In 2005, Brian Tuberman acquired STCR, a provider of retail point-of-sale (POS) systems to independent grocers, primarily in the markets proximate to the company’s headquarters in Endwell, NY which was founded in 1966. Seventeen years later, having expanded the company’s base nationally and internationally, Tuberman sold the company to Tampa-based private equity firm Mangrove Equity Partners, an investment firm focused on small-to-mid-sized businesses, many of which began as entrepreneur-driven enterprises. Tuberman will remain involved as an advisor, helping with further acquisitions, Victor Vesnaver has been brought on as President & CEO and Mangrove principal Andrew Winner will serve as a key liaison between the two firms. Recently, we chatted with the three executives to get their perspective on what prompted the mutual interest to consummate a deal, and with new capital investment forthcoming, what STCR’s current and future customers can expect them to provide.
Food World: Brian, what prompted the sale? How did you find Mangrove?
Brian Tuberman: We’ve had many offers from competitors in the industry over the years – with companies constantly knocking on my door as well as me knocking on other people’s doors to try and acquire them. A couple of years ago I did a valuation of the company and decided it was the right time to look around. I told our (business) broker (Prosperity Plus Management) the criteria I was looking for and we developed a plan. We received multiple offers, but the final decision was based on cultural fit. Out of all the offers we received, we felt that Mangrove brought more to the table. One of the reasons that I pursued the partnership was that while our business was doing well, we needed to take it to the next level and that would require resources for future acquisitions and other upgrades. Mangrove clearly had the necessary resources and most importantly shared my vision.
Food World: Andrew, how did STCR appear on your radar? How did you learn of these guys and once you did, what interested you most about them?
Principal Partner, Mangrove Equity Partners
Andrew Winner: Mangrove maintains relationships nationwide with investment banks, business brokers and other intermediaries. One of those relationships was with Jim Kahrs of Prosperity Plus Management Consulting that Brian referred to. Jim put us on the list of potential buyers because one of our past experiences included executing a roll up strategy within the engineering software and additive manufacturing space. We previously invested in a company called CATI (Computer Aided Technology) that was a value-added reseller of Solidworks 3D CAD software and Stratasys 3D printers. So given that experience in the reseller channel, Jim put us on the potential buyers list, giving us the opportunity to meet with Brian. There were several things both industry and company related that made STCR an attractive opportunity for us. First, on the macro environment side, grocery is a recession-resistant industry and largely insulated from economic cycles. In the current economic environment, with inflation and rising interest rates, and with some experts expecting a recession in the next year, it seemed like an extremely attractive market to focus on. Our research suggested that grocers, as a group, were financially healthy coming out of the pandemic and are looking to make investments and upgrades in their stores. As we dug deeper, we also became bullish on the independent grocery end of the market. While the segment has faced challenges over the last 20 years, the successful independent retailers are finding ways to differentiate and specialize in creating unique shopping experiences for their customers. Lastly on the macro side, we are seeing that these independent grocers are embracing technology. The pandemic has forced companies across all industries to evolve their business models and we are seeing grocers increase their adoption of self-checkout technologies, e-commerce integrations and make other investments to enhance their customer’s shopping experience and improve their bottom line. Pivoting specifically to STCR, Brian has built an incredible team of people that are relentless in their efforts to provide quality service day in, and day out, while being a trusted solutions provider to their customers. That was absolutely apparent as we reviewed STCR’s longstanding customer relationships, many of which date back 20 years or more. As Brian mentioned, in terms of a cultural fit, we also felt that the STCR team embraced many of the same core values engrained in the Mangrove culture and felt that we would be ideal partners for the management team in this next phase of the company’s growth. The Mangrove culture is built on integrity, respect, fairness, and fun. We thought there was a good fit between Mangrove and STCR. As far as our mission, we spend most of our time partnering with entrepreneurial-owned businesses. In its simplest form, we help small businesses break through to become medium sized businesses. We understand that small businesses are resource-constrained, and we get excited about making critical investments in people and systems to help the company achieve its growth goals. We clearly want to energize growth, but we want to do it in a responsible way.
Food World: Victor, when did you enter the picture?
