Dan Rowe (00:00)
what’s the weirdest thing you guys have actually disposed of and sold?

Neal Sherman (00:03)
in the food space or the non-food space? I don’t know if I ever told you this, but the governor of Maryland was a guy named Erlich and he came into office and he said he was gonna cut all the fat and everything else. It turned out there was a state yacht and there was a state jet and they were at Thanksgiving.

Dan Rowe (00:05)
Anywhere. The weirder the better.

Neal Sherman (00:23)
And they said, listen, we got to get rid of this. We said it’d be gone in the first year. So we launched both on eBay. And we sold the Governor of Maryland’s yacht, the Governor of Maryland’s jet on eBay.

Dan Rowe (00:33)
All right, welcome back to Smart Franchising with Fransmart and I can think of no smarter franchising than focusing on driving ROI, lowering open costs and shortening the time to get all your money back out of a project, out of a franchise. And today we’re joined by my good friend, Neil Sherman of TagX, who specializes in restaurant and retail liquidations, used equipment resales, and even some new equipment being sold at used prices.

The cost of everything is going up and there’s no end in sight. In one cheat code, a place to look to lower your overall cost is at your equipment. So Neil, glad to have you. Thank you very much for doing this. Give a little bit about your background on how Taggit started so we can get into it.

Neal Sherman (01:18)
Sure, Dan, honored to be part of it. Appreciate all you’re doing in the industry, not only your leadership in organizations, but also sharing people’s perspective to help make things more efficient. So grateful for that, as many others are. So Tag X Brands roots are in Washington, DC, just like yours. And we started almost 40 years ago ⁓ after ⁓ grad school and spending time in brand management.

wasn’t a fan of corporate America, wasn’t a fan of New York, moved to DC, and it was at a time when supermarkets were getting into prepared foods in the early days. We managed kiosks for big brands, Campbell’s Soup, Maxwell’s Coffee, and every time we’d bring a kiosk in, the retailer, Dan, would ask us to get rid of whatever we were displacing. And at first we were insulted, we’re not junk guys, and then the retailer would say, listen, you’re not bringing your kiosk in until you get rid of whatever we’re displacing. And so as a courtesy, we got rid of it.

We had more demand for getting rid of other people’s surplus, went from supermarkets to sea stores to restaurants. And 40 years later, we operate the biggest aftermarket of, as you said, new surplus and used restaurant food service equipment. Do work for 41 of the top 50 restaurant chains in America, have 50,000 registrants on our auction platform, restaurantequipment.bid. And the mission is to help make the aftermarket more efficient, to help people opening locations.

⁓ with lower cost capital equipment. So that’s our lane.

Dan Rowe (02:51)
So, but like, I mean, the dirty secret in restaurant equipment, like a car, like a boat, the minute you drive it off the lot, it drops in value, right? A lot of times when people are buying brand new stuff, I mean, right away they’re losing like a third or a half of its value, right?

Neal Sherman (03:10)
Right, or more, right? And the secret, as you said, is that most equipment that’s in the restaurant space is made of stainless. Stainless disintegrates at 100 to 1,000 years. No one’s ever really clarified it. We did a study at MIT that validated that. Stainless is going to be here long after we’re all gone. these pieces of equipment, if they’re mechanical, they’re pretty rugged, and they have a long life.

And so anybody who’s opening a location, if the equipment package in a QSR is a small sandwich shop, is a quarter of a million, you might not be able to get 100 % of the equipment that you need for that location in the aftermarket. But if you could get 40 % at $0.50 on the dollar, you’re saving 20 % of the total CapEx cost.

Dan Rowe (04:01)
Why don’t more people focus on getting used equipment? Is it stigma or are just lazy?

Neal Sherman (04:07)
⁓ maybe that and ⁓ ease. ⁓ kind of, you know, our whole vision is to make an efficient aftermarket. That’s our kind of mantra every day, is that there’s so much supply out there, you just have to get in the car and go down any street in America and you’ll see closed restaurants, closed locations. And our job is to get that surplus and to bring that front and center onto our marketplaces. So it’s a hassle.

