Crossmark

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Crossmark

5100 Legacy Drive
Plano, Texas 75024-3104
U.S.A.
Telephone: (469) 814-1000
Fax: (469) 814-1355
Web site: http://www.crossmark.com

Private Company
Incorporated: 1995
Employees: 13,000
Sales: $5.2 billion (2001)
NAIC: 414410 General Line Grocery Merchant Wholesalers

Privately owned, Plano, Texas-based CROSSMARK (Crossmark) is one of a handful of major sales and marketing agencies connecting the consumer packaged goods industry with supermarkets, convenience stores, and drugstores, offering the kind of services, and more, once handled by thousands of local food brokers. The company offers headquarters sales and support and retail services in an effort to convince shoppers to make a particular purchase; integrated services, including order processing, data synchronization, customer service, demand planning, third-party logistics, sales force automation, and software development; and privatelabel services, including marketing and promotion, category management, and order management. In addition to the United States, Crossmark does business in Canada, New Zealand, and Australia.

HERITAGE DATING TO THE EARLY 20TH CENTURY

Crossmark was created in 1995 when three companies merged: Sales Mark, The Gordon Company, and The Phillips Company. The oldest of the three was Sales Mark. It was founded by Willis Johnson and E. Leslie Hunt in 1905 in Fort Smith, Arkansas, as Johnson & Hunt Merchandise Brokers. They banked on the town's potential to become a major conduit to the western territories, but the destiny of Fort Smith would be inalterably changed when a tornado all but destroyed the central business district. It soon became apparent that the Fort Smith market would be taken over by nearby Little Rock brokers. Johnson elected to relocate to the larger town while Hunt remained in Fort Smith. On his own, Johnson established the Willis Johnson Company and began to build his brokerage business into a major player in the area. He also gained respect in the industry at large, so much so that in 1929 the small-market broker was elected chairman of the National Food Brokers Association.

Johnson was joined in the business by his son, Willis Johnson, Jr., who took over as president shortly before the United States entered World War II in 1941. He left to join the Navy, while the elder Johnson took a position in the government, serving with the National Office of Price & Administration. Back in Little Rock, son-in-law Bill Powell filled in and ran the company. After the war Willis Johnson, Sr., retired and Powell's son, Peter Powell, along with Austin Bell, became partners.

In the 1980s the company began to expand. Through acquisition, offices were opened in Memphis, Tennessee, and Jackson, Mississippi, in 1981. Then, in 1987, Fulcher-Evans-Welsh, with operations in both cities, was acquired. The company now became known as SALES MARK. In the late 1980s Austin Bell attended a Wal-Mart shareholders' meeting at which founder Sam Walton revealed his goal to become the largest food retailer in the United States. Bell and Powell recognized that this move would lead to consolidation among food retailers and ultimately the 2,500 food brokers operating in the United States at the time, because manufacturers would prefer to do business with brokers large enough to handle national chains. Sales Mark hitched its wagon to Wal-Mart, becoming the largest broker to service the giant retailer. In the 1990s Sales Mark continued to grow through acquisitions, picking up Little Rock's Gardner and Associates in 1990; Southern Food Brokerage, operating in Jackson and New Orleans, in 1991; and Southland and the H.S. Humphries Company in Memphis in 1993. Also during this period, the company launched the ALPHA One Division, which in the 1990s opened offices in Michigan, Minnesota, Alabama, and Canada.

Another southwestern broker that prospered by recognizing the opportunity inherent in Wal-Mart's aggressive move into food retailing was the Gordon Company. It was founded as The W.L. Gordon Company in Dallas, Texas, in 1944 by Red Gordon. Over the next 20 years he expanded his territory to include Oklahoma and New Mexico. Under the leadership of Fred Arnold, Gordon launched a growth spurt in the 1980s, opening offices in Houston and San Antonio and strengthening markets through several acquisitions.

