The $15B Industry You’ve Never Heard Of

Aviva (00:00)
This week's listener of the week is Alison Gappa. Alison, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's listener of the week. Week, week. This week on Commercial Real Estate Secrets, we have Neal Sherman.

Neal is the founder and CEO of Tag eX Brands. Neal, thank you for being on the show today.

Neal Sherman (00:30)
Honored to be here, Aviva.

Aviva (00:33)
Neal, can you tell the listeners who you are, what you do and a bit about Tag eX?

Neal Sherman (00:38)
Sure, I'd be glad. First of all, thanks for having me on. I don't think I've ever been interviewed by somebody that has such a massive global following as you, Aviva. So I'm honored to be on. Appreciate it. We, TageX Brands basically operates in the food industry. We've been in business 38 years. Our roots are managing food service kiosks and supermarkets. And every time we'd show up with a new kiosk, the retailer would ask us to...

do away with whatever was being displaced. At first we were insulted by it, then we realized necessity is the mother of invention. The only way we'd bring our program in was to get rid of whatever was being displaced. And it turns out we're pretty good at it. We'd bring back proceeds, we'd sell it to other people, we made a market in the aftermarket of restaurant and food service equipment. And what started as a courtesy became the business. We grew it to 36 warehouses around the country.

And then 24 years ago, we bought a thousand acre former army base in the Finger Lakes in upstate New York. And we support basically the end-to-end equipment asset management life cycle. So if people are placing equipment, redeploying it or liquidating it, we manage those logistics and the liquidation piece populates the largest aftermarket of restaurant and food related equipment.

on the face of the earth I'm told. So we do business with supermarkets, sea stores, real estate operators that inherit equipment and fixtures that they don't want to and need to clear it out before they put in another tenant. people that can source in the aftermarket realize that our aftermarket place, which is some 50,000 registrants, a million views a day, they can get good value. So.

It's not as glamorous as being in the real estate brokerage business and warehousing and such. But we need warehouses. So we have a warehouse. We have 100 % US coverage, LA, Dallas, Orlando. And we help people through the change of their equipment and concepts.

Aviva (02:46)
So how did you get started here? I know you briefly touched on it, but...

Neal Sherman (02:50)
Yeah. So I started my career in brand management after business school, grew up in a small town in the Finger Lakes, and really loved, I worked for General Foods, now Kraft, loved it, was great experience, did not love corporate America, did not love living in New York. So we moved to DC, my wife just got out of law school, and we...

realized that there wasn't a lot of food marketing options at the time in Washington. Everything was kind of government related. And so we started providing a need, you know, needs based service project management company dealing with equipment. And then over time it became repetitive. so chains like Wegmans and Disney and Darden, 41 of the top 50 restaurant chains in America began using us for this headache relief. And so we realized that, that

Over time, this project management company became an ongoing service provider in an ongoing marketplace. most companies have no idea where their equipment is or what they have, basically. Shocker. Shocker.

Aviva (04:03)
Earlier this year, my partner, who's also my husband and I, were leasing a 21,000 square foot warehouse. And we wound up placing, the tenant we found was a used restaurant equipment distributor. So, you know, this is a local mom and pop, their second warehouse. And that was my first glimpse into the industry.

Neal Sherman (04:20)
Sure.

Aviva (04:27)
where I walked around the warehouse and I see these very, very high ticket items. and they do just what you're saying. They sell new, they buy used, they refurbish and they resell it. And what I was stunned to see was how high ticket some of this. Some of these products are specifically even used.

My question for you is, what's the most expensive item you all sell or have sold in the space?

Neal Sherman (05:02)
Great question. No one's ever asked me that before. So we sell to people like your tenant when we manage. So year to date we've closed 400 restaurants. 150 Red Lobsters, Rubio's, Shake Shack, Tijuana Flats, other ones. And so we take a lot of pride about half of our customers are local wholesale people that buy from us at deep discounts and fix it up and

pay their rent on time to people like you and your husband. I would say that the largest thing we've ever sold was not food related. It was the governor of Maryland's yacht. And the governor of Maryland had come into office and he said, I'm gonna get rid of all excess. And we wanna sell this yacht. And it got down to the end of the year and he didn't do it. And so we sold it on eBay for him.

And he, know, yes, there was a beautiful catering situation, but it was fundamentally a boat. I would say food trucks would probably be bigger items. Manufacturing lines, sometimes we get involved in the manufacturing lines, but that's the most, the most sizzle, if you will, would be the Governor of Maryland's yacht.

