Not business as usual: B.E. 100s Overview.

From selling themselves as brand names to breaking into new niche markets, B.E. 100s companies are using innovation as their passport to profits

IN MEETING THE CHALLENGES OF TODAY'S business climate, the CEOs of the BLACK ENTERPRISE 100s, the nation's largest black-owned businesses, have had to be innovative and take more risks just to stay alive and competitive in this year of corporate cutbacks. In a sense, many of them have adopted the message of that old Cole Porter tune, "Anything Goes."

It's their bold response to current attacks and future uncertainties. Two years after the signing of the Contract With America, a conservative Congress, including Republican presidential nominee Sen. Bob Dole, continues to push for dismantling affirmative action programs and policies in order to level the playing field for minority-owned concerns. Even the Clinton administration, after a year-long review of affirmative action, recently decided to impose a three-year moratorium on set-aside programs. Although gross domestic product has averaged 2.6% for the past five years and inflation has crawled at a 2.8% rate--the longest stretch of low inflation since the Kennedy administration--consumer confidence has ebbed while anxiety over the economy has risen. Another indication of a weakening economy: the earnings growth rate of the S&P 500 has slid each quarter after a noteworthy 23% spike in the first quarter of 1995, the biggest increase in the last seven years. Against this backdrop, the outcome of the 1996 presidential election should signal tougher times ahead or, at the very least, more of the same.

But the BE 100s CEOs have not been standing on the sidelines, wringing their hands. To make great strides in their respective industries, these companies have become more nimble and daring. Discarding the status quo, many have reinvented their concerns and pushed for innovation. The thrust has come in many forms, from strategic alliances and acquisitions to launching new ventures and trying different marketing techniques. Most of the CEOs have focused on "branding," the ability to leverage their name, track record and assets as a way to forge partnerships, enhance their product lines and attract new customers.

The 1996 annual report was distinguished by the continued growth of the BE 100s, an encore performance from last year's showing. For instance, total sales for the BE INDUSTRIAL/SERVICE 100 and the BE AUTO DEALER 100 combined were roughly $13.092 billion in '95, a slight increase from $11.7 billion in gross sales in '94. However, for the first time in the listing's 23-year history, one of the BE 100s companies cracked the $2 billion glass ceiling: BE INDUSTRIAL/SERVICE 100 list leader TLC Beatrice International Holdings Inc. And never before have so many BE 100s companies and auto dealers grossed more than $18 million in revenues.

The number of people employed by the nation's 100 largest black-owned industrial/service corporations and the 100 largest auto dealerships increased slightly, from 47,895 in '94 to 51,057 last year. This growth demonstrates that the BE 100s CEOs have been less inclined to embrace downsizing than their Fortune 500 brethren. Last year, 42,386 employees received paychecks from BE INDUSTRIAL/SERVICE 100 companies--a 5.9% increase from '94--and 8,671 on the payrolls of the BE AUTO DEALER 100--a significant 9.7% hike from the previous year.

Thompson Hospitality L.P. (No. 58 on the 1996 BE INDUSTRIAL/SERVICE 100 with $33.5 million in gross sales) showed the most growth in personnel among the BE 100s top 10 employment leaders (see chart). They had 2,100 employees on their payroll in '95 (an employee-to-sales ratio of 1 to $16) up from 1,250 employees in '94 (an employee-to-sales ratio of 1 to $23)--a whopping 68% increase in their worker pool.

Total sales for the nine new companies on the 1996 list amounted to $261.35 million. The combined gross sales of companies displaced from the BE INDUSTRIAL/SERVICE 100 was $441.58 million. Thus, the turnover on the list resulted in a net loss of $180.23 million. This is an indication that the revenue growth of the industrial/service list is a result of the sales growth of incumbent companies on the list, not the addition of new, larger black-owned companies to the list.

ARRIVALS AND DEPARTURES

The nation's largest black-owned industrial/service companies posted revenues of $7.3 billion in 1995, a small increase over 1994 sales. The biggest sectors on the industrial/service list include: food and beverage companies, which comprise 24.2% of the list and grossed more than $3.1 billion in sales; media companies, which make up 8.2% of the list and generated roughly $1 billion in revenues; and high-tech firms, which represent 6.7% of the list and grossed $877.05 million in sales.

