Alex Lee Inc. Business Information, Profile, and History

Company Perspectives:

We feed people. We are a vital link in the food chain. We provide a plentiful, continuous, and affordable variety of food and related products.

History of Alex Lee Inc.

Alex Lee Inc. is a holding company that was formed in 1992 to serve as the parent company for three food and food distribution firms in North Carolina. Of the three, the oldest, largest, and original firm is Merchants Distributors Inc. (MDI), a wholesale grocery store distributor serving more than 600 food stores in the Carolinas, Georgia, Tennessee, Virginia, West Virginia, and Kentucky. Among its customers are IGA stores and Galaxy Food Centers. The second, Institution Food House (IFH), also a wholesale food distributor, was rated the 21st largest U.S. food "broadliner" (distributors with the widest range of goods) in 2001. Its customers include restaurants, regional chains, delis and bakeries, public institutions, schools, and those in the healthcare and business industries. Alex Lee's third operating unit, Lowes Food Stores, operates more than 100 supermarkets in the Carolinas and Virginia. Lowes was ranked 46 among the top 75 grocery stores in 2000 by magazine Supermarket News. In 1998, Alex Lee established a fourth company called Consolidation Services. The unit was created to provide its customers with warehousing storage space for nonrefrigerated dry products, trucking services, and inventory management systems. Alex Lee Inc. ranked 101 among the top 500 private firms in the United States in 1999 with operations in the Carolinas, Georgia, Florida, Tennessee, Virginia, West Virginia, and Kentucky.

Merchants Distributors Inc.: 1931-59

In 1931, a 27-year-old Lebanese immigrant named Moses George opened a wholesale produce and food distribution business in Shelby, North Carolina, with the goal of becoming a low-cost/low-price middleman between local food processors and the buying public. Although the Depression was quickly becoming more severe than anyone could have predicted, George's enterprise, Merchants Distributors Inc. (MDI), survived on the public's continuing need for basic food goods. George's only concession to circumstance was the relocation of his business a hundred miles north to Hickory, North Carolina, where he reopened MDI from a cramped 2,500-square-foot storefront on the town's Main Avenue.

Throughout the 1920s and 1930s, the U.S. food store industry underwent a radical sea of change. The traditional mom-and-pop grocery store, in which a limited selection of goods was sold from tables and barrels, was giving way to large "self-service" grocery store chains like A&P, Kroger, and Piggly-Wiggly. As grocers began introducing such innovations as merchandise displayed on customer-accessible shelves, price tagging, shopping baskets, and on-the-premises butcher shops, ice cream parlors, and bakeries, the supermarket concept took hold. From the beginning, however, smaller independent merchants saw the threat posed by the chains and began organizing to create the economies of scale that would enable them to compete. In 1926, the Independent Grocers Alliance (IGA) was formed in the Midwest to enable nonchain stores to pool their resources and buy groceries in volume from food distributors; in the East, the Wakefern Cooperative (which later became Pathmark Stores) was founded after World War II to strengthen its members' buying power against the grocery chains of New York and New Jersey.

It was within the battle for survival between the new chain foodstores and the independents that George found his niche. Throughout the 1930s and early 1940s, he positioned MDI to become a leading distributor of food and groceries for the independent supermarkets of North and South Carolina. By the time of his premature death in 1947 he had hired six of the seven men who would lead MDI's explosive growth in the coming years. With George's three children--Alex, Lee, and Josephine--now at the company's helm, MDI continued to expand its territory in the 1950s, shipping flour, corn, meal, salt and pepper, sugar, grits, snuff, shoelaces, milk, potatoes, and a broad range of other food and grocery lines from its Main Avenue facility to customers throughout the Carolinas.

Expansion: 1960-65

By 1960, MDI's 130-plus employees were shipping 11,000 items to more than 400 independent supermarkets in a 100- to 150-mile radius around Hickory, an area encompassing Asheville and Greensboro to the west and east, and the Virginia line and Greenville, South Carolina, to the north and south. With the business quadrupling in a few years, reaching the $16 million level in 1960, MDI (with Alex George now as president) had become one of the largest wholesale food distribution operations in the southeast. A larger facility clearly was needed to house the growing business and in the late 1950s, MDI announced plans for a new million-dollar, four-acre warehouse and office building on Twelfth Street in Hickory.

