Canadian wholesaler McKeough Supply celebrates 160 years as a family business.

Imagine working for a company that is also willing to employ your husband, wife, son, daughter, sister, brother, nephew, niece or other relative. Imagine a company that views nepotism as one of its strengths. Imagine such a company surviving under family ownership for 160 years.

“We like to think of ourselves as a family,” says Rick Elliott, president of McKeough Supply, a plumbing-heating-PVF wholesaler based in Chatham-Kent, Ontario, Canada. “Generally, you can expect a little more loyalty from family members.”

Elliott and W. Darcy McKeough met with Supply House Times to discuss the company’s history.

McKeough Supply currently is owned by W. Darcy McKeough, who over the years has served as president and chairman, and his sister, Sewell Ann Stewart McKeough Carruthers. They are great-grandchildren of one of the co-founders of the company, William McKeough.

A book written for the company’s 160th anniversary reveals how nepotism has been part of its tradition and remains a popular feature. A list in the proposed appendix to the book identifies 40 individuals who have or had at least one relative also working for the company at some point during its history.

The company was founded in 1847 by brothers John and William McKeough when they opened a hardware store on King Street in Chatham. Nepotism dates back to its early days when William McKeough hired two of his three sons to work briefly in the hardware store. One of those sons later founded McKeough and Trotter, a business descendant of the store. William McKeough’s grandson, George Grant McKeough, later headed McKeough and Trotter, which also briefly employed Grant’s father-in-law. William McKeough’s great-grandchildren and great-great-grandchildren also have worked in the McKeough enterprises.

As of 2006, no McKeough family members were among the firm’s 85 employees.

The wife, son, daughter, brother and a couple of nephews of President Rick Elliott have all been employed by McKeough Supply. Son Ted Elliott, now a branch manager, has been with the company for about 10 years.

Vice President/Comptroller Sandy McGregor followed her uncle and father into employment by the company and her niece worked there during the summer.

Rick Smolders, branch manager for the Chatham location, has had two brothers employed by the company. His son, Craig, and wife, Cindy, still work there.

Elliott is only the second non-McKeough family member to serve as president in its 160-year history. Samuel Trotter was the first non-McKeough president in 1905 when the hardware store became part of McKeough & Trotter.

But as Elliott points out, the culture at McKeough Supply is very family-oriented. Whether related or not, the wholesaler’s employees care about each other, support each other and work together like a family.

For example, earlier this year when a young female employee at the head office developed a rare form of terminal cancer, co-workers offered to shave their heads in sympathy and to raise funds to help support her. In addition, a special dinner was held in her honor, which she was able to attend.

“Everyone pulled together as a family in a caring way for her,” Elliott says.

This sense of family is also taken into account when hiring employees or considering the acquisition of a company, he notes.

“We want people who enjoy being together and enjoy where they are working,” Elliott says. “With 85 to 90 people you don’t always get that. We want to maintain that sense of family, an attitude of care and concern for other employees. You can sometimes tell when interviewing people if they will fit your company’s culture. I have not hired some candidates in spite of their skills because I sensed that they had an arrogant attitude or would not fit.”

This culture has likely contributed to the lengthy retention of employees and customers alike. A number of employees, including Elliott, McGregor and Smolders, have been with the company more than 30 years. McGregor’s father, Harry Roberts, spent nearly 40 years with the company. Harry Henneker, secretary-treasurer until 1976, served the company for 50 years.

Some of the wholesaler’s customers have remained loyal for more than 30 years and established social friendships with staff members.

Survival Tips

Thrift and diversity have contributed to the company’s long-term success, according to W. Darcy McKeough. “Don’t put all your eggs into one basket,” he advises.

Adds Elliott, “In tough times when the plumbing side or the industrial side was off, we could rely on the heating business.”

Membership in buying groups has also been a major factor in the company’s survival.

Back in the 1970s, a small group of independent PVF wholesalers formed what became known as the Ontario Pipe Group to buy steel pipe together, according to Elliott.

“We still sell steel pipe,” Elliott says. “Today this small group has about seven members and we meet twice a year to review our steel pipe requirements.”

In the 1980s there were two significant buying groups in Canada - P & H Wholesalers and the Mapco group - which in 1988 merged into a new entity, Canaplus.

“We are very much involved with Canaplus,” Elliott notes. “We are a founding member.”

Today the group has approximately 30 members and has become one of the largest purchasers of plumbing and heating products in Canada, he adds.

“About 50% of total purchases for the company are made through Canaplus,” McKeough says. “Without the buying strength of this group, we may not be in business.”

Evolution Of The Business

McKeough Supply began as a hardware store under the name, J&W McKeough, and then went into manufacturing as McKeough & Trotter, making engines, boats and drainage wheels. The company branched out into the wholesale plumbing and heating business in 1919.

In 1943 the company changed its name to McKeough Sons Co. Ltd., and it took on its current name, McKeough Supply Inc., in 1998.

The company effectively discontinued the manufacturing part of its business in 1958 when it closed the welding shop. McKeough Supply had been in the steel business practically from the beginning, but sold out of the structural steel portion in 1993. The wholesaler still sells sheet metal to its heating and air conditioning customers.