And somebody opening a location, you know, if they’re green and they haven’t opened a location before, they think that they all need shiny new equipment or shiny new. And as you had mentioned, the surplus new equipment on our marketplaces is sometimes greater percentage of the total items than than used. So through covid through all the supply chain issues of the world and everything else. ⁓

There is a plethora of new surplus that brands just didn’t need. They bought long because they were concerned about lead times. And all of this is tariff free, right? It’s already here in the US.

Dan Rowe (05:12)
What do mean, terror free?

Neal Sherman (05:14)
In other words, someone’s already sunk the cost of purchase, so there’s no tariffs. If you buy equipment now that’s made abroad, somewhere in the pricing is embedded the tariffs that have been included in the purchase price. And ours is already here. It’s already done.

Dan Rowe (05:30)
Got it, got it. Yeah.

And, speed, mean, and speed, like a lot of things have lead time. If something’s on your auction, they get it now. What, what just so people know, like just what are some examples of restaurants that have closed and what comes out of those? Like what, what’s an example of where a chain shut a bunch of restaurants and then how does someone take advantage of all that? What’s really there?

Neal Sherman (05:39)
Sure.

So our auction platform, restaurantequipment.bid, has anywhere from 30 to 50 auctions live, either from our warehouses or around the country. And there’s been so much demand on the auction platform, we’re launching a storefront next month where people will be able to buy instead of just wait for the auction. Some people don’t have the patience or desire to be part of an auction platform. And so we…

Basically have you know are going to make it easy to have a catalog online so to give you an example last year We closed about 400 locations in the US. We managed the physical facility closure process 125 red lobsters 63 rubios Shake Shack Tijuana flats burger fries a bunch of independents

And basically all those get either launched from site from where the closure occurs or they get brought to our warehouse and in turn get launched on our platform from our warehouse. And so that makes it easier for somebody who’s looking in the aftermarket that wants to save money along the way to be able to have access to.

Dan Rowe (07:02)
Okay. And then you said just a second ago, so the auction is, I’ve got this new piece of equipment and then it goes out for a classic auction. But someone that needs a piece of equipment, it may or may not be there, which is why you’re doing the storefront. The storefront will just always have stuff, right?

Neal Sherman (07:19)
It’ll

always have stuff. We’ll never be 100 % of what people need because as you know with the many amazing brands that you brought to the market and you’ve helped to grow, everybody has kind of concept specific equipment. So we may not have things that are concept specific to a given brand, but there are other things that are bread and butter things that are always used in the restaurant space. Stainless tables, prep tables, refrigeration, cooking equipment, pizza ovens, you name it.

⁓ And those people, those operators that are looking to bring down the, you know, the whole goal is to get a location open at the least cost. And capital equipment, which you’ve always been a champion of figuring out how do you get people to lower that capex cost, either when they bill Dan or when they have replacement situations.

Dan Rowe (08:06)
Yeah, what? So how does the auction work? Like if I go and register and yeah, I mean, I think that sounds like the thing is I have to keep looking at the auction and do I get a do I get to actually flag certain pieces of equipment and then you guys will send me a notice when those are coming on the auction or I just have to keep taking a look keeps.

Neal Sherman (08:26)
⁓

So the auction is geographically based. So we have four hub facilities around the country. We have a thousand acre former army base in upstate New York that is in the Finger Lakes. That’s within a day’s truck run of half the U.S. and Canada’s population. Then we have hubs in Orlando, Dallas, and Los Angeles. Every month we have two auctions from each one of those facilities. And so we can ship to people or they can pick up depending on where they’re located.

In addition to that, we have remote auctions that are, think currently there’s maybe 25 or 30 of those around the country. So a location closes, we have an auction in that location. You can market within that auction if it’s geographically desirable to you. You can market to be posted when you bid on it or when you get outbid. There’s a whole series of tracking you can conduct. And that’s one of the reasons that we’re going to ⁓

offer a storefront because so many people need so many things and they don’t have the time, running a restaurant takes a lot of time or building one, and they don’t have the time to be able to track an auction and then they can buy it direct.

Dan Rowe (09:36)
Yeah.

And then just as an example, like what, are some brand new pieces of equipment? How did you come across brand new pieces of equipment that have never been used and what could someone save picking those up?

