The Anderson-DuBose Company

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The Anderson-DuBose Company

6675 Davis Industrial Parkway
Solon, Ohio 44139
U.S.A.
Telephone: (440) 248-880
Fax: (440) 248-6208

Private Company
Incorporated: 1991
Employees: 102
Sales: $197.3 million (2002)
NAIC: 424410 General Line Grocery Merchant Wholesalers

The Anderson-DuBose Company is a distributor for more than 270 McDonald's restaurants in northeastern Ohio, western Pennsylvania, and northern West Virginia, as well as more than 75 McDonald's restaurants in South Africa. The company purchases about 575 products from approved vendors for distribution to McDonald's franchise owners in its territory. Products include hamburger, chicken, and fish patties, French fries, condiments, paper and plastic products, cleaning supplies, "Happy Meal" toys for kids, and promotional items. Distribution centers are located in Solon, Ohio, and Johannesburg, South Africa. The company operates a beer distributorship in Oklahoma City as well. Anderson-DuBose is among the largest businesses to be owned by African-Americans in the United States.

Apprenticeship with McDonald's

Warren E. Anderson and Stephen DuBose formed The Anderson-DuBose Company in November 1991 for the purpose of purchasing majority ownership in a McDonald's distributorship from Martin-Brower Company. This event is noteworthy for two reasons. First, the distributorship operated profitably, with a strong cash flow and an assured customer base, raising the question of why Martin-Brower would sell. As the largest distributor for McDonald's Corporation, and the largest restaurant chain distribution company nationwide, Martin-Brower served 40 percent of McDonald's restaurants in the United States through 16 regional distributorships. Martin-Brower sold its Solon, Ohio-based distributorship to foster positive relations with McDonald's, opening the way for future business opportunities with the company. Selling the profitable distributorship to Anderson and DuBose helped McDonald's to fulfill its commitment to building minority involvement with the company. Hence the second reason the sale to Anderson-DuBose is note-worthy—the company became the first distributor for a major fast food chain to be owned by African Americans.

Anderson provided the impetus for the pursuit of a business opportunity with McDonald's. Before buying into the business, he had built a career in broadcast journalism, working as general sales manager for WFSB-TV, the Hartford, Connecticut, affiliate of CBS. Like many entrepreneurs, Anderson learned that his independent spirit often conflicted with the standpoint of his boss. After being fired from WFSB-TV, he lived off of investments and began exploring entrepreneurial opportunities. In his work at WFSB-TV, Anderson often interacted with McDonald's managers and franchise owners and thought highly of how the company operated. Anderson conferred with managers at McDonald's about opportunities and decided that operating a distribution center would be a promising enterprise. A regional purchasing specialist for McDonald's encouraged Anderson to contact the corporate office in Oak-brook, Illinois.

Anderson shared his idea with DuBose, then manager of international business acquisitions for GE Capital Corporation in Stamford, Connecticut, bringing DuBose's financial expertise into the business. The idea of entrepreneurship had appeal within a certain framework. Anderson and DuBose felt that a service company better suited their capabilities than a manufacturing operation. Furthermore, a distribution company was easier to finance than other service companies because an acquisition involved material assets, such as a building and delivery trucks. In deciding to pursue an association with McDonald's, they considered that the acquisition of a large business would involve the same level of involvement as the acquisition of a small business.

Anderson and DuBose encountered two problems on the path to entrepreneurship. First, they found that no McDonald's distributorships were available for purchase. Second, they had no experience in distribution, a circumstance that McDonald's officials were quick to observe. The second problem was resolved when McDonald's offered to provide an apprenticeship through its Minority Business Development Program that would teach Anderson and DuBose all aspects of distribution operations. Finding a distributorship remained unresolved, however.

McDonald's modeled the apprenticeship on its program for franchise owners, which involved hands-on training. Through on-the-job experience, Anderson and DuBose learned all aspects of operating a distribution center, including truck-loading, warehousing, customer service, accounting, and budgeting. Anderson worked for a distributor in Whitewater, Wisconsin, serving McDonald's restaurants in Wisconsin, Minnesota, and Illinois, while DuBose worked for a Toledo distributor. Also, they found a mentor in Michael Gilman, director for U.S. purchasing for McDonald's. Initially set for eight months, the apprenticeship extended to 18 months as Anderson-DuBose searched for a distributorship to buy. They worked without pay, demonstrating a commitment to McDonald's but risking their high-paying careers without a guarantee that a distribution opportunity would be available.

Acquiring a McDonald's Distributorship in 1991

In search of a business to buy, Anderson and DuBose spent several months writing to McDonald's officials, attending conventions, and meeting with distributors and purchasing managers. Corporate officials acted as intermediaries as well, eventually introducing Anderson and DuBose to Herbert Heller, president of Martin-Brower. Martin-Brower proved to be the right match, and the company agreed to sell its northeastern Ohio distributorship, based in Solon, Ohio, southeast of Cleveland. Anderson and DuBose liked the location both for its business potential and for the fact that the company was situated in an area with a substantial African-American population. The distributorship served 229 McDonald's restaurants and employed 90 people at a 60,000-square-foot distribution center. In 1991, the company recorded slightly over $100 million in revenues.

Anderson and DuBose sold their homes, liquidated investments, and obtained financing to purchase a 51 percent interest in the business. Anderson acquired a 40 percent interest and DuBose acquired an 11 percent interest, becoming president and vice-president, respectively. Martin-Brower assisted with financing the sale and retained a 49 percent stake in the distribution center; however, the contract involved a mechanism that returned ownership to Martin-Brower if Anderson-DuBose did not meet the stringent standards that McDonald's requires of its business associates.