Victor Vesnaver: In early May of this year, a recruiter that Mangrove has used for many years reached out to me and presented the opportunity. My background is in technology management and in the technology vendor community, largely providing services to the hospitality industry. Many of the things that we do at STCR are similar to the things that I have done for most of my career. It represented an interesting opportunity for me to leverage the skills and my background, and the exciting challenge of learning an entirely new industry.
Food World: What have you found in the early going to be the biggest difference, working in the retail food sector, which is obviously service-oriented too, but different than hospitality and food service?
Victor Vesnaver: I think the biggest difference is the industry structure. In whom the customers are and what relationships you need to develop. There is sort of a similar business and financial structure in hospitality, but I think that there are more potential influencers in retail, certainly grocery retail than what you might find in hospitality. The challenges in both sectors are probably equally significant – both worlds live and die by the need for high quality and responsive customer service, many integrations to third party systems and a very tight labor market.
Food World: Brian, was knowing that you would be selling the company when you went forward with this proposition difficult for you personally? After all, it was your baby; you bought the business, you owned it, you controlled it. Now, obviously with new ownership, you’ve liquidated your equity, and with the changing management team, you are not the CEO anymore. Once you made the decision to go this route, did you view this as something that ultimately just comes with the territory.
Brian Tuberman: Yes. The company has been around since 1966. I joined STCR in 1993 and then bought it 17 years ago. Objectively, for any business to survive, someone at the top needs to know what their limitations are. In order for it to ascend to the next level, you have to figure out what that plan is. From the time that I bought STCR, I always looked at the succession plan – how was I going to go about exiting. That might seem like an odd thing – buying a company and thinking 17, 18, 19, 20 years down the road that you will be selling it even when you just bought it. This is about everyone else. It’s about what we do, it’s about our industry, it’s about our products. Prior to me buying the company everyone knew the company by the founder’s name rather than STCR. So, it was important for me to build a business that wasn’t about me. Yes, I have made some strong relationships with customers and vendors for the last 29 plus years and that was important. However, it was equally important for me to keep the business going. It was the right time to hand it off to others. As I said earlier, it was vital to me that we find the right company to do that with.
Food World: Do you anticipate there being any other organizational or infrastructure change in how you go about directing your business and with your personnel analysis? Victor, your slot is a new one. Will there be other changes that you can disclose or that are anticipated?
Victor Vesnaver: Brian has built an incredible team that is very well qualified in each of their respective areas. I don’t foresee any significant changes in that regard. While we operate all over the country, we are going to be opportunistic and determine where it makes sense to expand our sales presence and other resources. Our model is very different from a lot of our competitors, in that we rely on the strong capabilities of Toshiba to help us with ‘break-fix work’ around the country. We don’t have a requirement to have field technicians, trucks, and spare parts inventory in the markets we serve. We leverage our relationship with Toshiba for that work which we have been doing for many years. We are working hard to accelerate growth and we are going to do it as best we can organically. In addition, through our relationship with Mangrove, we will selectively entertain strategic acquisitions in our traditional and adjacent spaces.
Food World: Are you not territorially restricted from selling Toshiba products only in markets they designate?
Victor Vesnaver: We do not have any geographic constraints. It’s important to note, we not only sell Toshiba hardware, software, and services, but we are among the top resellers of LOC Software’s Store Management Suite (SMS).
Food World: In terms of opportunities outside your core coverage area, would this come more in terms of repair work or consulting work on the service side rather than the pure sales end?
Victor Vesnaver: We are going to be opportunistic. When we meet a customer and they have specific needs where we can offer solutions from our product catalog, we are going to do that. In most cases, we are looking to sell the complete solution. We definitely want to sell the software, hardware, and related services. That said, when customers have projects that fall outside of our traditional product range and we can add value, it allows us to start or otherwise build stronger relationships. Sometimes that might include some software. Sometimes that might include some hardware and sometimes it might include consulting services. It is a way to get to know customers before we sell them a complete solution. As mentioned earlier, we are going to be opportunistic in terms of the markets that we focus on and with potential customers who may seek our help across any number of different verticals, product categories and/or services.
Food World: Andrew, how would this complement what you are trying to bring to the table to enhance STCR’s sales potential?