As in recent years, the BE INDUSTRIAL/SERVICE 100 was highlighted by noteworthy departures and arrivals. Four companies--Urban Organization, Dynamic Concepts Inc. UBM and Active Transportation Co.--are no longer on the list. In fact, Active Transportation's expansion plan accelerated its exit from the BE INDUSTRIAL/SERVICE 100. Last year, in a $50 million transaction, Active merged with mammoth $240 million Jupiter Transportation Systems Inc., a Kenosha, Wis., truck and heavy equipment hauler. Active CEO Charlie W. Johnson now owns a 49% stake in the enterprise.

Newcomers to the list include metal importer Fuci Metals USA and Community Pride Food Stores. The lone returnee to the BE INDUSTRIAL/SERVICE 100 is Michael Alan Lewis Co., the $34 million auto parts manufacturer.

The largest black-owned auto dealers produced sales of $5.7 billion in '95, from $4.9 billion in the previous year. Several auto dealers got off at the BE AUTO DEALER 100 exit ramp last year: Royal Dodge, Winter Haven Ford, Vicksburg Chrysler-Plymouth-Dodge, Huntsville Dodge and Davis Oldsmobile. And 1994's reigning auto dealer changed hands: black entrepreneur Jesse Moore, who owns auto repair shops in Richmond, Va., acquired Trainer Oldsmobile-Cadillac-Pontiac-GMC Truck Inc. from CEO James Trainer, who sold the dealership to pursue other ventures. Renamed Warner Robins Oldsmobile-Cadillac-Pontiac-GMC Truck Inc. after the Georgia city where it is located, the dealership is revving its engine at the top of the AUTO DEALER 100. Ranked No. 2, it had gross sales of $400.9 million last year.

THE ACQUISITIVE 100

Last year, acquisitions presented the BE 100s with opportunities for enhancing product lines and increasing market penetration. It also presented a chance for one company to possibly come back home. Brooks Sausage (ranked No. 48 on the 1994 BE INDUSTRIAL/SERVICE 100 list, with 1993 sales of $31.5 million) changed hands twice in four months. Since founder and CEO Frank Brooks sold his 51% stake in February 1995 to majority-owned OSI Industries Inc. (which already held a 49% share), Brooks Sausage went from black to white to black ownership again. David R. Duerson, a 35-year-old former NFL defensive back, acquired the company after OSI changed its name to Fair Oaks Farms Inc. and sought another owner to buy 51% of the company. Both Fair Oaks and OSI are food suppliers to McDonald's Corp., Fair Oaks serves Midwestern and overseas markets.

In fact, a number of this year's growth leaders have seen their fortunes significantly rise through acquisitions. These companies include Digital Systems Research Inc. in Arlington, Va., (ranked No. 21 with $73.3 million in gross sales) and New York-based Granite Broadcasting (ranked No. 9 with $119.4 million in sales).

Last year's BE 100s Company of the Year, Granite completed the acquisition of television stations in Grand Rapids, Mich., Austin, Texas, and Buffalo, N.Y., bringing to nine the number of such properties they own. "We now have a couple of stations in Top 40 markets," says CEO W. Don Cornwell. "I feel like the mouse who swallowed the elephant." How does Cornwell plan to leverage these acquisitions and post profit margins of 45%? The solution: create a network of stations that can develop their own public programming.

Others acquired companies as a way to gain access to new customers. For instance, New Orleans-based Lundy Enterprises Inc. (No. 74 with $26.5 million in gross sales) consumed seven additional Pizza Hut restaurants, bringing to 41 the number of outlets they own in Louisiana.

At least one newcomer to the list has embraced the gospel of growth through acquisition. Richmond, Va.-based Community Pride (ranked No. 50 on the BE INDUSTRIAL/SERVICE 100 list, with gross sales of $38 million) purchased three supermarkets to add to its chain of five outlets, increasing its market share in the Old Dominion. "We look for turnkey operations," says CEO Jonathan Johnson. "It is the quickest way for us to make an impact on our bottom line."

