Golden State Foods Corporation Business Information, Profile, and History

History of Golden State Foods Corporation

Golden State Foods Corporation is a food processor and distributor, supplying more than 130 products to McDonald's Corporation, its only customer. The company's main products are hamburger patties, buns, ketchup, mayonnaise, and other sauces. Golden State is one of McDonald's largest suppliers, providing product to approximately 2,000 of the company's 25,000 restaurants. Headquartered in Irvine, California, Golden State maintains 12 production plants and distribution centers in the United States, Egypt, and Australia.

1947-70: One-Stop Shopping for the Food Service Industry

Golden State Foods was formed in 1947 by William Moore. Originally named Golden State Meat, the small business started as a meat supplier to restaurants, hotels, and institutional food services in the Los Angeles area. In the late 1950s, Moore acquired as a client a franchisee of a new restaurant chain called McDonald's. McDonald's, a fast-food hamburger stand, had been founded in 1948 in San Bernardino, California, by brothers Dick and Mac McDonald. In 1954, an enterprising salesman from Illinois named Ray Kroc had approached the brothers to inquire about the possibility of turning the successful hamburger stand into a chain. When the McDonald brothers agreed, Kroc quickly began opening a series of McDonald's restaurants in Illinois, Indiana, and California.

In 1961, Kroc bought out the McDonald brothers and became the owner of the rapidly growing McDonald's chain. A year later, he moved to California to oversee a major expansion initiative in that state, and befriended Moore, who was serving as a supplier to the chain. In 1965, Moore and a partner purchased their own McDonald's franchise, and over the next two years acquired four more. When Moore's partner died, however, he sold the restaurants back to McDonald's in exchange for stock.

Meanwhile, McDonald's was experiencing explosive growth. In 1965, the company went public and three years later celebrated the opening of its 1,000th restaurant. As Kroc's restaurant chain grew, so did Golden State's business. Toward the end of the 1960s, the company built a new meat-processing plant and warehouse in City of Industry, California, just outside Los Angeles. It also changed its name, incorporating as Golden State Foods. Shortly after building its new facilities, Moore introduced an innovation that was to alter both the course of his company and the nature of the fast-food industry supply business. He decided to begin supplying his McDonald's customers with virtually everything they needed to run their businesses.

This 'one stop shopping' notion was a dramatic departure from the norm. At the time, the average McDonald's unit had a whole series of suppliers, each of which provided a different category of product. With deliveries from the meat supplier, dairy supplier, bakery supplier, frozen foods supplier, and various other distributors, it was not uncommon for a franchisee to receive up to 15 deliveries per day. While inefficient and time-consuming, this multiple-supplier method was the only option available to restaurant owners.

Golden State's ability to offer a full range of food products--including hamburger patties, buns, sauces, and soft drink syrups--made it stand out among other suppliers. Once it had established its food lines, however, it went a step further and began providing cleaning supplies and paper goods, such as cups, napkins, and containers. The company's ability to deliver everything in a single trip enabled McDonald's franchisees to receive all their supplies in just three to four deliveries each week.

1970-90: A One-Customer Company

During the 1970s, the McDonald's chain was growing at breakneck speed, adding approximately 500 new restaurants each year. As such, the fast-food chain was supplying Golden State with as much business as it could handle. In 1972, the company decided to shed all of its other clients, in order to focus exclusively on McDonald's needs. Although a gamble, it was a calculated one. Moore was a firm believer in Kroc's philosophy of providing good, hot food inexpensively and felt certain that the chain would continue to thrive. That same year, Golden State went public, with year-end sales of $65 million.

In 1978, the company's founder and CEO, William Moore, died. He was replaced by James Williams, the company's vice-president of sales. Williams had a long history with Golden State. He had started his employment there in 1961, just a few years after the company had begun supplying McDonald's. At that time, Golden State had 15 employees, a single delivery truck, and annual sales of around $500,000. In 1972, Williams had been promoted to vice-president of sales and given responsibility for more than 100 McDonald's units in southern California. When he became CEO of Golden State, 17 years after joining the operation, he found himself heading up a company with $272 million in sales.

Soon after becoming Golden State's leader, Williams began investigating the possibility of taking the company private. In 1980, he headed a group of company executives in a $29 million buyout, purchasing 1.05 million outstanding shares of common stock, many of which were held by Moore's family. According to Williams, the move to privatize was partially due to Moore's death and partially due to his dislike of securities analysts rating the company's shares in accordance with the fast-food industry's performance as a whole.

Golden State continued to add new McDonald's franchises to its customer base and to expand its operations. By 1987, the company had estimated annual sales of $800 million and 1,300 employees. It had distribution facilities in eight states--California, Washington, Arizona, Georgia, Hawaii, New York, North Carolina, and Virginia--but its operations were primarily concentrated in the western and southeastern United States. Through its distribution network, Golden State supplied some 425 different items to approximately one-fifth of the McDonald's franchisees in the United States. The company's total product mix consisted of frozen foods, produce, dairy, groceries, disposable products, glassware, and cleaning supplies.

As Golden State approached the end of the 1980s, its annual sales approached the $1 billion mark. With the company showing strong and steady gains, its owners--Williams and 14 other company insiders--began considering an exit scenario. In the fall of 1989, the company announced that it had hired a financial advisor to begin exploring the possibility of a merger. 'We believe now may be an opportune time to investigate a merger of the company in light of current market conditions and the growth in the company's business,' Williams said in an October 13, 1989 press release. By early 1990, Golden State was officially for sale, and one of its top bidders was the Quaker Oats Company. Williams and the other investors were unable to reach a satisfactory agreement with a buyer, however, and they eventually took the company off the market.

