Editor's Note: Over the past 30 years, China's economy has grown rapidly, and the commercial distribution sector has also shown vigorous development. Rising disposable income has supported China becoming a globally high-growth consumer market. As brands penetrate lower-tier markets, they require numerous intermediaries to complete distribution coverage. Various distributors and wholesalers have gained opportunities for survival and growth in this process. However, China's commercial distribution is currently facing challenges:

  1. The emergence of more efficient online and offline channels is eroding the living space of traditional distributors;
  2. Price wars at the market end compress industry profits, making the traditional multi-tier markup system increasingly unsustainable. With no natural market growth, the market is forced to adjust its transaction structure. Structural changes will inevitably move towards lower costs. Commercial distribution will inevitably move towards scale, standardization, and intensification. We judge:
  3. The trend of distributor consolidation will accelerate, and many distributors will exit the market in the future;
  4. Distributor functions will shift towards supply chain companies serving terminals. Against this backdrop, 'New Distribution' launches a series on global major trading companies, hoping to provide diverse perspectives and valuable references for the industry. This article introduces McLane Company, a U.S. wholesale supply chain service company that supplies food, beverages, alcohol, and non-food items to convenience stores, discount retailers, wholesale clubs, pharmacies, military bases, quick-service restaurants, and casual dining restaurants across the United States. McLane has established a strong grocery distribution network and is one of the world's leading distributors, with revenue of $52.6 billion in 2023. The company was founded in 1894 in Cameron, Texas. It became a subsidiary of Walmart in 1991. In 2003, it was acquired by Berkshire Hathaway, becoming part of Buffett's portfolio.

From Retail Grocery to Distribution Giant

By 2024, McLane Company has existed for a full 130 years. Like many global large companies that have weathered cycles, McLane originated from a small business. The story began in the late 19th century when Robert McLane opened his first retail grocery store in Cameron, Texas. In 1894, the retail business shifted to wholesale trade, marking the founding of McLane Company. At that time, it supplied grocery stores in surrounding towns via railway and horse-drawn carriages. From the 1920s to the 1940s, its business expanded to most of central Texas. Robert's son, Drayton, joined the growing family business after graduating from college in 1922 and worked there for over 60 years. Drayton consciously cultivated a family successor from an early age. When his youngest son, Drayton Jr., was nine, he worked at the company on Saturdays and during summer vacations, stacking inventory and sweeping floors. After earning a bachelor's degree in business from Baylor University and an MBA from Michigan State University, Drayton Jr. formally joined the family business. In his early years, he assisted his father in building a strong grocery distribution network, serving convenience stores, supermarkets, fast-food restaurants, and family businesses across Texas. They were among the first to use computers to build distribution systems, a key step in McLane's success. In 1964, Drayton McLane Jr., the third generation, became president and CEO of McLane Company, eventually holding that position for thirty years. In 1966, Drayton Jr. moved the headquarters to Temple, Texas. He adjusted his warehousing operations and distribution methods according to the development of the retail market, including the growing convenience store market, and began expanding beyond Texas. He established 18 distribution centers across the United States. By 1990, the company had established a nationwide presence. During his decades of leadership, McLane achieved average annual sales growth of over 30%.

Walmart as Parent Company and Core Customer

In McLane's development, there were two major milestones: one was the acquisition by Walmart in 1990. The other was 13 years later, in 2003, when Berkshire Hathaway acquired McLane from Walmart. In the 1980s, McLane began selling convenience foods at Walmart stores in central Texas. A strong business and personal relationship developed between Drayton McLane Jr. and Sam Walton. The two companies and their owners had many similarities—both were founded in small American towns, had strong dedication to customers and employees, and were committed to honesty, integrity, and high ethical standards. It was not surprising that these two famous businessmen became personal friends over the years. In 1990, Sam Walton invited Drayton Jr. to a meeting, accompanied by Walmart's then-president and CEO David Glass. The visit began with a routine tour of a local Walmart, and only at the end did Walton and Glass announce their true purpose—they wanted McLane to merge with Walmart. "My initial reaction was to refuse!" Drayton said. Over the years, he had received many offers to acquire the company, but he had never seriously considered any. This time, he discussed it with his family and shareholders. They believed the deal was a tremendous growth opportunity for the company and its employees. In 1991, McLane and its shareholders sold the company to Sam Walton for 10.4 million shares of Walmart stock and $50 million in cash. He remained with the company in an executive role until 1993. Walmart became McLane's parent company and its core customer; in 2003, about 35% of McLane's revenue came from Walmart. After McLane's divestiture from Walmart, this figure fell to 33% (2004-2009), 30% (2010-2011), 28% (2012), and then 25% (2013).