GROWING THROUGH STRATEGIC ALLIANCES

Other companies have found the answer in strategic alliances. For example, The Bing Group (ranked No. 13 with $ 101 million) continues to be the nation's largest black-owned steel processing company, in part, due to its strong relationship with General Motors. And, for Atlanta-based contractor, Thacker Engineering Inc. (ranked No. 19 with $76.8 million in gross sales), such a partnership laid a new foundation for its business.

Last year, Thacker formed a general partnership with black-owned Gaston Construction Co. in Birmingham, Ala., as a means of bolstering manpower and financial leverage. By teaming up with Gaston, Thacker gained access to other companies--including a savings & loan and an insurer--that comprise the vast empire of the late A.G. Gaston, BE's Entrepreneur of the Century.

Thus far, the partnership has resulted in some lucrative deals, including a two-year, $55 million contract to build Miami's largest high school and part of a $700 million airport expansion in New Orleans. "By coming together, we can form collateral pools to gain financing and strengthen our bids," says CEO Gary Thacker. "Together, we can take more control of our destiny."

Thacker's current plans include reorganizing the business as a holding company and using the link with Gaston to move into real estate development and property and casualty insurance.

RMS Technologies Inc., the Marlton, N.J.-based information and technology company (No. 14 on the 1996 BE INDUSTRIAL/SERVICE 100 list with $95 million in gross sales) has found that such alliances can pave the way to capital. RMS recently teamed with the Safeguard Group, a Wayne, Pa., conglomerate of high-tech-related concerns.

Under the terms of the new deal, Safeguard will provide RMS with growth capital and furnish advice and marketing expertise through participation on RMS' board of directors. Although the recapitalization gives a majority corporation a significant stake in the smaller company, it also brings RMS closer to its ultimate goal: a public offering.

LEVERAGING ASSETS AND BRANDS

RMS wasn't the only BE 100s company to get its fiscal house in order. For two years, CEO Loida Nicolas Lewis has been restructuring TLC Beatrice by positioning the company around six core operations in Europe, selling non-core and underperforming assets and trimming the corporate staff by 50%. Last year, she headed a road show, speaking to investor groups in 20 cities to complete a public offering of $175 million in notes, due in 2005. The proceeds from the offering will be used to further reduce TLC's debt.

Other BE 100s companies have been sucessful in leveraging their brand name to gain business opportunities. Take the ubiquitous BET Holdings Inc. (No. 10 with sales of $ 115 million). Launched through a strategic alliance with Time Inc. (now Time-Warner) 16 years ago, BET purchased about 3 million of its common shares from that company for $58.9 million. But that's not all. In the past year, BET has launched a magazine supplement, BET Weekend, in partnership with the New York Daily News; released two movies, Out of Sync, and Once Upon A Time When We Were Colored, through BET Films, which is co-financed by video store giant Blockbuster Entertainment; opened a new theme restaurant, BET Soundstage; and announced a partnership with Microsoft. What's next? In late March, CEO Robert Johnson announced plans to build the first black-controlled movie studio from scratch so that the company can produce films that reflect the diversity of African American life.

BET is not the only media company to use branding to build its businesses. Essence Communications (No. 18 with $80 million in gross sales) has leveraged its reputation as the leading publisher of an ethnic women's magazine to launch Latina, the Hispanic sister to its flagship publication, Essence. And Earl G. Graves Ltd., publisher of BLACK ENTERPRISE (ranked No. 67 with $29.2 million in gross sales), has leveraged the publication's branding to gain a lock on the African American professional market with ancillary businesses such as its seminars and annual golf and tennis event.

STEERING TO NEW MARKETS

The auto industry has not exactly been on cruise control. Like companies that drive other industries, the BE AUTO DEALER 100 found that one wrong turn can put them on a dead man's curve.

