ABC Supply Company, Inc.
One ABC Parkway
Beloit, Wisconsin 53511
Telephone: (608) 362-7777
Toll Free: (800) 786-1210
Fax: (608) 362-6215
Web site: http://www.abc-supply.com
Sales: $2.93 billion (2010 est.)
NAICS: 423330 Roofing, Siding, and Insulation Material Merchant Wholesalers; 423310 Lumber, Plywood, Millwork, and Wood Panel Merchant Wholesalers; 423710 Hardware Merchant Wholesalers; 423830 Industrial Machinery and Equipment Merchant Wholesalers
With approximately 450 locations in 44 states, ABC Supply Company, Inc., is the largest roofing and siding wholesaler in the United States. In addition to roofing, ABC Supply also ranks as one of the top distributors of exterior building products, including windows and siding. Almost all of the company's sales are made to the professional market.
INTERNATIONAL ROOFING COMPANY
ABC Supply is the brainchild of Ken Hendricks, a building industry veteran and son of a Janesville, Wisconsin, roofing contractor. Hendricks's father Joe had channeled hard work and a devotion to his trade into a reputation as a do-it-all roofer. Despite his father's prosperity, Ken Hendricks was initially unenthusiastic about following in his footsteps. The senior Hendricks's working life had been marked by 12-hour days and six-day weeks and a business that, while profitable, never grew because Joe Hendricks did not believe anyone could do the job as well as he. Ken Hendricks wanted something different for himself.
Hendricks dropped out of high school in his junior year, working briefly at a General Motors plant and then at Wisconsin Power and Light. To fulfill his dream of becoming an architect, he also worked another 40 hours a week in the drafting department of a Janesville conveyor company. To earn extra money, he started roofing houses on the weekend. Only the roofing work survived and, using the money he had saved from his 80-hour workweeks, in 1963 the 22-year-old Hendricks founded International Roofing Company.
Within four years International Roofing had 500 employees and sales of $45 million a year. It had become the roofer of choice for many of the Kmarts and the Arby's and McDonald's restaurants rising up in the Midwest. It had also won contracts to roof a number of military bases around the country. By 1968 International had become the eighth-largest roofing company in the United States.
Hendricks's success came at a steep price. He later admitted that in his early years, “I was not an ethical Page 8 | Top of Articleperson. … Back then I was out there to get more money. If that meant cheating a little bit, I didn't feel there was anything wrong [with that].” To maximize profits he cut corners wherever possible and permitted his employees to do the same. If International Roofing could save money by fastening shingles with only three nails instead of four it did, he said.
Hendricks paid his employees the lowest wages he could get away with and, like his father before him, refused to delegate authority or expertise to any but the four or five superintendents he regarded as friends. Because he trusted no one but himself to oversee International's projects, he had to travel constantly. The extended hours and cut corners began to take their toll. “Eventually,” he later told Inc. magazine, “I just got sick of what I was doing, so I phased the business down.”
After about a decade at International's helm Hendricks reduced his involvement to spend more time with his family. International remained in business but focused only on projects in the Libertyville, Illinois, and Beloit/Janesville and Madison, Wisconsin, areas. In 1968 Hendricks met his future second wife Diane, the daughter of a northern Wisconsin farmer and the recent recipient of a real estate license earned in night school.
After dating for several years, Ken and Diane married and began buying up rundown or condemned homes. Ken renovated them and Diane managed their rental. The couple soon had 200 renovated homes in the Janesville area. They quickly learned, however, that property management could be a frustrating business. Tenant problems forced them to let several properties fall into disrepair.
They decided to branch out into the purchase and leasing of commercial and industrial properties and formed Hendricks Realty to formalize this new business.
Hendricks also began buying asphalt shingles, which he then sold back to International Roofing, his back-burnered business. Soon other roofers were coming to Hendricks for supplies, and Hendricks began devoting more time to his young supply distributorship than to International Roofing.