The third company that joined forces to create Crossmark, The Phillips Company, was founded in 1953 in Birmingham, Alabama, by Bill Phillips. For an office he relied on his parents' kitchen table, but soon began to grow the business. A decade later Phillips opened a branch in Montgomery, Alabama, and then in 1970 expanded to Mobile, Alabama. Before becoming part of Crossmark, Phillips also acquired Birmingham's Knapp Sales.

FORMATION OF CROSSMARK IN 1995–96

In October 1995 Sales Mark, Gordon, and Phillips announced a merger, which would be completed in 1996. The combined companies took the name CROSSMARK. It established its headquarters in Dallas with Sales Mark's Butch Smith serving as chief executive officer. The company lost little time in doing its part to consolidate the industry. As Austin Bell had anticipated, Wal-Mart's move into groceries led to consolidation among supermarket chains and a multitude of mergers: Due to low interest rates, it was cheaper to buy existing stores than to open new ones. By the end of the 1990s the top five supermarket chains controlled 40 percent of all grocery sales. With only a handful of powerful supermarket chains to sell to, it was not surprising that manufacturers also began to consolidate in order to preserve their own competitive edge. It was inevitable that with large manufacturers selling to nationwide chains, both would want to deal with national brokers rather than scores of regional sales agents. As a result, brokers were forced to consolidate, with the weaker firms swallowed by the stronger until only a few survivors remained. Crossmark was determined to be one of those survivors.

In the space of five years Crossmark acquired 55 sales and marketing firms. The challenge was to find a way to roll up companies while still preserving the wherewithal to capitalize Crossmark. "Our model for the first half of that five-year period was to do, primarily, mergers that resulted in a tax-free stock swap," Smith told Dallas Business Journal in a 2001 profile. "That was terribly important, because it didn't obligate us to come up with significant amounts of cash at closing and the vast majority of these deals were non-interest bearing." Once it convinced a company to merge, according to Dallas Business Journal, "Crossmark then pooled its existing stock against the net asset value of the acquired company and reapportioned the stock relative to each company's contribution." With no actual value exchanged, the deal was tax-free.

COMPANY PERSPECTIVES

Our mission is to be the best business services company within the CPG industry, delivering customized client solutions and unparalleled execution.

Some of the early additions included the 1996 acquisitions of Retail Support Force, offering national retail services in supermarkets; FMS, Co., a firm servicing Nashville and eastern Tennessee; and the Dulin Company, whose markets included Atlanta, and Jacksonville, Miami, and Tampa, Florida. In 1997 Crossmark acquired Pfiester Company, which serviced Toledo, Columbus, and Cincinnati in Ohio and Detroit and Grand Rapids in Michigan; Paragon Marketing, doing business in the Carolinas; and the Bradshaw Group, handling accounts in markets such as San Francisco, Los Angeles, Seattle, Portland, Phoenix, Boise, Wyoming, Montana, Alaska, and Hawaii. Crossmark also opened offices in Kansas City and Charlotte in 1997, and in Denver in 1998.

"As we got bigger," Smith explained to Dallas Business Journal, "the cash flowed beautifully. We had the ability to simply acquire businesses then—and we were, frankly, able to do that with virtually no public borrowing." Notable acquisitions in 1998 included Premier Sales, serving Alabama; Sell Group, handling accounts in Chicago, Milwaukee, St. Louis, Iowa, and Nebraska; and the Tom Flemming Company, doing business in Minnesota and the Dakotas. In 1999 Crossmark added Denver's D&F; Arizona's Action Brokerage; J.W. Riley Company, serving markets such as Philadelphia, Delaware, Baltimore, Richmond, and Washington, D.C.; and the Keystone Company, which served the New York metropolitan area, New Jersey, Boston, Buffalo, and Harrisburg, Pennsylvania. Crossmark also opened an office in Boston in 1999.