The company has faced some challenging years in its history. Sales have continued to improve since Rick Elliott was appointed president in November 1994. The acquisition of G.C. McDonald Supply, an HVAC wholesaler that was owned by International Comfort Products Corp., helped increase sales to $22.3 million (Canadian) in 2000.

The wholesaler has a profit-sharing program and introduced a long-term incentive plan - The McKeough Supply Stock Appreciation Rights Plan - for key employees in 2004.

The company continued to grow with the help of acquisitions to achieve sales of just over $30 million in 2005. That was also the year that Rick Elliott was elected chairman of the Canadian Institute of Plumbing and Heating.

For 2006, sales were budgeted at approximately $35 million.

“The common thread from 1847 to now has been our involvement in the pipe, valves and fittings business,” McKeough said. “Even when we entered the manufacturing business, we never got out of selling these lines. The biggest departure for us was when my father got the company involved in the plumbing and heating business in the 1920s.”

As a hardware store, the company sold bolts, hinges, toilet paper holders, towel bars, spades, picks, shovels, screens for windows, nails and even lawnmowers “which I sold personally,” McKeough recalls.

“That market changed considerably with the arrival of the big box stores,” Elliott notes. “They sold all of those hardware items and it became difficult for us to buy right and compete in those categories, so we moved away from that.”

Today the big-box stores are not considered a major competitive threat to McKeough Supply, but everyone in the wholesale business has lost some sales to them, according to Elliott. “We compete more with them (big boxes) when selling to our plumbing contractor customers who are primarily involved in the retrofit market,” he says. “In many cases they have become labor and expertise providers. We have probably lost some plumbing fixture and faucet business to our plumbing customers as their customers buy their fixtures from the local big box and supply to the plumber.”

However, McKeough Supply provides a much higher level of customer service than the big-box stores, he continues. “In addition, we have former contractors on our staff to provide technical expertise.”

The core of its business has always been plumbing and heating related, Elliott says. “We have always been involved in hydronics as well, such as boilers and components for hydronic heating.”

Many of the wholesaler’s acquisitions have been in the HVAC category, he notes. Of three acquisitions made in the last eight years, two involved HVAC companies. Also, two were in new geographic markets, which enlarged the company’s territory.

“We have diversified as the market demands,” he asserts. Future growth will be focused on acquisitions, according to both Elliott and McKeough.

[sidebar] McKeough Supply Today

Currently the company has eight branches: Chatham, Brantford, Collingwood, Hamilton, Hanover, London, Sarnia and Waterloo, all in south and midwestern Ontario, Canada. Its warehouses range in size from 5,000 sq. ft. to 40,000 sq. ft. Each has some differentiation in product mix, although there are many common threads.

“Not all of the branches stock the same things, but if we stock valves, everyone has the same valve,” McKeough explains. “The secret to our success is letting each branch do its own thing. We are not trying to impose a centralized view.”

While each branch has some autonomy, over the last few years the wholesaler has introduced more HVAC to the other branches to grow that segment, Elliott adds.

The difference can be seen from branch to branch. For example, the Chatham location has more pick-up business (from the counter area) as a percentage than any other branch, according to McKeough, and its counter sales area is using a partial self-service model which works very effectively, Elliott says. Other locations use a different model.

Every location has a counter area, but the wholesaler has not entered the decorative showroom arena. “I don’t see us getting into high-end plumbing fixtures,” Elliott says. “Today if you are going with a showroom, you have to go all the way.”

The wholesaler’s next big hurdle will be investing in radio frequency technology systems, Elliott notes.

“We utilize bar code technology to some degree and manage our business with the Eclipse Distribution Management System,” he says. “In the future we feel that ‘RF’ will greatly enhance the ability to manage inventories and purchasing for a company our size. Although we are not ahead of the curve, we have stayed with the curve.”

[sidebar] Customer Relations

At the company’s lowest point, 25% of its sales were concentrated with one customer, McKeough recalls.

Today no customer accounts for more than 5% of its business, Elliott asserts.

The company takes pride in its customer service.

“It has been our decision to be available 24/7,” Elliott says. “Our customers have home phone and cell phone numbers for our people.”

McKeough Supply also offers a travel incentive program for customers based on their meeting purchase targets. Approximately 140 people (customers and spouses) will accompany McKeough management and sales staff to Aruba in February 2008. Another group of 117 who met the purchase requirements went on a Hawaiian cruise this past February. Suppliers help with this program by providing partial funding, but more importantly, by sending their representative to provide product awareness and technical training during the business meetings held on these trips. “It’s not all just fun,” Elliott says.

“Initially, we objected to the idea of travel incentives,” Elliott notes. “My thoughts were, isn’t it enough to have the right pricing and good customer service? But winter trips promote loyalty and allow us to build relationships with these important customers. Many customers have traveled with us on this incentive program for 10 years or more. They have made many friendships with McKeough staff and other contractors. Some call the trip ‘the McKeough family reunion,’ as this is what it feels like, Elliott states. “This type of relationship building has been a key factor in growing our business.”

The Association of Systems Management, Toronto Chapter, recognized the Honourable W. Darcy McKeough, Treasurer of Ontario, Minister of Economics and Intergovernmental Affairs, as its 1977 ASM Man of the Year.