While Anderson and DuBose had complete control of the management of the company, they were new faces to employees and franchise owners. The two men addressed employee concerns by meeting with employees on the job. Through the formation of an advisory committee comprised of warehouse workers, drivers, and managers, Anderson and DuBose initiated improvements in communication and teamwork. Cross-training employees in different aspects of distribution improved operating efficiency by combining job responsibilities. The company acted to improve cost efficiency as well, obtaining, for instance, a maintenance contract at lower cost.

To introduce themselves to franchise owners and address customer concerns, Anderson and DuBose distributed a customer service survey which inquired about the timeliness of delivery, the courtesy and knowledge of sales representatives, and other service issues. One problem uncovered by the survey involved franchise operators not receiving enough advance notice on special promotions to order goods appropriately. Anderson-DuBose initiated a monthly newsletter that provided restaurant owners with notice of promotional campaigns and how to prepare for them, as well as other valuable information.

After one year in business, Anderson-DuBose increased sales by 7 percent, to $110 million in 1992. The following year, Black Enterprise magazine ranked the company as fifth on its list of top-grossing black-owned industrial/service businesses; the company remained among the top ten for the next three years. Also, Anderson-DuBose ranked as the largest black-owned business in the state of Ohio.

Ownership of the company changed quickly and unexpectedly. First, DuBose sold his 11 percent interest in the company to Anderson in 1993. Then Anderson became the sole owner of the company in March 1995. Though Anderson had planned to purchase Martin-Brower's 49 percent stake in five to seven years, advantageous lending rates and operational efficiencies allowed him to acquire full ownership much sooner. Anderson-DuBose retained its original name.

Company revenues increased as the distributorship expanded to serve 259 McDonald's franchises by the end of 1995, including stores in western Pennsylvania and northern West Virginia. With a staff of 85 employees, including six managers, the company recorded sales of $118 million in 1995.

Key Dates:

1990:: Anderson and DuBose begin their apprenticeship at a distributorship for products used by the McDonald's restaurant chain.
1991:: Anderson-DuBose purchases a 51 percent stake in McDonald's distributorship from Martin-Brower Company.
1993:: Anderson-DuBose is ranked number five on Black Enterprise magazine's list of 100 largest black-owned businesses.
1995:: Company becomes sole owner of the distributorship and begins operating a joint venture in South African.
2002:: Warren Anderson is named Male Entrepreneur of the Year by the U.S. Department of Commerce's National Minority Business Development Agency.

South Africa Opportunity Arises in 1994

After the dismantling of apartheid and the institution of democratic elections in South Africa in 1994, McDonald's decided to make franchise opportunities available there and hired Anderson to act as consultant for developing distribution in South Africa. (Anderson had spent several years in Nigeria, Tanzania, and Zambia, where his parents taught for a private education company.) In South Africa, he found that no existing distributor could handle the distribution needs of McDonald's, which required warehouses and delivery trucks that could accommodate different temperatures for dry, frozen, and chilled products.

Anderson decided to pursue the distributorship through a joint venture with local investors. He formed AD South Africa, which owned one-third of the venture, while Spar, a white-owned trucking company, and Thuthuka Investments, a black-owned firm, each owned a third of the business. The venture, ASP Distributors Ltd., used the existing infrastructure at Spar but modified it to suit the requirements of McDonald's. Managers from Anderson-DuBose's Ohio facility traveled to South Africa to assist with organizing the distribution center. ASP made its first delivery in October 1995, in time for the first store opening in Johannesburg on November 1st. With only two major fast food competitors, Kentucky Fried Chicken and Wimpy's, a British hamburger chain, sales at the McDonald's store quadrupled projections.

Despite this initial success, business operations in South Africa at this time encountered a number of challenges. High unemployment and uncertain social change fed a high crime rate, and thieves armed with machine guns hijacked delivery trucks out of the country. Though unemployment was high, the company had difficulty finding people willing to work nights and weekends, when deliveries are made. Also, after AD South Africa transferred money into the country, the value of the rand declined, resulting in a 20 percent loss in the value of funds.

Another major problem involved warehousing and distribution itself. Spar had difficulty maintaining McDonald's standards for operation, and Anderson had to buy his partner's interest and invest in a new distribution center. In addition to hiring staff and purchasing office and delivery equipment, Anderson had to build a warehouse at a capacity far beyond what the market's revenues could carry. By the end of 1999, the distribution center was supplying food products to only 25 McDonald's restaurants in Johannesburg and Capetown, although it had the means to serve 300 stores.

Stability and Steady Growth in the New Century

While business operations in South Africa became stable as the country matured, Anderson-DuBose continued to operate successfully in the United States. In 1997 sales reached $137 million. That year, the Ohio facility ranked as the third most productive distributorship of 40 McDonald's distributors in North America, in contrast to a rank of 30 when the business was acquired in 1991. In the United States, the company grew slowly, adding less than a dozen McDonald's restaurants to its Ohio distribution and acquiring a beer distributorship in Oklahoma City. In South Africa, distribution expanded quickly as 50 McDonald's restaurants opened throughout the country between 2000 and mid-2003.

Anderson was recognized for his success by several business institutions. In February 1999, Dun and Bradstreet and Entrepreneur magazine placed Anderson at number one on a list of ten Minority Entrepreneurs of the Year. In 2002, Anderson was named Male Entrepreneur of the Year by the U.S. Department of Commerce's National Minority Business Development Agency and Ohio Minority Supplier Firm of the Year by the Ohio Statewide Minority Business Development Center. Anderson-DuBose remained the largest black-owned business in Ohio and maintained positions among the top 20 of Black Enterprise magazine's list of 100 top-grossing black-owned businesses. In 2002, Anderson-DuBose listed at number 17 based on 2001 revenues of $177 million.