The new plant, unveiled in March 1960, was state of the art. Eight rail cars and 20 trucks could be unloaded simultaneously at the facility's expansive dock area, 237 boxcars full of food could be stored in the warehouse at one time, and the contents of the entire warehouse could be stocked, sold off to customers, and restocked 17 times a year. One hundred loading carts wound slowly through the warehouse on a chain-pulled system that enabled workers to fill customers' orders with minimal strain; specialized cold storage rooms were maintained for specific perishables like bananas and tomatoes so they could be ripened just before shipment to customers; and an early IBM punch card computer system automated the entire order placement, order fulfillment, product packing, and billing process.

The local Hickory paper celebrated the warehouse's opening with an entire issue, and a "Grand Opening and Food and Specialty Show" was organized to announce MDI's expansion, with more than one hundred food manufacturers, packers, and canners turning out to celebrate the company's growing clout in the regional distribution business. By the mid-1960s, MDI had grown into a full-line grocery wholesaler with a continually growing share of the southeastern food distribution business. Asked in 1960 to account for MDI's success, Alex George enthused to the Hickory Daily Record that "our ability to get good men is the secret to the growth of MDI. Take a look at these men. Look how long they have worked with us. Their contribution cannot be overlooked or overestimated."

Institution Food House and Lowes Food Stores: 1966-91

By mid-decade, Alex and Lee George had decided to expand MDI's market from its traditional independent grocery store customer to the institutional food market. The first customers of the resulting operation, MDI Foodservice, were public school systems, but at the 1965 National-American Wholesale Grocers' Association convention in Chicago the George brothers met Norman James, another Hickory food distributor whose James Wholesale Company also sold food to area schools. After exploratory discussions the three agreed to merge MDI Foodservice and James Wholesale as Institution Food House (IFH). By the end of the year, IFH had rented an unused MDI warehouse in downtown Hickory and consolidated the James Wholesale and MDI Foodservice merchandise there.

On January 2, 1966, IFH was officially born with Lee George as president and Norman James as vice-president. Beginning with only 14 employees, IFH took all early orders by hand, building its small customer base into close to $1 million in revenue by the end of its first year. By the summer of 1966, IFH had held the first of its many annual food shows to generate publicity and drum up new customers. Within five years, IFH sales had edged beyond $5 million and it began to expand, acquiring 15 acres for a new warehouse outside Hickory. The 50,000-square-foot facility opened in 1973 and provided IFH with room for 3,000 different items and 15,000 square feet of freezer and cooler space. Like MDI's 1960 warehouse unveiling, the new IFH facility represented the latest in food storage and distribution technology. Products could be easily stored and relocated via a numbered rack system; state-of-the-art materials-handling equipment enhanced storage and order-filling efficiency; a computerized billing and inventory system streamlined paperwork; and all product could be loaded and unloaded inside without exposing personnel or product to the elements.

When Norman James died in the early 1970s, the George brothers bought out his interest in IFH and began to operate it as a subsidiary of MDI. They next merged IFH with the Frosty Acres Brands group (known as F.A.B. Inc.) of Norcross, Georgia, retaining its labels and advertising to maintain brand loyalty. In 1982, Institutional Distribution magazine ranked IFH, whose sales had now climbed to $55 million, the 48th largest institutional food distributor in the nation. Its sales area stretched 100 miles around Hickory, its sales force had grown to 30, and its product offerings had increased to 3,500, now including everything from fresh meat and smallwares to chemicals. In 1982, IFH purchased Brothers Foods of Dillon, South Carolina, a $5 million food distributor that expanded IFH's sales region into the South Carolina market.