Andrew Winner: We went through our strategic planning process with the STCR team at the beginning of this year and we crafted a plan for 2022 that involved increasing the STCR team’s workforce, by about 20 percent. We are making real investments in our human capital at STCR to expand the team and have the technical resources and help desk support to provide those solutions to our customers. We spend a lot of time with small businesses and as I mentioned earlier, there are frequently resource constraints. You can’t just put numbers in a spreadsheet and expect growth every year unless you make those investments in people and infrastructure. Year one is definitely a building year for us, adding those key resources to the team and expanding our geographic presence, as Victor touched on. In addition to that, we are concurrently trying to be opportunistic in terms of pursuing add-on acquisitions, which are an attractive way to continue to scale and build that nationwide presence.
Food World: What percent of that 20 percent would be people hired to cover new markets versus infrastructure to handle some of the administrative needs that you are going to encounter as you grow?
Andrew Winner: As you know, it is a tough labor market, so you can never be too rigid in your planning and hereto we want to be opportunistic. As we sketch things out, this year we are looking at adding folks to the sales and marketing team and people to the operations team. Finding great people may steer what we do in terms of numbers in the end. On the sales side, the goal is to expand our geographic presence and have people that can meet face-to-face with our customers and develop those relationships. But one of the beauties of our business model is that we can provide our support remotely. So, either from our headquarters in Endwell, NY or leveraging our remote employees, and nationwide partners like Toshiba, there is a lot we can do without having a flag in the ground.
Brian Tuberman: We have always had remote employees in one form or another, but one of the lessons we learned from the COVID challenge is that we can effectively operate with a remote employee base whether it is administrative, technical, or sales. Employees don’t necessarily have to be in an office any longer. That has really given us an advantage, especially with the tight post COVID labor pool.
Food World: So, that is year one. Is there a year two concept out there, in terms of what the next level of build-up would be or will be?
Brian Tuberman: Our goal is to double the business in the next three years. We have a motto in our company now “Two by three.”
Food World: And if you hope to double your business in the next three years, where would you anticipate that growth primarily coming from – new customers in your core existing market or new customers in these new geographies?
Brian Tuberman: I would say it is a combination. We do need to grow with new customers.
Food World: Continuing with new customer growth – would they mostly come from within your core current market mostly or by developing new customers in some of these breakthrough markets where you are ramping up talent?
Brian Tuberman: The markets both our vendors and we most want to focus on would be further west. There is a lot of opportunity there.
Andrew Winner: Brian is correct. It would be a nice balance in the breakout of growth. One thing I didn’t mention earlier, when we were talking about highlights of STCR that we felt were super attractive in our diligence and review, is that 25 percent of the U.S. population lives within a 400-mile radius of STCR’s headquarters. Independent retailers still have a strong presence in the Northeast, so we believe there is still a ton of opportunity in that geography. We also realize that to grow we need to expand nationwide, as well.
Food World: How do you define the independent grocer beyond the retailer that operates one to 20 stores. Would you consider retailers who are part of a co-op or bannered marketing group to be potential targets. How about regional food merchants?
Brian Tuberman: We have been focusing on companies who operate fewer than 100 stores. However, we are finding that we can service the larger retailer with 100 stores or more with the same incredible customer service and quality we’ve always been able to deliver to all our customers. Our systems are fully capable through the platforms that we support today. But we don’t want to lose sight of those independents that have a few stores each.
Food World: If you were to add retailers on the upper end of that spectrum or even those with more than 100 stores, what adjustments would STCR have to make to service the needs of a large cooperative or regional chain, some who might already be Toshiba customers?
Brian Tuberman: Servicing those types of customers would likely be a different type of sale and support for our type of organization. Many bigger retailers use the same hardware and software that we sell. But selling to them and supporting them is very different. Our traditional customer usually operates without an IT team. They rely on us to do a lot of their work, particularly integration. We end up having stronger bonds with our traditional type of customer as a result. Large retailers often work in a more commoditized environment. To make the adjustment we would just need the right individuals as we build the sales team to go and call on those accounts. Additionally, the selling cycle is longer with those accounts. We would have to make a conscious effort to account for that. I don’t think they are as support intensive as our customers are, but they also don’t change their systems out as quickly. That said, we will not shy away from anything that is on the table, in terms of what fits us, what works for us and works for the customer.