ABC SUPPLY COMPANY
Hendricks's real estate business had been his primary focus for more than 10 years, since the early 1970s. However, his burgeoning roofing supply business was taking center stage. In June 1982 he purchased three supply centers owned by Bird & Sons, a century-old roofing manufacturer based in Walpole, Massachusetts.
These first three ABC centers, based in Muskegon, Michigan, and in Belleville and Springfield, Illinois, had been losing money for Bird & Sons. However, they offered Hendricks the same “renovation” opportunity he had learned to exploit in the real estate industry. The makings of an entrepreneurial niche began to crystallize.
Hendricks realized that if the customer service and product knowledge of the small independent roofing supplier could be combined with the buying power of a national chain, Hendricks's new business, American Builders & Contractors Supply Co., could grab a large slice of the national building supply market. With his wife Diane heading ABC's finances and bank loan efforts, Hendricks acquired a headquarters location in Beloit.
By the end of its first full year of operations, ABC's sales had reached $4.5 million. In 1983 ABC purchased a building supplier in Green Bay, Wisconsin. In the first five months of 1984 it added five former Aluma building supply stores, thirteen former GAF stores, and two former AA Distributors stores. Only two years in existence, ABC Supply earned a number-three spot on Inc. magazine's “Inc. 500” listing of the fastest-growing U.S. small companies, with Hendricks's other company, International Roofing, placing 30th.
CHANGE IN PHILOSOPHY
Because International Roofing was now competing with ABC's customers, Hendricks decided, essentially, to give it away to his largest customer to ensure that company's continued business. The liquidation was an unusually generous demonstration of the “pleasing the customer” philosophy. In addition it also marked Hendricks's final comment on the destructive “profits-above-all-else” philosophy by which he had built International Roofing.
Hendricks's acquisition spree continued in 1985 with the purchase of seven independent building centers and another seven former Genstar stores in November. By the end of the year ABC had made its first acquisition in Texas and had moved up to second place on the Page 9 | Top of ArticleInc. 500. In 1986 ABC acquired six former Nichols-Homeshield building supply centers and opened another eight new stores through purchases or internal store launches. In the space of less than 34 months, Hendricks had opened or acquired 48 stores, roughly one new center every three weeks. By the end of 1986 ABC's empire stood at 600 employees and revenues of $183 million, earning it first place on Inc.'s prestigious list.
In the three years that followed, the general health of the U.S. economy offered Hendricks fewer opportunities to buy new stores at bargain-basement prices, and ABC's torrid growth pace slowed. It acquired two new stores in all of 1987, five in 1988, and then seven in 1989 to expand its network to seventy centers.
In 1987 Hendricks and his wife Diane were named Ernst & Young's “Entrepreneurs of the Year” and stepped back to consolidate their gains. They began developing wholly owned subsidiaries to manage crucial aspects of the operation such as trucking and construction. They also created 13 new satellite centers near existing ABC stores to absorb the high demand of large urban markets.
ABC's success was in large part due to the lessons Hendricks had learned while “winning ugly” at International Roofing. Instead of cutting expenses by cutting corners, he instituted a rigorous cost-control structure based on the notion that the difference between successful and failed businesses was only 3 percent of sales. To recover that 3 percent, Hendricks adopted a simple three-pronged approach: use economies of scale to purchase products from national vendors at a discount, use benchmarking standards to reduce operations costs such as real estate and corporate overhead to industry-leading levels, and motivate employees through bonuses and open-book management techniques.
The first strategy, economies of scale, could be achieved simply by aggressively acquiring failing but potentially salvageable building suppliers. By adding new stores to ABC's network every year, Hendricks strengthened his leverage to negotiate better deals with vendors. To find these target stores, he relied on his contacts in the industry. Calls to vendors, competitors, and credit managers told him which suppliers were late on their bills, facing bankruptcy, or looking to sell their businesses and retire. Hendricks found the opportunity to buy potentially healthy businesses at an affordable price by looking into situations such as partnerships that were splitting up, widows trying to sell off their husbands' assets, and companies crippled by weak local economies.