Aviva (06:09)
Ha

Yeah, I didn't see that one coming, but...

Neal Sherman (06:14)
I didn't see the question coming, Aviva. So

I'm glad I could counter not see it coming to you.

Aviva (06:20)
No, it's like I said, I just walked through that warehouse. I can't believe how high ticket these items are.

Neal Sherman (06:24)
And one of the challenges is people buy things, it's not like real estate that hopefully continues to go up in value and other things. The equipment devalues very quickly. But the beauty of it is that much of it is made from stainless, which you saw, and it's going to be here long after all of us have left the earth. And it stays out of landfills.

So that's the other benefit of us creating the aftermarket. We were the subject of a study at MIT on sustainability in the food business. the industry itself, the stainless industry, they don't know. They think it's somewhere between 100 and 1,000 years that stainless deteriorates. So by keeping it out of landfills, it's another value to our customer and to the world, if you will.

Aviva (07:08)
Phew.

Absolutely. It makes all the sense in the world. So how long have you been running with tag eX?

Neal Sherman (07:22)
Seems like a thousand years Aviva. And yeah, it seems like yesterday. So 38 years when we started as a project management company and it stayed that way for a long period of time even when we took the leap in real estate which many of my friends in real estate told me I was foolish to undertake. We bought an old army base in 2000 in the Finger Lakes in upstate New York. That's a thousand acres, 63 buildings, not all of them with roofs.

Aviva (07:28)
Okay.

Neal Sherman (07:50)
2.5 million square feet, again, not all of it with roofs. And we needed space. We'd take on a project for 20 restaurants. It was a floor space of 20 restaurants or 60 supermarkets, and that's what it was. So we're basically in a position to continue to grow and be supportive of our clients nationally.

Aviva (08:02)
Wow.

What's the biggest, where do you see the biggest change in food service since you started in the business?

Neal Sherman (08:18)
Sure.

I think the challenges that every business faces that we observe that the equipment industry is a $15 billion industry every year. The aftermarket is about probably a third of that. No one tracks it, so no one really knows. I think the challenges that everybody faces, the cost of the commodities is really a lot. Labor, scarcity of labor, cost of labor.

Regulation certainly affects it. Competition affects it. And I think a lot of food companies are going to prepare foods in warehouses, in commissaries, rather than preparing it on site. It saves labor. It's more consistent, et cetera. And I think that's part of the process.

Aviva (09:02)
My husband was a chef for 15 years before I, okay, before I dragged him into the biz. something that, this is what would upset me about his job as a chef. He would go to work and aside from the fact that he worked 70 hours a week, nights and weekends, you know, there would be, you know, this would happen once or twice a year, but you know, it'd be a table of four.

Neal Sherman (09:05)
I know that. I did research on you.

Aviva (09:26)
who just is hell fire on the staff. Everything's going wrong, they're not happy, they're inconsolable. And understanding the margins in the restaurant business, if they're spending 200 bucks, which now we know is very, in 2024 is very cheap for a four top for dinner at a nice restaurant. But if they're spending 200 bucks,

And then the margin is 10 % on the high side. That just means we stressed out the entire restaurant for a $20 profit for the night, for that table. And it upset me how upset he would get over basically nothing in profit.

I empathize with the restaurant industry because we love it. know, you know, as a country, as a world, love the restaurant industry, consume it. and it's a very passionate space, but it seems like every year there's more and more openings and more and more, well, more and more closings, which then lead to openings, but just pain in the space.

How do we remediate these falling margins in an industry that really can barely even satisfy our society?

Neal Sherman (10:43)
Sure.

It's, well, you hit the nail on the, first of all, philosophy I have is that competition is one thing that there's too many places to eat, right? In our society. in, from a business standpoint now in many respects, that's a feeder to our business. So I just try to facilitate the challenge of that. And I think that the, other piece, not only are there too many places to eat is that

Aviva (11:00)
Hmph.

You

Neal Sherman (11:17)
what we call blurring of the sectors. It used to be a supermarket, you got groceries, you went home and prepared dinner. If you wanted to go out to dinner, you went to a restaurant. If you wanted gas, you went to a gas station. And now convenience stores have a phenomenal amount of really effective prepared foods. And so you multiply that from what was very sector or vertically specific across chains. I don't know that there is a remediation.