Neal Sherman (09:49)
Sure. So some of the major brands, and like I said, we’ve worked with 41 of the top 50 restaurant chains in America. Some of the major brands have initiatives to test things, not just restaurants, but also sea stores and supermarkets. And they test them and they may be bought long to test it in 50 or 100 locations and it didn’t work out. And so a new chef, new culinary director, new ⁓

marketing person comes in and they say, nah, this program is not going to work. And they need to dispose of or sell off the surplus equipment. So the source of that is some of the bigger chains that we ⁓ support that have surplus inventory somewhere in their system. It also may be somebody who’s a distributor or manufacturer who has slower moving items but are still new and in demand.

that are out there in the marketplace. Obviously COVID and the supply chain issues were a boost to that percentage of our total configuration.

Dan Rowe (10:53)
So what’s the life on like a, like a three compartment sink or a fryer or, know, like a, a cold make table, hot make table, those kinds of things. Like the life on those is long. Someone picking up those that’s only a year or two old, and then it was liquidated. Is there, I mean, there’s nothing wrong with that. Right. And they still got a long life ahead of it.

Neal Sherman (11:15)
There’s nothing wrong with it.

Yeah, in fact, some chefs will tell you you’re a leader of the Culinary Institute of America and the National Restaurant Association. Great chefs will tell you oftentimes the older equipment is produced more structurally sound and they prefer it to the newer items that may have thinner, thinner grades of stainless. And so a mixer, a Hobart mixer, which is a blue chip item, can last 20 or 30 years.

And so as long as you’re comfortable with ⁓ scratch and dent, which is kind of a term of art of the industry, as long as you don’t mind a scratch in the back of the house, and by the way, who cares about a scratch on a piece of stainless or a prep table or a sink, but if you can save 50 cents on the dollar, it’s a pretty sizable approach. And good operators, good independent operators are looking for those opportunities every day.

Dan Rowe (12:08)
Yeah, especially emerging brands like when we launched Five Guys, most of the first dozen or so new Five Guys locations were conversions like most of them. And it’s sort of a way to cheat at lower startup, higher ROI. And definitely if you’re doing a conversion and picking up some of the equipment that you need in the aftermarket, like that’s really the way franchisees should think more about that because

At the end of the day, if you want to sell a bunch of franchises, you better have happy, motivated franchisees building more stores. And one of the ways that you can do it is not requiring them. Like I remember at some point, five guys got to the point, we took over a Burger King and it was a newer burger. The first one was a McDonald’s on an end cap. We converted that for next to nothing. We literally told the contractor, don’t move a light socket. Don’t move it. Counter, don’t move anything. ⁓ Afforded us to open up cheap, right? We opened up cheap.

profit real quick. I think it was our third franchise where we took over a Burger King that was only a couple of years old. They made us gut it to the nub, right? So franchisors at some point change. But in the beginning, the whole reason five guys win as fast as it went is, is you had these really good numbers, top line and bottom line over very low startup cost, right? So like, I think more people, more franchisors should be focusing on this.

Neal Sherman (13:26)
Right.

Dan Rowe (13:33)
Certainly the franchisees are independent should be focusing on this, but how could a franchise or work with you? Could they say, Hey, charm, here’s our list of all the FF and E and small wares and blah, blah, blah, blah, Or like, wait, can you see a way for a franchise or to partner with you so that they’re proactively getting looks for their franchisees?

Neal Sherman (13:53)
Well, you’ve been always a champion of our cause and a champion of your guys franchisors and franchisees opening up for a lower cost. So you’ve always been a cheerleader for that. But the mindset oftentimes of the franchisor is very formulaic in their mind and don’t realize that if they reduce their cap X cost by X, it would just accelerate their expansion to your point of the early days of Five Guys. The second area that is a big opportunity which generates a return

is when franchisees, franchisors, other independent operators take over second generation locations. And those second generation locations have equipment, smallwares, furniture, fixture, decor that they’re not going to use in their concept. We can come in and help them monetize that. So we’re not just a source of equipment. We’re an ⁓ avenue for them to monetize assets that they’re not going to use in their concept.

So if they call us, we can do an auction from site. We don’t have to move it. We can launch it in a matter of hours. And we manage everything related to it. We can help them document it. We have an app that documents it. We market it, promote it, close it, collect, and then schedule one narrow window of pickups so they can get right away into construction. the second generation, we’re doing a bunch of TGI Fridays now in the Northeast that other concepts are coming in to take over.