1990s and Beyond: Continued Growth, New Owners

In 1992, Golden State moved its corporate headquarters from Pasadena to a 20,000-square-foot penthouse office in Irvine, California. By the time the company relocated, its annual sales had climbed to approximately $1.2 billion, and it was ranked number 139 on the Forbes 400 list of the largest privately owned companies. It was McDonald's third largest supplier--behind Keystone Foods Corp. and the Martin-Brower Corp.&mdash′oviding items to 1,800 of the chain's restaurants.

In addition to its Irvine headquarters and its eight distribution facilities, Golden State operated two food processing factories: a 106,000-square-foot plant in City of Industry, California, and a 250,000-square-foot plant in Conyers, Georgia. The City of Industry plant produced goods for McDonald's in the western United States and also for units in the countries of Hong Kong, Singapore, Taiwan, Australia, and Japan. Golden State's Georgia plant supplied McDonald's in the southeastern United States, Latin America, and the Caribbean.

Despite the fact that McDonald's was Golden State's sole customer, the company did not hold a long-term supply contract with the fast-food giant. It was McDonald's practice to offer its franchisees an approved supplier list, from which individual franchisees could choose. Therefore, virtually all of Golden State's business was conducted with individual franchisees who could switch suppliers at will. This arrangement meant that the company had to maintain high product and service quality and offer competitive pricing in order to sustain its sales levels. 'We make a good product, or McDonald's is not going to buy from us; it's that simple,' Williams said in a January 1993 interview with the Orange County Business Journal. 'We have to be a value to a system, or we're not going to be in business. It doesn't matter to them if you've been doing business for two years or 30 years. The quality is never negotiable,' he added.

In 1994, Williams recruited a new face for Golden State's management team. Richard Gochnauer joined the company as president, while Williams himself kept the title of CEO. Gochnauer had previously served as an executive vice-president of Dial Corp. and as president of a division of Universal Foods.

The following year, Golden State was again listed in the Forbes 400 list of largest private companies, with a ranking of 120th. It was thus the largest privately held business in Orange County. In 1996, the company opened another distribution center in Portland, Oregon. It also expanded internationally, establishing distribution centers in Egypt and Australia. Golden State's growth was not surprising, given the increasing demands of its customer. During the middle of the 1990s, McDonald's was expanding at a frenzied pace, adding as many as 1,100 new domestic units in a year. The burger giant was also making tremendous strides in foreign markets; by the end of the decade, there were more international stores than domestic ones, and foreign business made up 56 percent of the company's operating profits.

In 1997, with annual sales approaching $1.5 billion, Williams and Golden State's other owners once again began thinking of cashing out. Hiring the New York investment firm Lazard Freres & Co. to analyze its options, the owners offered the company up for sale in late 1997. This time, they found the right buyers and the right deal. The purchase price was an estimated $400 million, more than 13 times what Williams' investors had paid to take the company private in 1980.

The buyers were The Yucaipa Cos., which acquired 70 percent of the company, and Wetterau Associates LLC, which bought the remaining 30 percent. Yucaipa was a Los Angeles-based private investment company headed by Ron Burkle. Golden State represented the company's first investment in foodservice distribution. Its other holdings were primarily in the supermarket industry; Yucaipa had a stake in companies operating 850 supermarkets throughout the country. Wetterau Associates was a St. Louis-based management company run by Mark and Conrad Wetterau, brothers and former executives of a multibillion-dollar Midwestern food distributorship. Having sold their distributorship to SuperValu Inc. in the early part of the 1990s, the Wetteraus had been looking for likely acquisitions when Golden State went on the market. Recruiting Yucaipa as a financial partner, the brothers finalized the deal in April 1998. Under the terms of the agreement, Wetterau Associates assumed responsibility for running the daily operations of Golden State. Williams agreed to remain with the company for at least one year, but a number of other executives and former shareholders used their gains to retire.

Williams stayed with Golden State no longer than he had agreed to. In May 1999, he announced his retirement, ending 38 years of employment with the company. Mark Wetterau became the company's new CEO, while Richard Gochnauer stayed on as its president.

No major changes had taken place since Yucaipa's and Wetterau's acquisition of Golden State. The company remained headquartered in California, and continued to cater exclusively to McDonald's. Although the company's new owners had been quiet about their plans for the future, no alterations in its course were foreseen.

Principal Divisions: Golden State Foods-City of Industry; Golden State Foods-Georgia Division; Golden State Foods-Hawaii Division; Golden State Foods-North Carolina Division; Golden State Foods-Northwest Division; Golden State Foods-Oak Brook Division; Golden State Foods-Phoenix Division; Golden State Foods-Rochester Division; Golden State Foods-South Carolina Division; Golden State Foods Suffolk.

Principal Competitors: J.R. Simplot Company; Keystone Foods Corp.; The Martin-Brower Company.

Chronology

• Key Dates:

• 1947: William Moore forms Golden State Meats to supply meat products to Los Angeles area restaurants and hotels.
• 1950s:Golden State begins supplying several McDonald's franchises.
• 1969: Company incorporates as Golden State Foods.
• 1972: Golden State goes public; deciding to focus solely on McDonald's, it drops all its other customers.
• 1978: Founder William Moore dies; vice-president of sales James Williams becomes president and CEO.
• 1980: Moore leads a group of Golden State executives in taking the company private.
• 1992: Company moves headquarters from Pasadena to Irvine, California
• 1998: The Yucaipa Cos. and Wetterau Associates purchase Golden State.