco news

For anyone working in the US food sector, and probably beyond, one piece of news dominated the headlines this week: Sysco agreed to acquire Restaurant Depot.

A lot of interesting commentary has been given on this already, but there is one angle we feel has been missed so we’re interrupting our regular programming to give you our view on the acquisition.

But first, a necessary digression. In his book David and Goliath, (summarized in this video) the author Malcolm Gladwell shares why the biblical battle where a boy defeats a giant warrior in single combat with the use of only a sling, a story often used to exemplify overcoming incredible odds to succeed, is in fact not that at all.

Gladwell points to two key reasons why we shouldn't be surprised that David bested Goliath. First, Goliath was likely equipped for hand to hand combat and therefore heavily armored, which would have severely restricted his mobility. Second, Gladwell points to the likelihood of Goliath suffering from a disease called acromegaly. This would explain Goliath’s enormous size (especially at a time when people were generally a lot shorter than today), but also suggests the giant suffered from vision problems, a side effect of the disease. Both these things made Goliath a much easier target for the agile and mobile David, wielding a deadly sling with incredible accuracy, than we might at first believe.

The bottom line is that based on this interpretation, David’s victory was more of structural likelihood than it was a chance occurrence.

Now, back to Sysco. Clearly here, Sysco is Goliath. It was already a giant before the acquisition, and it will become much more so with the Restaurant Depot purchase. Before we get to who David is in this context, let’s look at why Gladwell’s version of Goliath could be a good analogy for Sysco’s current situation.

First, like the historical Goliath, Sysco bought itself a very heavy armor, but at the cost of mobility. The costs of the acquisition, which are significant at close to $30 billion, including $21.6 billion in cash, means the company has very little room to move. One of the most obvious levers a company in this situation might deploy is raising prices.

A small but interesting signal pointing in this direction comes from a LinkedIn post the Sysco CEO posted about the acquisition. This is not a message written to a restaurant operator, it’s written to market analysts and institutional investors, which is telling of what the focus will be if the acquisition happens. These stakeholders will have very high financial expectations for a transaction of this size (as an early sign of this, Sysco shares went down on the news due to the increased debt load the company will be taking on for the acquisition).

Just as Gladwell saw Goliath’s size as being the result of an underlying medical issue, Sysco post acquisition will also suffer from inherent structural deficiencies. A company that wasn’t known for quality of service and ingredients just got much bigger. With the market pressure it has now inherited, it’s difficult to see how this will get better, and easy to see how it could get worse.

But here is our main takeaway from Burnt, and it’s something we feel has not been fully explored yet. The acquisition is happening in a very new and very different era. The AI era.

Sysco uses a lot of AI. By our estimates, spending $20 to $30 million to build solutions with an in-house team of engineers. But here is the thing many don’t appreciate about AI. You can use AI to make a company more efficient, but if you are starting with subpar customer service and poor product quality, those things won’t change. In this case, you’ll just be left with a bad business that runs more efficiently. If you don’t believe us, try calling Fedex’s “AI” customer service line about a package (this might be one of the few cases where AI has actually made a business much worse). The reverse is also true: if the underlying business cares about quality, AI enhances that.

This is where David comes back into the story. It’s obvious that independent food distributors and operators are the Davids of the Sysco story. But as Gladwell showed, David’s chances of winning are actually high.

Here is why independent distributors can win.

Previously, significant efficiency improvements were reserved for companies with data analysts, software developers and huge IT spend. And you still had to proportionally grow the team to actually use the software and do the work. In that era, consolidation made sense. With AI, all of this is changing.

Now even the smallest distributor can access operational efficiencies that were previously reserved to the biggest players. Yes, Sysco has more data and bigger engineering teams. But their AI makes Sysco better at being Sysco: volume, standardization, scale. AI tools built for independents make them better at being independents: responsiveness, customization, relationship depth. These are different games. And crucially, independents can pair better unit economics with quality of products and services that Sysco is structurally incapable of delivering.

Restaurant Depot used to be where foodservice went to avoid Sysco. Now independent distributors have a chance to fill that gap. We strongly believe independent companies who care about customer success, customer value, and food quality have been handed one of the best chances to win in the market.

Beware Goliath, the Davids are coming, and with that an industry where quality wins over quantity can emerge. At Burnt, we’d love nothing more, and work with our customers every day to make this a reality.

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