Steady Business, Cornerstone of Buffett's Investment Strategy

In 2003, Buffett acquired McLane from Walmart. Why Walmart sold and why Buffett bought is explained in Buffett's 2003 letter to shareholders: "Early this spring, Byron Trott, a managing director at Goldman Sachs, told me that Walmart was interested in selling its subsidiary McLane. The company specializes in distributing food and non-food items to convenience stores, drugstores, mass merchandisers, fast-food restaurants, and theaters. It's a good business, but not core to Walmart's future development. For us, it's tailor-made. McLane's annual revenue is as high as $23 billion, but its profit is quite thin, with a pre-tax margin of about 1%. So its contribution to Berkshire's revenue growth will be far greater than to profits. In the past, some distributors avoided McLane's services because it was a subsidiary of their main competitor, but under the leadership of its outstanding manager Grady Rosier, it has successfully captured some market share. For years, I have voted for Walmart in Fortune's annual 'Most Admired Companies' awards, and after the McLane deal, my view was reinforced. During the transaction, I had only one two-hour meeting with Walmart's CFO Tom Schoewe, and then we shook hands on the deal. It was his first visit to Bentonville. Twenty-nine days later, Walmart had the money, and we performed no due diligence. We were confident everything would be as Walmart said, and it proved to be so." From this, it can be judged that the transaction was a good fit for all three parties. Walmart's core business is retail; selling McLane does not harm its core business but helps McLane expand more major customers. The supply chain business is characterized by low profit margins, but once scale is achieved, it creates strong business barriers because it generates continuous and stable cash flow. Buffett's investment philosophy values businesses that can weather cycles and have moats. McLane has built competitive barriers with extremely low profit margins (about 1%), allowing it to earn stable profits from scaled services and keep other competitors out. According to data disclosed in Berkshire Hathaway's financial reports, McLane's revenue has maintained continuous and stable growth over the past 20 years, reaching $52.6 billion in 2023.

Diversified Supply Chain Service Company, Surviving Over a Century

Currently, McLane Company is engaged in wholesale distribution, supplying general merchandise and non-food consumer goods to retailers, convenience stores, and restaurants. The company also operates spirits, wine, and beer businesses. Its retail chain customers include Walmart, Sam's Club, Walgreens, Pilot Flying J, Circle K, Wawa, ExxonMobil, Target, Love's, Kmart, Family Dollar, and AAFES. McLane's food service company serves well-known chains such as Taco Bell, KFC, and Pizza Hut. As a diversified supply chain service company, its business scope includes: Food and Beverage Distribution: One of the leading food and beverage distributors in the U.S., providing comprehensive supply chain services including various food and beverage products to retailers, restaurants, and institutional clients. Other Product Distribution: Provides various non-food products, including tobacco products, health and beauty products, household goods, office supplies, etc. Convenience Store Supply: One of the leading convenience store supply chain service providers in the U.S., providing various goods and services to convenience stores, including food, beverages, tobacco products, snacks, candy, daily necessities, etc. Wholesale Distribution: Provides distribution services to various wholesalers, including food, beverages, daily necessities, office supplies, electronics, etc. Logistics Services: Provides warehousing, transportation, and distribution logistics services to help clients improve supply chain efficiency. Other Value-Added Services and Businesses: Sales solutions and retail technology. Provides the latest product information services and category management strategy advice to clients. Through its subsidiary CVP (Consumer Value Products), it provides private label product development services. Also includes order management systems, visual business intelligence (BI) applications, etc. McLane continuously invests in infrastructure and supporting facilities, maintaining deep cooperative relationships with thousands of product suppliers. In several categories, McLane is one of the world's leading buyers, such as tobacco, candy, snacks, etc. It operates 80 logistics centers globally, employs over 25,000 people, and operates over 5,000 SKUs. Unit: $100 million McLane has survived for 130 years with strong resilience and stability, mainly due to the following points:

  1. Strong logistics and supply chain management capabilities, enabling it to maintain a leading position in a competitive market.

  2. Continuous process optimization and technological innovation allow McLane to provide quality services at lower costs and higher operational efficiency.

  3. McLane has maintained long-term cooperative relationships with large retailers, convenience stores, and restaurant chains.

  4. Through acquisitions, technology investments, and business diversification, it continuously expands and adapts to market changes.

5. Retail supply chain: a giant business that can weather cycles.

McLane Company is one of the leading food and beverage distributors in the U.S. Its main competitors include:

  • Sysco Corporation: A leading U.S. foodservice distributor, providing various food and non-food products to restaurants, hotels, and other foodservice institutions.
  • US Foods Holding Corp: A leading U.S. foodservice distributor, providing various food and non-food products to restaurants, hotels, and other foodservice institutions.
  • Performance Foodservice Group: A leading U.S. foodservice distributor, providing various food and non-food products to restaurants, hotels, and other foodservice institutions. These competitors have revenues in the tens of billions of dollars, all with strong strength and resources, and have strong competitive advantages in their respective fields. From the U.S. situation, the supply chain business in consumer industries such as retail and restaurants is a place for giants to compete. Because profit margins are relatively low, only by achieving scale can one gain a competitive advantage. But the market is vast and can accommodate multiple giants. Most importantly, demand is rigid, allowing companies to maintain relatively stable income during economic fluctuations, thus enabling such supply chain businesses to weather cycles. References:
  1. McLane Company official website: https://www.mclanegroup.com/
  2. Berkshire Hathaway financial reports
  3. Wikipedia: McLane Company
  4. Hongzhang Consumer Research Institute: McLane: The $50 billion supply chain business acquired by Buffett