So maybe 30 % of the items, Dan, don’t need to be part of this new concept. And so we’ll come in, document it, launch it. They’ll generate dollars instead of paying a contractor to dispose of it. And then on the flip side of that, the franchisees may have an opportunity to buy on our platform a subset of their FF &E list, to your point, that is prescribed for them. And most of the items, unless you get into the big brand QSRs, the McDonald’s of the world, the Burger Kings, those guys,

are not really, nothing is really concept specific, right? It’s basically ⁓ generic. Yeah, it is. And now, you know, there’s all sorts of people that franchise or is that want everybody to buy everything from them, including the capital equipment. But at the end of the day, it benefits the brand to have more locations to launch at a lower cost to start up. And it benefits everybody.

Dan Rowe (15:52)
Yeah.

three compartment sinks to three compartment sink. Yeah.

Neal Sherman (16:16)
So we can help people with surplus. By the way, we can also not just people that are taking over second generation locations, anybody that has surplus, whether it be one item or an entire location, whether it be what we’re doing a roll out now of 3000 locations nationally that they’re changing their concept. And we’re bringing all that equipment in to help them monetize it instead of them paying somebody to dispose of it. We’re also green. It wasn’t the intent of the business, but we keep things out of landfills. And so we feel pretty good about that as well.

Dan Rowe (16:43)
Yeah.

You should, you should. That’s an extra marketing. You drop a pebble in the water, you get a lot of rings. That’s an extra ring for you. What are the tax benefits of buying used? Like if somebody has already fully depreciated something and now it’s on the aftermarket, what does the new buyer get?

Neal Sherman (16:50)
Right. Right.

Well, the new buyer buys it with the cost basis of what they paid for it. So they can start depreciating it from $1 of whatever they paid for it. So regardless of who depreciated it before, if they’re buying it on our site for $100, they can then depreciate it over five years, seven years, whatever they choose to do or expense it, whatever they choose to do along the way with the equipment.

Dan Rowe (17:24)
Yeah, I don’t know why I’m thinking about this, what are, are there financing options available for someone buying used equipment and service contracts that they can get on you stuff?

Neal Sherman (17:35)
Right. So the answer is yes. We have been asked for a long time and it’s probably in our next 12 to 24 month strategy to offer financing and offer service on the equipment. But for the most part, you know, we’re not talking about heavy technology based equipment. Right. So the equipment that we have is something that is, you know, available for people who can

Basically put it into action immediately or with some minor technical adjustments or temperature things like that

Dan Rowe (18:08)
I just wonder like if someone’s getting a, you know, an SBA loan or usually you have to show the use of funds. So showing a use of funds have used works just as well as new, right? I suppose it would. You still have all the, yeah, all the specs. Okay. What’s the weird, what’s the weirdest thing you guys have actually disposed of and sold?

Neal Sherman (18:19)
Yeah, totally. 100%. 100%. Yes, it’s 100%.

in the food space or the non-food space? So the, I don’t know if I ever told you this, but the governor of Maryland was a guy named Erlich and he came into office and he said he was gonna cut all the fat and everything else. It turned out there was a state yacht and there was a state jet and they were at Thanksgiving.

Dan Rowe (18:30)
Anywhere. The weirder the better.

Neal Sherman (18:51)
And they said, listen, we got to get rid of this. We said it’d be gone in the first year. So we launched both on eBay. And we sold the Governor of Maryland’s yacht, the Governor of Maryland’s jet on eBay. The other one is we were brought in by a company that was managing hospitals and ⁓ we sold a morgue. They call it a meat locker, but it’s not, know, it was used for people that sadly passed. And so we sold that at a hospital.

Dan Rowe (19:09)
my god.

Do remember

how much the morgue went for?

Neal Sherman (19:22)
not a lot, I don’t remember. It was more they were ⁓ destroying it. The yacht was a steal ⁓ and some cosmetic surgeon from Baltimore bought it for like half a million bucks. But it had a great history of it. was, I don’t know, was somehow linked to the Kennedys. I don’t really know, remember all the details.

Dan Rowe (19:36)
Wow.

Well, if you have a cheap airplane, make sure you let me know.