For one, the $600 billion industry has been undergoing a major restructuring. Now, potential car buyers do not have to haggle directly with traditional auto dealers for the best buy on a set of wheels. They can go to Sam's Club, Wal-Mart's warehouse club, to access referrals to its dealer network. Or potential buyers can cruise the Internet, tapping into AutoByTel, which arranged more than 25,000 car sales last year. And many new owners have found a good cut-rate deal on a used car at Car-Max, the $288 million used-car chain launched by electronics retailer Circuit City Stores Inc.

One BE auto dealer who refuses to be left in the dust by the competition is Oak Park, Mich.-based Mel Farr Automotive Group (ranked No. 3 on the 1996 BE AUTO DEALER 100 with gross sales of $382 million). Always one of the most innovative and aggressive marketers on the list, Farr's dealerships posted a whopping 75.2% increase in gross sales in 1995. The acquisition of a Lincoln-Mercury dealership in Dayton, Ohio, and renovation of existing suburban franchises in Detroit, Cincinnati, Houston and Flint, Mich., fueled this growth. "The only way for us to be competitive in this marketplace is to increase the size of our offerings and use aggressive marketing strategies," asserts Farr, who increased his advertising budget by 75% and doubled used-car sales.

Farr plans to go toe-to-toe with Car-Max. The savvy dealer pumped roughly $3.5 million into his first used-car superstore in Royal Oak, Mich. Targeting the urban, "sub-prime" consumer, he seeks to sell an inventory of 500 cars each averaging under $10,000-and handle the financing.

PROTECTING TURF

Many of the BE 100s CEOs have taken steps to preserve the companies that they have spent so much of their lives building. As attacks on affirmative action mount, these executives have formed the Mobilization for Economic Opportunities Political Action Committee (MOPAC) "to ensure that the interests of businesses that create wealth and provide for the black community are represented in Washington." The organization supports political candidates who endorse affirmative action and set-aside programs and lobbies on behalf of black-owned businesses. The first real test for MOPAC is raising funds in anticipation of this November's presidential and congressional elections. If the barriers to opportunity are not removed, it will force BE 100s companies to be even more innovative in the years to come.

Remember: anything goes.

                  1996 BLACK ENTERPRISE 100s
                                                           Percent
                     1994          1995      Differences   Change
Total Sales(*)   $11,711,205   $13,092,832   $1,381,627    11.80%
Total Staff           47,895        51,057        3,162     6.6%

              1996 B.E. INDUSTRIAL/SERVICES 100

Total Sales(*)    $6,727,458    $7,399,179     $671,721     9.98%
Total Staff           39,997        42,386        2,389     5.97%

                  1996 B.E. AUTO DEALER 100
Total Sales(*)    $4,983,747    $5,693,653     $709,906    14.24%
Total Staff            7,898         8,671          773     9.79%
(*) In millions of dollar, to the nearest thousand. Prepared by
B.E. Research.
Reviewed by Mitchell & Titus, L.L.P.

RELATED ARTICLE: ELIGIBILITY FOR THE B.E. 100s

The B.E. 100s are comprised of the B.E. INDUSTRIAL/SERVICE 100 and the B.E. AUTO DEALER 100. To be eligible for the INDUSTRIAL/SERVICE 100, a company must have been fully operational in the previous calendar year and be at least 51% black-owned. It must manufacture or own the product it sells or provide industrial or consumer services. Brokerages, real estate firms and firms that provide professional services (accountants, lawyers, etc.) are not eligible. To qualify for the AUTO DEALER 100, a dealership must have been fully operational in the previous year and be at least 5 1% black-owned.

BLACK ENTERPRISE consults industry analysts and other sources to verify the information contained on the lists. All data are reviewed by the accounting firm Mitchell & Titus, L.L.P. Companies not appearing on this year's list (but previously listed) have been excluded because they are no longer black-owned or their gross sales have dropped below the minimum level required to make the list.

The B.E. 100s, as well as other business lists compiled by B.E., are available on computer disk, in both DOS and Mac formats. TopList Software provides mailing addresses and phone numbers of the companies listed as well as other software features.

For more information, contact B.E. Business Programs at 212-886-9576.