COST CUTTING AND STRATEGIZING
Hendricks also reduced the waste companies traditionally accumulate in everyday business expenses. He bought used trucks and office furniture and refurbished them, for example. In addition Hendricks found dilapidated-but-still-sound commercial properties in inner cities where he knew most of his business would come from.
Rather than build expensive new stores in outlying suburbs, where the relative newness of the surrounding properties mitigated against the need for his products, he focused on the remodeling markets in older sections of town, where aging properties were being bought and restored. At one point, three-quarters of ABC's roofing and siding was being sold to repair houses that were at least 50 years old.
Hendricks also made sure that ABC's inventory costs were low by keeping only enough stock on hand to meet existing orders. Because of these cost-cutting measures, by 1991 ABC's annual inventory turnover rate was a healthy six times per year. Furthermore, its rent as a percentage of sales was 1.8 percent, versus 3.5 percent for the industry, and its truck expense was less than 2 percent of sales, versus 4.75 to 5.5 percent nationally.
Finally, Hendricks made sure all of his employees were enthusiastic, informed participants in the company's program. This involved rewarding them for reducing expenses and pleasing customers. When adding a distressed supplier to the ABC chain, Hendricks gave the store's manager a chance to adapt to his system, thus preserving the manager's job while saving himself the cost of hiring a new one.
Hendricks also gave the store's existing workers the choice of taking on more responsibility in exchange for a slight pay increase or the promise of outsized bonuses when the store's bottom line improved. Each month every store's employees were given a two-page report. This report detailed both ABC's and the individual store's current expenses and profit-and-loss compared with the previous year, as well as its ranking for each cost category with the other ABC network stores.
This open-book management approach made employees acutely aware of how their performance affected the bottom line. For example, an ABC delivery driver was able to see that because ABC's profit margin on an order of shingles was slim, a simple two-hour delay delivering the shingles wiped out the store's profit from the order. A crucial component of Hendricks's monthly report was the estimate of how much of a bonus, if any, the store had earned for the year.
At the end of the year each store manager received 40 percent of the store's bonus. This could sometimes amount to $80,000. The remainder was divvied up among the store's employees at the manager's discretion. For employees making $18,000 to $20,000 a year, this bonus could bring in an additional $3,000 to $10,000 per year. With such incentives dangling before them, by 1991 ABC's employees were generating a prodigious $450,000 a year in sales, more than twice the industry average.
By early 1990 ABC's workforce had grown to 850, and its sales had climbed to $280 million. The company had yet to experience a year in which sales grew less than 25 percent. The recession in the Northeast presented Hendricks with new buying opportunities, and by the end of 1991 ABC had expanded to 92 stores in a network that now reached coast to coast. By September 1992 sales had vaulted to $750 million and Hendricks announced that, in keeping with the reclamation impulse that fueled ABC's sales, its new corporate office building would be erected in an abandoned manufacturing plant in downtown Beloit.
Meanwhile, Hendricks's wife Diane had built an insurance company, American Patriot Insurance. Initially designed to handle only the workers' compensation cases of ABC and its customers, the company was on its way to outpacing even ABC in sales. ABC was the 12th-largest private company in Wisconsin by 1993. As of 1995 it had climbed to 295 on Forbes magazine's Private 500 ranking of American businesses.
In 1995 Hendricks began to strengthen ABC's position as the largest roofing and siding supplier in the United States. This was accomplished by moving into manufacturing. Hendricks's purchase of Mule-Hide Products Co., a maker of commercial roofing, and Am-craft Building Products Co., Inc., a manufacturer of vinyl siding and windows, symbolized his desire to increase ABC Supply's market share by using vertical integration.
“A HUGE MARKET SHARE”
For most companies, vertical integration meant entering each stage of their products' life cycle, from raw materials to distribution, by branching out from the products' manufacture backward into raw materials production. Another method was to go forward into marketing or distribution. However, in what Hendricks joked was “a reverse philosophy of integrating,” ABC had grown in the opposite direction. It had made sure it had its customers first by amassing a huge network of local stores and only then created the sophisticated distribution network to tie them together.