Neal Sherman (19:46)
Yes, I will. But I think the airplanes we would have would not necessarily be in the lane of your next generation of jet.

Dan Rowe (19:48)
Hey, what?

Uh oh. Hey, what? So yeah, so now let’s talk about you as a resource for people that have equipment or want to get rid of stuff. Cause I think like right now, yeah, you usually, you just think about finding someone to take it away. You write off the cost and you find, and then you pay someone to take it away. What, how are you a good option for that?

Neal Sherman (20:14)
So we have now, we have 100 % of the US and Canadian coverage. So if you have any equipment in your back room in any condition, whether it be new surplus used, whatever, whether it be one item or a location, or whether it be items across the US, we have a mechanism now with our app and our online marketplace auction platform that we can launch it. Today, I think in…

I think we had three auctions closed that were one or two items. So somebody had the items and they call us and we get them launched on the site and we’re performance based. So we take a commission and we yield the proceeds to the client. more importantly, they get it out of the way of the operation to make the operation more fluid so that there’s not all this equipment in back rooms and being an encumbrance.

I mean, and we do, people just think because we’re the largest nationally that we don’t, you know, we were built by customers on Main Street. You know, we serve clients on Wall Street, but we were built by customers on Main Street. So we have a big soft spot for anybody who has surplus that needs to get it out. And so our 50,000 customers buy everything. 98 and a half percent of the items that we list on the auction sell, which is a staggering number. Every lot starts at a buck.

Dan Rowe (21:09)
Yeah.

Nice.

Neal Sherman (21:39)
⁓ And the ⁓ more we have on there, the more we can help out people. And plus we do work for recognizable brands, Disney, Darden, Wegmans, Culinary Institute of America, Yale, University, Cornell, Harvard, you name it, food service operators around the country.

Dan Rowe (21:58)
No, I don’t. I don’t know why more people aren’t looking at this. I mean, we do mainly because like I said, we grow emerging brands and they’re still young and not worried about all the vanity. But ⁓ yeah, I want to, mean, I would love to find a way to build. Like almost like a link to you guys that says, Hey, I just sold this franchise. I just sold a burger franchise, whatever. And in six months, they’re going to need these pieces of equipment. Keep us posted as these things hit your auction.

Neal Sherman (22:25)
Sure.

Dan Rowe (22:27)
And then that way along the way, mean, gosh, if you take a half million dollar business and a franchisee can save 25, $30,000, like that’s a lot, you know.

Neal Sherman (22:36)
That’s you.

And we’d love to do that. We’d also love to help your guys that are getting going or people that are already operating generate dollars on things that are dormant to them. So as chains or brands or even independents change their operating ⁓ protocols and don’t need certain equipment, we can help them generate a return on those. And those are dollars that, you know, can benefit their working capital. So

We can help anybody not just taking over second gen, but anybody that has equipment, anybody that has surplus, everybody has it, Dan. It’s a universal thing, it’s like back rooms, so.

Dan Rowe (23:10)
And you guys are never.

Yeah, and you guys are in every market in the country, right?

Neal Sherman (23:16)
100 % of the US and Canada.

Dan Rowe (23:18)
Wow, that’s great. All right, man, where can people find out more about you?

Neal Sherman (23:22)
So I’ll give my email and my phone number and anybody who’s listening can certainly call me a friend of Dan. Dan Rose, a friend of mine, a listener of Dan Rose, a friend of mine. So it’s nshermansherman at tag X brands.com. That’s T H E X and the word brands plural.com. And my phone, can I get my phone number on, on the frame smart hour here? It’s five eight five. Yeah. Five eight five two five nine.

Dan Rowe (23:44)
Yeah, yeah, yeah. But you’re married though, you’re married.

Neal Sherman (23:51)
So that’s 585-259-6353 and it’s tagxbrands.com or restaurantequipment.bid. So we appreciate it. Dan, thank you for all you’re doing to make things in the chaotic world, giving some clarity in the world of food service and restaurant chaos.

Dan Rowe (24:02)
Not bid.

Well, I think this is going to help. really appreciate you taking the time to explain this and it’s an amazing resource. And I personally want to do more deals with you. So appreciate you coming on and sharing. So I’ll talk to you soon. Thanks guys.

Neal Sherman (24:24)
All right,

thanks Dan.