Supply and demand will eventually resolve that. And I think that the other piece is that the business of food is going to be continued to be challenged because of the cost of commodities, the cost of eggs right now. mean, the just the basics of it all, that plus labor. Well, our view is, is that when you open a restaurant, the cost to build out a restaurant can be two to 200,000 to 2 million or more dollars.

for the build out, excluding the leasehold improvements. So we say, look, we don't have 100 % of what somebody needs when they open a restaurant, but we do have, we can help them save 50 to 60 % on buying new, buying in the aftermarket. So that's kind of our support of that. think it's gonna continue to get more and more competitive in the food space.

Aviva (12:37)
I'm working on a deal.

And very long story short, in order to, this is a brand new development that they're developing into a number of restaurants and a cafe. They got a bid for the hood to install the hood. It was $250,000. I know.

Neal Sherman (13:00)
Wow.

I mean, and that's between a walk-in box refrigeration, freezer refrigerator, and a hood. It's crazy. It's at least six figures, even in the most minimalistic of quick service restaurants.

It's tough to reuse those in the aftermarket, right? So it's tough once you take a walk in out and you've probably seen what it can be behind those scenes, it's not a good place. And so it's, you know, it's a never ending challenge, if you will.

Aviva (13:17)
crazy.

Really interesting business to be in. What do you see the future of food service in America looking like?

Neal Sherman (13:43)
let more automated right automation is a big thing. It used to be that people would view technology in the world of restaurants as point of sale systems and kind of data, which is wonderful. But the automation of the back of the house, the actual production of it all, classically trained chef like your husband would not be happy at some mechanical arm, you know, making the sauce right or something like that because it loses the personal touch.

Aviva (13:48)
Hmph.

Neal Sherman (14:11)
But I think there's a lot of automation that's part of that, unfortunately. For us, we see continued challenges on the labor side of things. The labor market is a big part of it. And it's tough to be a quick service restaurant to let somebody eat lunch for under $10 when they have the overhead of not just the cost of...

of rent and people and commodities. It's tough. You know, that's it's really tough. And then you get like you had explained with the example with your husband's restaurant, you know, people complaining about even the most minutiae things. And it's a tough place. But there's passion, right? There's passion just like in real estate or in or in, you know, entertainment or, you know, sports or whatever be the case.

Aviva (15:03)
Yeah.

I think automation is, I mean, nail on the head in my opinion. Josh used to always, people would no call, no show a couple days a week. It's very common, unfortunately, with some of these back of the house jobs in restaurants. And the joke was that...

your line cook if it was automated, wasn't getting arrested, wasn't hung over, was showing up on time, wasn't asking for a raise. So we have a long way to go. Sounds like they're going to be making a bunch of new equipment that you'll be able to buy, sell and resell. And it'll be interesting to see what happens in the world of food consumption in America and beyond.

Neal Sherman (15:52)
Well, that's the thing is that people have to eat and they have to find constant innovation, right? And people want something new and different, you know?

Aviva (15:59)
Mm-hmm.

Very cool. I love learning about very niche topics like this. Neal, what makes you happy with what you do day to day at Tag eX Brands?

Neal Sherman (16:16)
I think the excitement of the food industry, the constant change. People love talking about it, getting involved in it. I love innovation. So that makes me happy. I was interviewed this morning coincidentally and they said, well, looking back, what do you like? And I think about over the years, the people that were part of our company, whether it be for a short period or still with us, put kids through college, bought houses, married off children.

by working at our company that gives me lot of satisfaction in solving people's problems. So that doesn't make it easy. You're catching me on a good day. It's quiet out there. It's quiet out there Aviva. It's not a lot of change occurring in the restaurant food service business today, you the day before Christmas or two days before Christmas.

Aviva (16:56)
That's funny.

That's funny.

I know it's a special time. know, same, we've got some deals rolling, but some people aren't picking up their phone and that's okay. I hope they enjoyed their family time and the holiday. Neal, where can the listeners find you, follow you, learn more about Tag eX brands, et cetera?

Neal Sherman (17:12)
Right.

Sure. Well, my our website is tagexbrands.com. T-A-G-E-X brands plural.com. My email is nsherman. N-S-H-E-R-M-A-N at tagexbrands.com. We're on social media, Instagram, Facebook, TikTok. We don't have the Aviva multi-million following, but we're trying hard every day Aviva.

But, or, you know, people can call me. We're very accessible. I mean, we're national company. We service thousands of locations, but we take a lot of pride in every customer, whether it be a restaurant operator on Main Street to a chain traded on Wall Street. We have the same attention to detail.

Aviva (18:00)
Neal, thank you so much for the kind words and being on the show today and for everybody listening. We'll see you next week.