Alex Melvin, president of Rural King spoke yesterday in Midwest Entrepreneurs. Alex joined the family company just four years ago so his ascension to the presidency has been meteoric. He graduated in 2005 from Monmouth with a degree in Business Administration and was of my favorite former students (we are not supposed to admit we have favorites, right?). Alex, along with his father, Gary, successfully led the Rural King expansion beyond 50 stores in 2011, increasing overall store sales from the $550,000,000 in 2010. Alex plans to open a number of new stores in 2012 with 20 deals “currently on my desk.”
Alex is excited about exclusive deals with some premium manufacturers, but worries that unless they streamline buying and go direct with more manufacturers their margins will suffer. He hopes Rural King’s 55 stores improve their margins from around 27% to closer to 30% by expanding the number of direct relationships and efficient management. “Top management at Rural King are few in numbers but our line people pick up the slack.”. Having low overhead helps improve Rural King’s retail margins that are the envy of the big box competitors.
“We compete directly against Walmart, Home Depot, Lowe’s, and Tractor Supply,” he explained He continues to be impressed with Menard’s, which he believes is the preeminent competitor in his space. Rural King is vertically integrated ; they own their own trucking company and maintain 40 semi-trucks and numerous tractor trailers. He believes government regulations, especially those in the trucking industry are “huge impediments” to profitability. “Limiting hours to 10 per driver per day really hurts my business,”he said.
He believes in offering ownership to key employees to keep them engaged and focused. An investment of $2,500 in private Rural King stock four years ago is now worth $50,000. Alex is now focused on opening new stores and increasing their web business. Just two years ago he opened his first new location that he managed and owned and based on that success he was promoted to president in 2011. That original location was in Wentzville, Mo., outside of St. Louis.
His work with his Internet team has been successful in finding new sources of quality products internationally, and he pushed web sales to their highest levels in Rural King history. Alex believes he can develop a niche to sell outside his geographic area through the web. His business is particularly strong in Texas, where retail prices are higher.
Marketing-wise, Rural King advertises with a weekly circular newspaper insert that “has many products.. He doesn’t believe in radio or TV but may experiment some this year. Recently, they have been collecting ZIP code information from customers and through data analysis, he has created Google Maps that track how much money is spent by ZIP code so they can heavy-up or decrease advertising in less desirable areas.
Alex complained about government intervention and taxes. He called Illinois the least-friendly business state and compared it unfavorably to Indiana or Missouri. He believes Internet retailers have an advantage because they do not charge tax, so he is investing in his Internet store business. He predicts online sales will go up dramatically in 2012. “My biggest mistake is that we didn’t push online sales two years ago”.
Alex says it is challenging to work with family or help find a job for a friend. “If they know you, they may try and pull things others wouldn’t consider. They want a favor. They think I would hesitate to let them go if they didn’t perform. But that isn’t the case. From my experience the people you help the most, disappoint you the most [and are usually the least grateful].”
Buyers at Rural King are part of a buying co-op. They are prohibited from accepting gifts, lunches, or boondoggles from sales representatives. “It compromises our focus on lowering costs and finding the best values for our customers”.