By moving into manufacturing by acquiring roofing accessory manufacturers ABC also could begin stocking its stores with its own merchandise. In April 1996 ABC acquired R. and W. Hawaii Wholesale, Inc., a large roofing and waterproofing material supplier. By the end of the year the company boasted a workforce of 2,100 employees and sales of $762 million. ABC now owned 25 percent of the building products industry and had the infrastructure to prove it.
ABC had a fleet of 2,500 delivery vehicles in 1997 and in 1996 supplied enough materials to shingle 500,000 U.S. homes, side another 2 million, cover 8 million square feet of flat roofs, and install 60 million square feet of soffit, gutter, downspout, and fascia.
Moreover, ABC had nearly doubled in size since 1990. In 1996 Hendricks spoke optimistically of breaking the $100 billion sales mark in 1997 and then reaching $2 billion by the end of the century. “If you think about it,” Hendricks told the Beloit Daily News, “every roof, every house and business and wall in the country, we'll have been involved with 26 or 27 percent of those at that point . That's a huge market share.”
In 1995 Hendricks hired Jeff Stentz to head ABC's acquisitions program. Stentz persuaded Hendricks to change his focus from buying up troubled suppliers at a discount to paying more for healthier businesses that could offer ABC immediate returns. In 1996 ABC acquired some 15 companies, adding $100 million to its sales.
Roughly seven more acquisitions, adding another $150 million, were planned for 1997. In June ABC acquired Viking Building Products, a Connecticut-based distributor of home-building supplies with sales of $85 million. As the second-largest building supply chain in the Northeast, Viking's 12 stores brought ABC's network to 210 locations in 41 states, comprising some 3.5 million square feet of inventory.
By the fall Hendricks had announced an aggressive new expansion program that would expand ABC at the rate of one new store a week. In October it purchased five building supply companies from Champ Industries, Inc. The deal added 31 stores in Texas, California, Oklahoma, Kansas, and Missouri and $198 million in sales to the ABC network.
ABC was a staunchly family-run affair with five of Hendricks's children working for the company in addition to his wife. However, it committed itself to adopting the new technologies and product lines that promised to protect its industry leadership. The computer technology that Hendricks had once decried as too expensive now managed not only ABC's administrative, bookkeeping, and inventory functions but in 1997 grew to include a Web site and database that integrated the inventories of all the stores in a particular region. Moreover, Hendricks began monitoring possible applications for satellite technology at ABC and began introducing videoconferencing in each of his stores so managers could help solve each other's problems.
The residential roofing products that had once dominated ABC's sales were now giving way to a new emphasis on increasing revenues from siding, windows, and commercial roofing, as well as such new product lines as insulation, building tools, and accessories. “Our goal,” ABC's director of purchasing told Construction News in 1996, “is to be able to frame the entire exterior portion of the house.” The inner-city building remodeler who had once been ABC's bread and butter would now be joined by architects, plant engineers, or building maintenance technicians, basically whoever needed roofing and siding for a structure, regardless of type.
By 1997 ABC was also offering customers new value-added services. These included free next-morning deliveries, on-site product training seminars, customized catalogs, electronic ordering, and usage and trend analysis reports. Now in his late 50s, founder Ken Hendricks was still fighting the impulse to manage every aspect of the firm's operations. He began looking for a chief operating officer to free him to plan for the company's long-term future.
“Somebody in the company has to think about what this industry is going to look like in five years and get ahead of that,” he told an interviewer. “I like to say we're the biggest small company in America. … We still pay attention to the details, and we know what it takes to do the job.”
In October 1997 ABC agreed to acquire five different roofing distribution companies from Houston, Texas-based Champ Industries in a $66 million deal. These included Perfection Roofing Materials, United Building Supply, Stone Metal Products, SHR Roofing Supply, and Marshall Roofing Supply. In 1998 the company generated annual revenues of approximately $1.2 billion, but recorded a $2.6 million net loss. That year ABC scaled back its aggressive growth strategy to assess its internal operations.
