Getting it wholesale

Distributors supply major components of this year's ranking of North Carolina's top private companies.
By Frank Maley

Every year, convenience-store suppliers get together for a conference, and every year, it seems to Sherwin Herring, there’s talk of consolidation. “Our industry has the worst return on investment out of, like, 80-some wholesale industries.”

It’s tough to boost revenue or margins much when competitors can get goods for about the same price you can. You can try to give better service, but so can they. Consolidation is one way to quickly increase sales, cut costs and maybe widen margins.

But there hasn’t been much of that going on among big suppliers in North Carolina. The state is fertile ground for them, having one of the highest ratios of convenience stores to population in the nation, says Herring, CEO of Goldsboro-based Southco Distributing Co. And many of the top Tar Heel suppliers have long been run by families that have shown no interest in breaking tradition.

Those old convenience-store suppliers are just one slice of what has become, by some measures, the biggest sector on Grant Thornton’s North Carolina 100, the accounting firm’s annual ranking of top private companies in the state. It has more companies — 33 — in wholesale distribution than in any other sector. They account for more of the cumulative revenue and rank second in employment. The lion’s share of wholesaling revenue comes from the largest company on the list, Raleigh-based General Parts International Inc. — even though it also has retail operations. Grant Thornton classifies it as a distributor — and all of its revenue is counted that way — because its primary business is supplying Carquest auto-parts stores.

General Parts was No. 1 five years ago, too, when manufacturing was king across the board with 27% of the companies, 32% of the revenue and 37% of employment. Distribution ran second at 26%, 19% and 21%. Only in the past two years has it slipped ahead of manufacturing in number of companies and revenue. “My guess is that we’re going to see the trend toward wholesale distribution and service,” says Alan Day, the Grant Thornton partner in charge of the ranking.

Exactly why wholesalers are so common on the list is hard to pin down, especially since wholesale trade is just a small part of the state economy — less than 6%. Manufacturing, though declining, still accounts for about 20%. Participation in the North Carolina 100 is voluntary, so that might play a role. North Carolina, with its central location on the East Coast and well-developed transportation infrastructure, is prime real estate for distributors. Size, as Herring has often heard, matters to distributors — maybe more than to other businesses. More volume makes it easier to fill trucks, and full trucks mean greater efficiency, says Robert Handfield, a professor of business management and supply-chain expert at North Carolina State University. “Your cost per mile is less to deliver a product than it is for a truck that’s only halfway full.”

Another contributing factor might be that many big manufacturers are ineligible for the North Carolina 100 because their stock is publicly traded. While there are plenty of manufacturers among the state’s largest public companies, there are few distributors. A wholesaling business typically requires a smaller investment in equipment and overhead, so there’s less need for a big cash infusion that often drives a decision to go public, Handfield says.

Though distributors have surged ahead as a group, the biggest individual gainer on this year’s list wasn’t of their number. Builder Eastwood Homes Inc. jumped 27 places to 38th. Yarn maker R.L. Stowe Mills Inc. saw the biggest drop and barely made the list after finishing 77th last year. Bojangles’ Holdings Inc. dropped 35 spots from 11th to 46th, but that was caused by a miscalculation of revenue last year. In other contexts, restaurant franchisors such as Bojangles’ often include franchisee revenue to show the brand’s size. But the North Carolina 100 should be based only on franchisor revenue, Day says.

Next year, it’s likely that wholesalers will make a strong showing again. For one thing, Herring suspects that the gospel of consolidation preached to convenience-store suppliers will continue to fall on deaf ears in North Carolina. One of his larger competitors, 13th-ranked J.T. Davenport & Sons Inc., is more than 100 years old and run by its fourth generation of Davenports. At No. 50, M.R. Williams Inc., has been run for 31 years by its founder, who had bought another company started in 1948. Another, Coastal Wholesale Inc., No. 68 this year, has been in business 60 years. “We always will be family-owned,” management insists on its Web site.

At age 55, Herring, who became co-owner when Southco was established in 1981 and now owns 70%, has no plans to sell his business, which ranks 34th this year. His 29-year-old daughter, April, might one day want to succeed him, and besides, he says, “I still enjoy coming to work every day.”

Below is a partial breakdown of North Carolina's Top 100 private companies.

North Carolina's TOP 100 Private Companies
$500 Million or More in 2006 Revenue
2007
Rank
2006
Rank
Company
Headquarters CEO
Employees
Business
1
1
General Parts International Inc. Raleigh O.Temple Sloan Jr. 14,500 Distributor of automotive replacement parts
2
3
SAS Institute Cary James Goodnight 10,106 Software Developer
3
4
National Gypsum Co. Charlotte Thomas Nelson 2,800 Maunufacturer of wallboad products
4
5
Baker & Taylor Inc. Charlotte Richard S. Willis 2,576 Distributor of books, DVDs and other media
5
6 Klaussner Furniture Industries Inc.

Asheboro

J. B. Davis 6,311 Manufacturer of residential furnishings & parts
6
Hickory Springs Manufacturing Co. Hickory Don Coleman 3,200 Manufacturer of furniture springs
7
7
House of Raeford Farms Inc. Raeford E. Marvin Johnson 6,000 Poultry processor
8
8
Parkdale Mills Inc. Gastonia Anderson D. Warlick 2,594 Yarn manufacturer

9

9

Lord Corp.
Cary Richard L. McNeel
2,500 Manufacturer of adhesives and sealants
10 The Fresh Market Inc.
Greensboro Brett Berry
3.261
Grocery chain

To see the entire chart, click here to purchase a copy of the October 2007 issue.

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