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Hidden Billionaire Cohen Hauls Fortune in Unmarked Trucks

There’s a reason why Richard B. Cohen escapes attention.

The chairman of C&S Wholesale Grocers Inc. works out of a nondescript office park once slated to house a county jail in Keene, New Hampshire, a leafy mountain hamlet 90 miles northwest of Boston.

The truckers who deliver goods from the company’s 54 distribution centers drive unmarked tractor-trailers. Cohen’s last interview was published a decade ago. Even the Keene Chamber of Commerce overlooked C&S as one of the town’s largest employers.

“We’re the biggest company no one has ever heard of,” Bryan T. Granger, a company spokesman, said by phone.

The 61-year-old -- who goes by “Rick” -- has transformed C&S into the world’s largest grocery wholesaler since taking the helm of the business in 1989, making him one of the 100 richest people in the world and the wealthiest man in New England after Connecticut hedge-fund manager Raymond T. Dalio, according to the Bloomberg Billionaires Index.

The company had sales of $21.7 billion in 2012, distributing more than 95,000 products to 4,000 supermarkets from Maine to Hawaii. Cohen is the business’ sole owner, Granger said. He has a net worth of $11.2 billion, according to the Bloomberg index, and has never appeared on an international wealth ranking -- a status one associate said suits him just fine.

Source: C&S Wholesale Grocers Inc.

C&S Wholesale Grocers Inc. Chairman Richard B. Cohen's last interview was published a decade ago. Close

C&S Wholesale Grocers Inc. Chairman Richard B. Cohen's last interview was published a decade ago.

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Open
Source: C&S Wholesale Grocers Inc.

C&S Wholesale Grocers Inc. Chairman Richard B. Cohen's last interview was published a decade ago.

‘Smart, Analytic’

“I tried to put our name on the trucks and he didn’t want any part of it,” said Edward Albertian, 58, a former C&S president and now chief executive officer of Citysports, a 22-store Boston-based retailer owned by Highland Capital Partners LP. “He wanted to continue to be stealth and operate in this little, dinky Keene, New Hampshire, marketplace.”

The billionaire has managed to make money in an industry bedeviled by small profit margins and mismanagement by focusing on efficiency and paying his workers extra to avoid mistakes, according to Thomas DeLong, a professor at Harvard Business School who consults with Cohen and wrote a case study on the company published in 2003.

“I’m not sure I’ve met anyone as smart, analytic and quantitatively driven as Rick,” DeLong said in a telephone interview. “Many CEOs have a need to prove they’re the smartest guy in the room. Rick is not like that.”

Double Taxation

Bloomberg Billionaires Index

Bloomberg Billionaires Index

Cohen declined to comment for this story. C&S is valued at $11 billion, according to data compiled by Bloomberg, based on the average enterprise value-to-sales and enterprise value-to-earnings before interest, taxes, depreciation and amortization multiples of two publicly traded peers: Sysco Corp. (SYY) and United Natural Foods Inc. (UNFI) Enterprise value is defined as market capitalization plus total debt minus cash.

C&S has about $240 million in outstanding bonds, according to data compiled by Bloomberg based on a 2010 bond offering prospectus, which showed the company had a gross profit margin of 2.2 percent and net income of $66 million on $19.3 billion in sales in 2009. C&S reported about $11 million in losses from discontinued operations, asset impairment charges and provision for state taxes that year.

Scott Gabehart, a certified appraiser and vice president at BizEquity, a Phoenix-based company that values closely held companies, said private businesses use accounting methods that reduce their profit margins to minimize taxes.

Personal Income

“Great caution must be used in comparing private firms with public firms,” he said in an e-mail. “Namely, different companies incorporate different cost categories into cost of goods sold.”

According to the C&S bond prospectus, the company calculated gross profit as net revenue minus cost of sales, which includes cost of merchandise, handling and distribution.

Sysco calculates its gross profit as revenue minus product costs net of vendor consideration, and includes in-bound freight. Its cost of sales excludes the costs of facilities, product handling and delivery, which are included as operating expenses, according to its 2012 annual report.

As the company’s owner, Cohen opted to let C&S corporate income pass through to be taxed as personal income -- to avoid double taxation, the document shows. He also owns real estate in Ogunquit, Maine, and Jackson, Wyoming, according to local property tax records, and has collected more than $50 million in cash payments and promissory notes, according to the prospectus. He also owns Symbotic LLC, a Wilmington, Massachusetts-based warehouse robotics company he bought in 2009.

