Suppliers' service trumps chains' pricing

Jerry McGrath looked at the Wall Street Journal article headlined "Shifting Burden Helps Employers Cut Health Costs."

"I understand what businesses are going through.

It's tough to carry that load," he says.

McGrath owns Washoe Building Supply, a full-service supplier of building materials to the rapidly growing construction industry in northern Nevada.

The flagship outlet is located in Sparks, and the company three years ago opened a second facility in Minden.

The company serves the needs of builders in a 150-mile swath that extends to Bridgeport on the south and encompasses the Carson City/Lake Tahoe region as well as the Truckee Meadows and the rapidly growing corridor along I-80 to the east.

When he purchased the company in the early 1980s, McGrath gave little thought to paying 100 percent of health care premiums for his employees.

"It wasn't that big of a deal," he says.

"I had about 10 employees but only chose to cover my key people and it was only costing me about $800 a month.

But when the ERISA act was passed, we had to provide the same benefits for everyone."

Today, McGrath is writing annual health care premium checks totaling a quarter of a million dollars to cover rising premium costs for Washoe's 60 employees.

It is a burden he acknowledged cannot continue indefinitely, and some cost-sharing changes have already been implemented.

"There is a big responsibility that comes with owning a business," says McGrath.

"There are times when it would be easy to cut and run like some employers have done.

But a lot of these employees have been with me for 15 to 20 years.

They all have families.

They've got mortgages.

And a lot of them stay with me partly because of the benefits."

When he was a commercial banker, McGrath was approached in 1981 by the former owner of Nevada Shake and Shingle seeking help in putting together a pro forma statement in anticipation of selling the company.

McGrath liked what he saw.

"I didn't buy Nevada Shake and Shingle," he says.

"I bought its assets and changed the name to Washoe Building Supply.

This way, I was able to get investment tax credits, stepped up depreciation and, if you can believe this, got 10-year financing at 8 percent.

Keep in mind this was in 1982 when we were in that big recession.

Today, no lender will provide funds if your debt to worth ratio is more than three times.

Back in '82, my debt-to-worth ratio was 18 to one.

I was leveraged to the hilt."

While the country was in a recession, McGrath says the construction industry was in a mini-depression.

Unemployment in the building trades was around 35 percent.

He says he survived and grew by being creative.

He took back deeds of trust from builders in lieu of cash and provided open lines of credit to them.

Sales then ran about $3 million.

Today,Washoe Building Supply is competing against national giants the likes of Lowe's and Home Depot and its annual sales are in excess of $17 million.

While McGrath's company may not always be able to compete on price with the national firms, he provides something additional.

"One area where I can excel is the quality of service we offer," he says.

"We stay connected to our customers.

Sure, they may buy product cheaper from someone else, but I am their problem solver.

And when customers call you, it's because they have a problem that needs to be solved.

And they always get to talk with the same people in our company.

Just like a good banker, we do more than solve their problems we try to anticipate their needs."

The company began selling only roofing materials, and soon had some 800 regular accounts.

Not all were contractors, but most were.

By the late 1980s, the company was experiencing steady growth.

Also growing, however, were taxes and benefit costs.

"I kept saying that I needed to get more sales because the way you value a company is return on equity," he says.

"The amount of money being returned to the company kept shrinking so I knew I needed to get more accounts," McGrath says.

"Then, one day, a friend of mine opened my eyes.

He said, 'Jerry, you don't need more customers.

You need to extract more dollars out of the customers you have.' So we started selling tools, wire mesh, rebar, adhesives.We expanded our facility.We opened a showroom and started selling nail guns and products contractors needed.We increased our sales and our profit margins tremendously.

And we also increased the number of customer accounts from 800 to more than 1,300 today."

McGrath describes himself as an opportunist where education and preparation are the prerequisites for success.

It's also vital to have a cadre of good employees and that, he says, takes a lot of nurturing.

"The longer you have an employee, the more they cost you," he says.

"However, the longer you have an employee, the more valuable they are.

I understand that and never forget that."