That same year, CEO Alex George named Dennis Hatchell president of MDI and began laying plans for MDI's second major merger: the purchase of Lowes Food Stores. Lowes traced its origins back to 1921, when Lucius S. Lowe founded the North Wilkesboro Hardware Store to sell general merchandise such as snuff, ladies' shoes, and horse collars to Hickory, North Carolina, residents. When Lucius's son Jim returned from military service in 1946, he joined with his sister's husband, Carl Buchan, to run the business, and Lowe's expanded into groceries, dry goods, notions, and other products. In May of 1954, Jim Lowe decided to open a food store proper, appropriately named Lowes Food Store, but seven months later he sold out to the store's manager, J.C. Faw. While Carl Buchan focused on developing Lowes Hardware into the Lowe's Companies, Inc. home improvement super chain that by 1995 would number 350 stores, Faw focused on the expansion of his part of Lucius Lowe's legacy. He opened the second Lowes Food Store in 1960 and in succeeding years progressively expanded the chain before selling it at last to MDI in 1984. Once only a food distributor, MDI now competed head to head with such southeastern grocery store giants as Food Lion and Winn-Dixie. Within five years of the purchase, Alex George had initiated a major expansion program for Lowes, shifting Dennis Hatchell from the presidency of MDI to the lead position at Lowes and relocating Lowes' headquarters from North Wilkesboro to a new facility in Winston-Salem, North Carolina.

In the mid-1980s, the U.S. food distribution industry remained, as Forbes magazine described it, "a plodding business with micromargins." Fierce competition was squeezing industry profits, slow growth in food prices was forcing distributors to cut costs and lay off employees, and consolidation seemed to offer the only route to growth for industry firms. Since 1979, the number of U.S. wholesale food operators had dropped by two-thirds to 325, and experts were predicting that the industry would shrink even more, to 100 firms, by 1990. Drastic efficiency measures were needed for industry firms to stay afloat, and a growing number followed MDI's pioneering lead by increasingly relying on enterprisewide automation and inventory control systems to maintain profitability.

In 1986, MDI's sister firm, IFH, was forced to cope with the aftermath of its decision four years earlier to purchase Brothers Foods. Although the purchase had enabled its volume in the Dillon area to grow to $9 million by 1986 (out of total IFH sales of $96 million), in July of that year a fire destroyed the office, cooler, and some of the dry space area, presenting IFH's new executive vice-president, Robert S. Donaldson, with an opportunity to earn his stripes. Disaster was averted when emergency deliveries of produce and dry groceries from IFH's Hickory facilities enabled IFH-Dillon to fill all its orders without interruption. Working out of trailers installed on the burned-out Dillon plant, IFH's sales reps transmitted customer orders to Hickory, which then flew customers' invoices back to Dillon. Low-temperature produce and grocery trailers were parked at the Dillon site to store customers' goods. IFH held on to its Dillon customers.

Within 18 months of Donaldson's arrival, Alex George had named him president of IFH, making him, at age 33, perhaps the youngest president of a major U.S. food service distributor. Rather than rebuild IFH's Dillon facility on the original Brothers Foods site, George and Donaldson chose to build a new 90,000-square-foot facility in Florence, South Carolina, a few miles south of Dillon. The new site opened in January 1988 and, because of its proximity to Interstate 95, IFH now had ready access to the Myrtle Beach, South Carolina, market as well as direct access to potential customers in Georgia and Florida. Five months after the Dillon fire IFH again expanded by acquiring food service distributor Thomas & Howard of Charlotte, North Carolina. Although IFH had planned to use the Thomas & Howard facility to pursue business with chain store customers, it lost a major chain store account and, unable to replace it, was forced to close the Charlotte facility in January of 1988, transferring its remaining accounts to IFH's facilities in Hickory and Dillon.

Donaldson set about transforming IFH's corporate image, which had been marred by poor truck departure times and low product in-stock rates. He retained a public relations firm to create a new company logo and developed a new mission statement that unambiguously declared IFH's goal to become "a strong regional food service distributor through innovation, development of resources, and by being known for superior customer service and integrity." Donaldson also announced specific goals, known as "IFH Business Values," to improve the company's focus on customers and organizational excellence and to instill a commitment to innovation and integrity. He also initiated a customer feedback program to enhance IFH's responsiveness to customers' needs. By 1991, IFH was selling almost 7,500 different products--dry goods, frozen meat, bakery items, seafood, fruits and vegetables, beverages, and more--to its 3,500 customers, who now included supermarket delis, bakeries, independent full-menu restaurants, and chain restaurants and food stores such as Kentucky Fried Chicken and Piggly-Wiggly, in addition to its original school and healthcare customers.