Third Generation

Cohen’s grandfather, Israel, co-founded C&S in Worcester, Massachusetts, in 1918, according to the company’s website. After a flood destroyed his inventory in 1929, he opened a new warehouse twice the size on higher ground, a few blocks further from the city’s Blackstone River. His son, Lester, expanded the business into supplying military bases after a tour of duty as a bomber navigator in World War II.

Rick joined the company in 1974, after receiving an accounting degree at University of Pennsylvania’s Wharton school. A three-week union strike almost shuttered the business a year later, leading Cohen to persuade his father to move the company to Brattleboro, Vermont, where it could build larger warehouses and hire nonunion workers, according to Harvard’s DeLong.

Cohen took over as CEO and chairman when his father retired. He moved the headquarters 18 miles east to Keene in 2003, after getting officials to relocate the county jail planned for the parcel he had his eye on, said Paul Miller, Executive Editor of the Keene Sentinel newspaper.

‘Difficult Market’

Grocery wholesaling is a small-margin business where economies of scale don’t guarantee success, according to Burt Flickinger, managing director of Strategic Resource Group, a New York-based consulting company that specializes in the food business. In 2003, many assets of the then-largest wholesaler, Fleming Companies Inc., were liquidated in bankruptcy. Cohen bought some of Fleming’s assets, which expanded his business into California and Hawaii.

Earlier this year, Supervalu Inc. (SVU), an Eden Prairie, Minnesota-based company that owns both supermarkets and its own distribution business, ceded the title of world’s largest wholesaler to C&S after it sold off some assets to reverse a sales decline that has driven its stock to $8 from almost $49 since July 2007.

“It’s a difficult market, but when run efficiently and effectively it can be profitable,” said Flickinger.

Incentive Structure

Cohen has done just that. Less than 2 percent of the orders that are processed in the company’s warehouses have errors or omissions, efficiency that’s unheard of elsewhere in the wholesale grocery business, according to former C&S president Albertian.

At C&S warehouses, DeLong said, self-managed teams of workers are responsible for meeting customer orders -- picking the items from shelves, collecting and wrapping them on pallets and loading them onto trucks -- on time. In addition to hourly wages, teams earn extra money for every order filled and suffer a wage deduction for every error.

Cohen got the idea after C&S won the right to service A&P supermarkets’ New England division in 1988. After decades of mostly servicing independent grocers, A&P was a boon to C&S, increasing annual sales 35 percent to $540 million at the time. It also created chaos in the Brattleboro warehouse, with workers having little time to fill orders and restock warehouse shelves, according to DeLong.

‘Neurotic’ Obsession

Cohen implemented the self-managed teams after attending an executive retreat hosted by author and management consultant Tom Peters.

“He was able to eliminate many supervisors because the line workers know their business best,” said DeLong.

The structure has enabled C&S to double sales over the past decade, according to the company. In May, C&S won the right to supply 480 Winn-Dixie supermarkets, a contract that should add about $2 billion in revenue, according to Strategic Insight’s Flickinger.

In some situations, Cohen has bought failing grocery store chains, such as Grand Union in the northeast and Bruno’s in the south, Flickinger said. After restructuring and turning around the businesses, he sells them, making a profit and saving a portion of his customer base.

“Rick is neurotic about losing customers,” said DeLong. “He obsesses about it, almost to his detriment.”

Kaddish Project

Cohen’s family doesn’t display the trappings of wealth. The billionaire and his wife, Jan, live on a street where the average home value is $294,000. The couple owns the most valuable single-family home in Keene, assessed at $1.5 million, according to property tax records.

“You’ll run into Rick and Jan at the grocery store in Keene and at a show in the Colonial Theater downtown,” said Keene Sentinel’s Miller, who also once coached soccer for one of Cohen’s daughters.

Cohen’s wife is executive producer of the Kaddish Project, a touring musical on genocide, and the Holocaust studies center at Keene State College was renamed after the family for their financial support, according to the school.

One daughter, Perry, is C&S’s vice president of corporate learning and talent management; another, Rachel, teaches high school at a charter school in Lynn, Massachusetts.

“As far as quality of character, quality of intellect, and quality of taking care of his people, Rick is as good as anybody I ever worked with in my career,” said Albertian. “I love the guy.”

To contact the reporters on this story: Brendan Coffey in Boston at bcoffey10@bloomberg.net; Zohair Siraj in New York at zsiraj1@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net

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