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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 [[link removed].] 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 [[link removed].], US Foods [[link removed]], and Performance Food Group [[link removed]], 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 [[link removed].].

Like other Big Food players, the Big Three broadliners can use their market power to extract lower prices, or rebates [[link removed]], 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 [[link removed]], a multinational conglomerate based in St. Paul, Minnesota. Its largest shareholder is Bill Gates’s family investment firm, Cascade Investment, which owns [[link removed]] 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 [[link removed]] Ecolab as their preferred provider.

Diversey [[link removed]], 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 [[link removed]] 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.

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What We're Reading

Consumers are paying for pork and beef, but farmers are getting paid less than a year ago. ( Investigate Midwest [[link removed]])

After a third trial, a federal court found poultry executives not guilty of price-fixing. ( Just Food [[link removed]])

Tyson has been fined $10.5 million for refusing to follow through on an agreed-upon payment to a premium cattle producer. ( Law360 [[link removed]])

John Deere is under fire as right to repair groups call on the EPA to investigate potential violations of the Clean Air Act. ( US PIRG [[link removed]])

Numerous farm and environmental groups joined a letter asking the EPA to protect Americans from the harms of factory farming practices. ( Friends of the Earth [[link removed]])

About the Open Markets Institute

The Open Markets Institute promotes political, industrial, economic, and environmental resilience. We do so by documenting and clarifying the dangers of extreme consolidation, and by fostering discussions of ways to reestablish America’s political economy on a more stable and fair foundation.

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Written by Amy Huo

Edited by Claire Kelloway, Phil Longman, and Anita Jain

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