INDUSTRY CONSOLIDATION WITH NEW CENTURY

By the start of the new century there were four major sales and marketing specialists left standing. In addition to Crossmark, they included Jacksonville, Florida-based Acosta Sales Company, Inc., Advantage Sales and Marketing, L.L.C. of Los Angeles, and Marketing Specialists Corporation of Dallas. Crossmark's chief rival was Acosta, which also had found a way to realize growth without taking on debt. Marketing Specialists, on the other hand, borrowed money to finance a series of acquisitions after being incorporated in 1998. It compounded the problem by overpaying for many of the properties. When the new businesses failed to perform as hoped, Marketing Specialists was unable to keep up with debt payments, leading to a loss of $365 million in 2000 and a filing for Chapter 11 bankruptcy protection in May 2001. Acosta was quick to cherry-pick the company's top people and, in effect, acquired Marketing Specialists at no cost.

By the middle of 2001 there were only three sales and marketing firms, a situation that had a significant effect on the grocery, convenience store, and drugstore industries, and even more so on manufacturers. The top three brands of a particular category were able to find representation from Crossmark, Acosta, or Advantage, but it spelled problems for the number four brand and beyond since the big three could not take on a second brand due to conflicts of interest. According to a September 2001 New York Times article, "The consolidation also ties the hands of manufacturers of the three top-selling brands in any category because they have nowhere else to go. 'It's not like you can drop your broker if you don't like the service,' said a manufacturer of a top-selling snack food, who did not want his name used for fear of antagonizing his broker. 'The other two are working for your competitor.' "Manufacturers had the option of maintaining their own direct sales forces, but they would put themselves at a competitive disadvantage. According to the Times, "Most manufacturers use brokers to sell some or all product lines, paying them 2 to 5 percent of each product's wholesale price. Direct selling, by contrast, may cost as much as 10 percent." Supermarkets also were not especially pleased with the state of affairs, complaining that with no competition brokers had become complacent and that shelves were not as well maintained as in the past.

As a national company, Crossmark toyed with the idea of moving its headquarters, giving consideration to Chicago and New York, but in 2001 elected to build at an industrial park in Plano, Texas. Crossmark broke ground on a 150,000-square-foot facility in 2002 and relocated there in August 2003. By this time, it had a new CEO. Smith retired and was replaced by David Baxley, a Sales Mark veteran with 30 years of experience in the field. The former Marine and graduate of the University of Arkansas started out as a retail sales representative in Little Rock, and president of the Memphis Operating Division in 1981, before becoming president of the entire Food Brokerage Business six years later. When Crossmark was formed he moved to Dallas to become a vice-president and secretary of the board, and later became chief operating officer.

KEY DATES

1905:: Willis Johnson cofounds John & Hunt Merchandise Brokers, which grows into Sales Mark.
1944:: The Gordon Company is founded.
1953:: The Phillips Company is founded.
1995:: Sales Mark, Gordon, and Phillips merge to form CROSSMARK.
2002:: David Baxley is named CEO.
2003:: The company moves into new Plano, Texas, headquarters.

Aware that U.S. retailers had global aspirations, Crossmark began taking steps to expand beyond the U.S. borders. It entered the Australian market by acquiring Nationwide Brokers and New Zealand by acquiring SuperBroker Strategic Ltd. and Airtime Sales Ltd. Cross-mark also established an office in the United Kingdom in London in 2002, but after it failed to acquire John Lusty Group, it pulled out of the market.

While it looked to international markets, Crossmark did not neglect to expand its domestic offerings. Crosscut, a marketing division, was established and was then merged with a Grey Advertising unit to form the J. Brown Agency. The joint venture helped a wide range of clients, including Kraft, NBA Basketball, and Circuit City, to market their brands. In 2002 Crossmark acquired Best Systems, renaming it Best Crossmark, a subsidiary that provided eBusiness solutions. Crossmark also established eXchangeBridge, an Internet supply chain gateway for the consumer packaged goods industry. Crossmark forged an alliance with ACNielsen to create Results@Retail, a monitoring system that prevented retailers and manufacturers from losing sales because a product was out of stock. As a result, Crossmark was well positioned to enjoy long-term growth.