In an aggressive move to expand its territory, IFH purchased 80 percent of the restaurants in the 150-unit Western Steer Family Restaurant chain of Claremont, North Carolina, in early 1991. In one fell swoop, a sales territory that had once included only North and South Carolina now spanned 11 states, stretching as far north as Maryland, as far south as Miami, Florida, and as far west as Knoxville, Tennessee, and Cincinnati, Ohio. Aided by Donaldson's commitment to utilizing the latest in electronic data interchange and inventory and transaction software, between 1986 and 1991 IFH's sales had ballooned 90 percent to almost $182 million.

Alex Lee Inc.: 1992-96

In August 1992, the MDI-IFH-Lowes triumvirate was placed under the umbrella of a new holding company structure named Alex Lee Inc., after the first names of Moses George's two sons. The founder's grandson, Boyd Lee George--who had previously held the position of chairman and president of MDI--was named chairman and president of the new entity while staying on as MDI's chairman. In announcing the move, Boyd George described the new corporate structure as "strictly a structural-type" move to streamline the financial structure of the three sister companies and promised that it would have no effect on the three firms' day-to-day operations.

In the early 1990s, the U.S. food industry as a whole continued to be buffeted by consolidation, withering competition, and razor-thin profit margins. The once unquestioned dominance of the supermarket was being dramatically eroded by warehouse food clubs, mass merchants, and deep discount drugstores. In 1992, for example, Albertson's, the fifth largest U.S. grocery chain, announced that it was dropping its traditional food supplier (Super Food Services) in favor of its own distribution network, and in 1993 food wholesalers like MDI lost a major source of income when many food manufacturers began eliminating traditional special-price promotion programs. Food distributors could now no longer profit from the purchase of stockpiles of specially priced goods that could later be resold to supermarkets at higher prices. Moreover, the nation's chain supermarkets--many of which now operated their own distribution networks--were winning the war for market share from the independents on which MDI had traditionally staked its growth.

Alex Lee won a major coup in November 1993, however, when IGA, the third largest supermarket chain in sales in North America, announced that MDI had been selected as one of two food wholesalers to service its distribution system. In October 1995, Alex Lee announced that it would build a brand new $60 million grocery distribution facility (to be completed in late 1997) in Hickory, a few miles north of the site it had occupied since 1960. Local authorities fell over themselves devising the right mix of incentives to land the new facility, and the final decision was made only when an earlier site became the subject of heated annexation disputes, and representatives of Caldwell County and the communities of Hickory and Granite Falls finally offered $5.5 million in economic incentives to win Alex Lee's commitment. In August 1996, Alex Lee floated a $60 million investors' issue to pay for the expansion.

In November, Boyd George named Dennis Hatchell the new president and chief operating officer of Alex Lee and tapped Margaret Urquhart, an experienced supermarket and drug store industry executive, to replace Hatchell as president of Lowes Food Stores. Only the second woman to run a grocery store chain of 50 or more stores, Urquhart launched a major program to broaden Lowes' share of a market dominated by industry giants. In 1996, she opened two Lowes "FreshSmart" stores, which featured expanded offerings of produce, seafood and meats, prepared and organic foods, and such nonfood services as flower sales and photo processing. She also returned Lowes to the television advertising market after a five-year absence. Under the new company slogan "Quality, Service, the Right Price," she increased Lowes' responsiveness to customer preferences with a toll-free feedback phone line, improved aisle signage, and implemented a "Quick Checkout" policy to speed customers on their way. Buoyed by Urquhart's hands-on campaign to steal the thunder of the big southeastern U.S. foodstore chains, in 1996 Lowes announced plans to build new stores in new markets.

