Warren Buffett on MCLANE 🚛 BERKSHIRE'S BIGGEST COMPANY 🚚🏪

WARREN BUFFETT EXPLAINS EVERYTHING YOU NEED TO KNOW ABOUT MCLANE - BERKSHIRE'S BIGGEST COMPANY

McLane’s is the very large wholesaler to all kinds of institutions, but convenience stores, quick-serve restaurants, the Walmart operation itself, theaters, restaurants.

And this year we’ll probably do something like 22 billion of business. So it’s a very substantial enterprise, with distribution centers around the country, with much in the way of transportation equipment.

It serves, presently, about 36,000 of the 125,000 or so, convenience stores. If you take the 50 largest convenience store chains in the country, it does 58 percent of the business with those companies. Sells each convenience store an average of, perhaps, 300,000 or a slight bit more of product a year, which those convenience stores then resell to the consumer.
It also serves about 18,000 quick-serve restaurants, primarily those operated by Yum! Brands: the Taco Bell, and Pizza Hut, and Kentucky Fried Chicken group.
And it will have opportunities to serve many more as we go along. So we’re delighted.

It’s a very narrow-margin business, obviously. I mean, when you get up to 22 billion of sales and you’ve got Hershey, and Mars, and people like that on one side, and you’ve got buyers like 7-Eleven and Walmart on the other side, they’re not going to leave a lot in between.

McLane is a company that has an extraordinary amount of sales in relation to intrinsic value or to net income.

It, basically, is a distributor of — well, it’s a huge customer, for example, of the food companies, the candy companies, the cigarette companies, it — go up and down the line of anything that goes into convenience stores.

But in the end, it operates on about six percent gross margins and five percent operating expenses, so it has a one percent pre-tax margin.
And, obviously, a one percent pre-tax margin only works in terms of return on capital if you turn your equity extraordinarily fast

But the return on capital is very decent. But it sort of has an outsized appearance simply because of this huge volume of sales that go through it.

This is a business that’s moving a lot of goods.

There’s no question that the margins have been squeezed. They were very, very narrow, as you know, they were about one cent on the dollar pretax, and they have been squeezed from that. Payment terms get squeezed.

If you’ll look at our competitors, they’re not making much money either. And that’s capitalism.
I think, you know, there comes a point where the customer says, you know, “I’ll only pay X,” and you have to walk away.

It’s a very essential service. We do $40-some billion. And we move more of the product of all kinds of companies that names are known to you, than anybody else. But — when you get — when you get — Kraft Heinz for that matter, or Philip Morris, or whomever it may be, on one side of the deal, and you get Walmart and some other — 7/11 — on the other side of the deal, sometimes they don’t leave you very much room in between.

[finnovator]

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