Drayton’s son, Drayton McLane Jr., entered the business in 1959 and spent the next forty years building it through an energetic combination of vertical integration and expansion into new geographic territories. He transformed the company from a simple grocery wholesaler into a logistics master for retail store customers, handling inventory control, ordering, food processing and warehousing, shipping, and data management.
Drayton started this transformation from the moment he entered the business. He established an innovative marketing program that offered independent retail grocers a way to compete more effectively with grocery store chains: pooling resources to buy larger quantities of private-label (generic) brands that McLane sold. McLane also assisted the group with advertising, merchandising, and store operations. Scores of customers enrolled, generating considerable gains for both parties. The effort drove McLane’s revenues, which in 1964 reached $4 million.3
McLane also became the wholesaler for 7-Eleven convenience stores throughout central Texas. Drayton cultivated his company’s relationship with 7-Eleven as the convenience store chain grew in the late 1960s and early 1970s. This experience positioned McLane to provide increasingly reliable distribution services for the emerging convenience store industry. This became one driver of the success of both 7-Eleven and the broader “c-store” sector, fostering such regional players as Pay Less, Wawa, and Zippo’s. Convenience stores became the engine of McLane’s growth, as 1975 revenues reached $66 million.4
McLane’s first large-scale expansion outside of Texas occurred in 1976 when a joint venture partner enticed the company to build a distribution center in Colorado. From there, it established a customer base in a contiguous region—pushing northwest toward Oregon and Washington—and serviced it by sending trucks greater distances from the distribution center. McLane’s growth beyond Texas was incremental, steady, and consistently followed the same strategy. Once business volume in an expanding area reached a critical peak, McLane built a new distribution center in the heart of the region. In addition to serving existing clientele, it again used the distribution center as a base to expand trucking routes into new territories beyond it—for example, extending from Oregon down to California and from there on to Arizona. McLane repeated this accretive practice a dozen times until it covered the country with a dozen regional distribution centers.
Each distribution center is autonomously managed as if it were a separate company.5 Corporate headquarters appoints division presidents who make all divisional operating decisions. This is important because the customer base in each region differs—from the mix of store types to the variety of food products. McLane managers from existing divisions were involved in launching each new division. The model succeeded, as 1984 revenues demonstrated, surging to $1 billion.6
McLane supplemented this expansion strategy with a series of major acquisitions during the late 1980s and early 1990s, including a wholesale food supply company and the distribution centers of its valued customer, the Southland Corporation, owner of the 7-Eleven chain. These new companies strengthened McLane’s core business. Other acquisitions enhanced McLane’s vertical integration as a logistics manager, as it acquired two food-processing businesses (one from Southland), as well as a technology company that provided automation and financial services to the convenience store industry.
In 1990, with sales nearing $3 billion, McLane’s national leadership in the wholesale distribution business was cemented when Drayton McLane got a call from the head of one of its customers, Samuel Moore Walton of Walmart, the nation’s largest retailer. Walton told Drayton that Walmart was interested in buying his company. Drayton had gotten many opportunities to sell the company over the years and had declined them all. The business treasured its autonomy and family heritage too greatly. At this point, however, Drayton’s father and sisters pointed out that the family was wrestling with estate planning matters—both how to distribute wealth among members and how to pay for looming estate taxes. So Drayton and Walton soon made a deal. One hitch: Walmart then owned a number of convenience stores, and McLane had always assured its customers it would never compete with them in the retail business. Walmart agreed to sell these stores.
Under Walmart’s ownership, McLane’s impressive historical record of revenue growth skyrocketed. Sales in 1993 exceeded $6 billion, marking an average annual growth rate in sales since 1964 of 30 percent.7 In 2003, when McLane’s revenue exceeded $20 billion, Walmart decided McLane was outside its core competencies and contacted Berkshire to offer it for sale. McLane was a perfect fit for Berkshire, given their shared values, and came with a valuable investment proposition: Walmart’s ownership of McLane hurt McLane because Walmart’s rivals would not buy from McLane on competitive grounds. This presented built-in growth for McLane under Berkshire’s ownership, and Berkshire agreed to acquire the company.