The Late 1990s and Beyond

During the mid 1990s, Lowes had typically opened approximately six stores per year. In an effort to dramatically boost that number, Alex Lee acquired Byrd Food Stores, a 43-store chain based in North Carolina, in 1997. The stores took on the Lowes name the following year as part of a $10 million conversion process. Urquhart also began testing "curbside" supermarket service in some of the Lowes stores. For $4.95, a customer could call ahead, have an employee select their groceries, and have the items hand delivered to their car. In 1999, the company set plans in motion to close 11 stores located in unprofitable locations. To offset the closures, Lowes planned to open nine new stores throughout 1999 and into 2000.

After a successful run as Lowes' president, Urquhart resigned from her post in January 2000 when she was named Krispy Kreme Doughnut Corp.'s executive vice-president and chief operating officer. Curtis Oldenkamp, an Alex Lee executive, took over as president of the growing company. Under his leadership, the regional supermarket chain began aggressive expansion efforts. In 2001, the firm announced a $1.3 billion plan that included the opening of 75 new stores in the northeast including Massachusetts, Pennsylvania, New Jersey, and Maine. As part of the plan, $430 million was earmarked for 25 new superstores in the Boston area. The chain also introduced a reward program in 2001. Entitled S&H GreenPoints, the program entitled customers to ten greenpoints for every dollar spent in a Lowes store. The customer could then redeem their points in the Sperry & Hutchinson Co. catalog or web site.

While efforts to bolster Lowes' sales and image were in progress, Alex Lee was also busy with other business endeavors. In fact, Alex Lee added a fourth company to its arsenal in 1998. Building upon its experience in the food warehousing and distribution markets, the firm created Consolidation Services, a public warehousing company that served both vendors and distributors. The new business provided its customers with dry warehouse storage, inbound and outbound truck broker services, importing and exporting services, and inventory management systems.

As Alex Lee entered the new millennium, it remained determined to position its companies among the leaders in the food industry. To broaden its national exposure, IFH teamed up with the North Carolina Restaurant Association to produce an annual food exposition entitled FoodEx. As part of the five-year contract, IFH also agreed to host training programs. In 2001, IFH joined UniPro Foodservice Inc., the largest distributor buying and marketing group in the United States, and also joined California-based Markon Cooperative Inc., the largest produce group in the nation. As Alex Lee continued to focus on expanding its services, its companies appeared to be well situated for future growth.

Principal Subsidiaries: Merchants Distributors Inc. (MDI); Institution Food House (including Western Steer); Lowes Food Stores; Consolidated Services.

Principal Competitors: Fleming Companies Inc.; SUPERVALU Inc.

Chronology

• Key Dates:
• 1931: Moses George establishes a wholesale produce and food distribution business, Merchant Distributors Inc. (MDI).
• 1947: George dies leaving his three children to take over company operations.
• 1960: MDI opens a state-of-the-art warehouse and office facility; sales reach $16 million.
• 1966: Institution Food House (IFH) is established.
• 1973: A 50,000-square-foot warehouse is established for IFH operations.
• 1982: IFH is ranked as the 48th largest institutional food distributor in the nation; IFH purchases Brothers Foods.
• 1984: MDI acquires the Lowes Food Store Chain.
• 1986: Fire destroys IFH's Dillon, South Carolina, facility.
• 1988: A new 90,000-square-foot facility is erected in Florence, South Carolina, to replace the burned Dillon plant.
• 1991: IFH purchases 80 percent of the Western Steer Family Restaurant chain.
• 1992: Alex Lee Inc. is formed as a holding company for Lowes, MDI, and IFH.
• 1993: Supermarket chain IGA selects MDI as a food wholesaler.
• 1996: Margaret Urquhart is named president of Lowes; Dennis Hatchell becomes president and chief operating officer of Alex Lee.
• 1997: Alex Lee acquires Byrd Food Stores Inc.
• 1998: Consolidation Services is created.
• 2000: Curtis Oldenkamp is named president of Lowes after Urquhart resigns.
• 2001: Lowes begins expansion into the northeastern United States and launches its S&H GreenPoints rewards program.