One major development in 1998 was the establishment of a new senior leadership structure. Ken Hendricks was able to scale back his involvement in daily operations when David Luck was named president and chief operating officer and Bob Bartels was appointed senior vice president of operations. Other changes included a reorganization of ABC's national territories.
A NEW MILLENNIUM
ABC began the new millennium with a network of more than 200 distribution centers. The company's 226th store opened its doors the following year when sales reached $1.4 billion and operations spanned 44 states. Acquisitions around this time included Joplin, Missouri-based Houk Guttering & Supply and Little Rock, Arkansas-based Burton Building Products.
In 2002 ABC opened new locations in the Illinois communities of LaSalle, Rockford, Niles, and Aurora. Another new location was established in Canton, Ohio. By this time the company was licensing its new Green-Grid System on a national basis. GreenGrid was a lightweight, modular roofing system. Made of recycled materials, it allowed building owners to turn their unattractive roofs into rooftop gardens that offered the added benefit of reducing energy costs.
GROWTH AND RECORD SALES
In December 2002 ABC furthered its growth in the Mountain, Northeast, Western, and Mid-Atlantic regions via the acquisition of 29 distribution centers from Cameron Ashley Building Products. Growth continued during the middle of the decade when Johnsonville, Tennessee-based Aluminum Wholesale of Tri-Cities was acquired. Other acquisitions that year included Mansion Supply Co. Inc. of Paulsboro, New Jersey, as well as Daytona Beach, Florida-based B&F Supply Co. and St. Louis, Missouri-based Paco Building Supply.
ABC ended 2004 by generating record sales of $2.04 billion. That year net income increased 53 percent, totaling $103.2 million. Financial growth occurred in tandem with physical growth as the company's branch locations increased to 275 sites nationwide.
In 2005 ABC acquired Fort Lauderdale, Florida-based Town & Country Industries, a distributor of hurricane protection products and pool/patio enclosures. That year the company also awarded an $8.5 million contract to AT&T Corp., which agreed to host the company's Web servers and develop a virtual private network accessible by all 300 ABC locations. In addition ABC agreed to sponsor A.J. Foyt Racing, which competed in the Indy Racing League IndyCar Series.
LOSS OF A LEADER
Tragedy struck in December 2007 when cofounder Ken Hendricks fell through a tarp covering an open area on his roof while inspecting construction work at his home and died. Along with ABC, many industry players and communities mourned the loss of Hendricks, who had developed a reputation for philanthropy. At the time of his death, Forbes estimated Hendricks's net worth at approximately $3.5 billion.
In 2008 ABC was one of only 20 companies in the world to receive the Gallup Great Workplace Award in recognition of workforce performance. It was the second consecutive year that the company had received the prestigious honor. By early 2009 ABC employed approximately 5,600 people at 380 branches in 45 states.
Growth continued when ABC acquired Chesapeake Siding and Roofing in 2009. The deal included operations in both North Carolina and Virginia. Early that year an important leadership change took place when the company named Keith Rozolis as executive vice president and chief operating officer.
ACQUISITION OF BRADCO
The largest acquisition in ABC's history took place in mid-2010 when the company acquired Avenel, New Jersey-based Bradco Supply Corp. The transaction translated into a significant expansion of ABC's footprint, which swelled to include 479 locations. In addition the two organizations' combined sales totaled more than $4 billion.
In mid-2011 ABC was honored once again with the Gallup Great Workplace Award for the fifth consecutive time. That year the company developed the Ken Hendricks Award to honor the memory of its cofounder. Three longtime employees received the award in recognition of excellence. From its humble beginnings, ABC had achieved remarkable growth. The company moved into the 21st century's second decade as an undisputed industry leader and appeared to be poised for success in the years to come.
Paul S. Bodine Updated, Paul R. Greenland
Emco Corporation; Huttig Building Products, Inc.; Pacific Coast Building Products, Inc.
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