Victor Vesnaver: We are in a unique position in that we play very well in the space that we grew up in. We have become a trusted advisor, and an adjunct member of our customers’ IT team. Sometimes we are their IT team because many of our customers are too small to have anybody dedicated to technology management. Again, Brian has built a very capable organization that has been able to serve larger, more complex customers. We obviously know the space and taking us upmarket makes all the sense in the world, without necessarily going way upmarket which could be distracting. We have the systems and skills to both serve and add value for customers with two or three hundred stores and beyond.
Food World: Are there new products or services that you feel STCR can pursue to aid your growth?
Victor Vesnaver: I think we owe it to ourselves and our customers to always be looking for new and interesting products to add to our portfolio; both hardware and software. I have the great benefit of not having been in this space a long time, so everything is kind of new and interesting to me.
Brian Tuberman: I think that two areas of focus are self-service technologies and data analytics.
Food World: Self-service meaning self-service checkout?
Brian Tuberman: Self-checkout, smart carts, any type of automation tools in the store. Things that would just help the store run and create some labor efficiencies. We are looking at robotics. Those things you see in some larger chains that go up and down the aisle to determine stock levels and price accuracy.
Food World: Data analytics?
Brian Tuberman: That’s the whole reason anybody buys a system is to have information to control their business. Our goal is to make that information more detailed and accessible. That includes tools that will help them with their buying decisions, their labor scheduling and their inventory management. The independent grocers for many years were all about scan and bag – that’s changing. Now they want to do more in the store.
Food World: Like almost every subset in the grocery business, STCR operates in a very competitive environment. Here’s your unvarnished opportunity to talk about yourselves and demonstrate what you believe your advantages are. As the one who’s had the most experience, Brian, I’ll start with you.
Brian Tuberman: I believe our biggest strength is not necessarily in the products that we sell – the excellence of our product line speaks for itself. The great differentiator is the ability of our team to support those products. We have the uncanny ability to handle the complexity of things and to really understand what is going on in the store. I think our support and our service is second to none. Most of our competitors still do a lot of “break-fix” work and while that’s important, we have taken it to a new level where we have learned how to leverage our vendors so that we can focus more on the support aspect of things. Here’s an example: our help desk handles over 30,000 calls annually and probably about 5-7 percent of that is related to “break-fix.” Our immediate focus is to handle the “break-fix” problem, but more so, to be there for the analytics and help our customers run their business better. The support side of things, you know being available all the time, 24/7, if the customer has a question or an issue, we are right there to help them 24/7. They could be from Guam or Israel or Trinidad or California or Florida – different countries, different time zones; it doesn’t matter where they’re located or what time of day it is. We have a very strong support team and that is what I think separates us.
Food World: Victor and Andrew, what have you observed in the limited time you’ve been involved with STCR?
Victor Vesnaver: A couple of things come to mind, even in my short tenure here. First off, we obviously have longevity and unlike a lot of our competitors that play in different verticals, our entire focus has been on grocery for a long, long time. I think we bring domain experience and domain knowledge and a real focused attention to that vertical which, as we talked earlier, is a bit complex. It’s all about the team. I also think our ability to partner with the likes of Toshiba, Datalogic and LOC Software to deliver best-in-class products and services represents a huge advantage for our customers. That extends all over the country and in all the markets that we serve today. Again, this is different from a lot of our competitors. We stand apart in the marketplace and are really looking forward to leveraging those differences and those advantages going forward to open new markets as we grow the business.
Andrew Winner: Brian and Victor absolutely nailed it in terms of our differentiation relative to our competitors and go to market strategy. I will answer that question from the perspective of STCR as a future acquirer of other like-minded resellers. As we pursue future acquisitions, I believe that a big advantage is that we take an extremely founder-friendly approach. We want to partner with companies that share our same core values. We try to find partnerships where one plus one can equal three. I think STCR has developed a really great team and a really solid infrastructure, where we can serve as a platform in finding ways to partner with other entrepreneurs and help them accomplish their goals, whatever those goals may be and create a long and bright future for all of their employees.
Food World: Thank you.
*In the featured photo, Brian Tuberman (l) hands the reins to new president and CEO Victor Vesnaver at Endwell, NY-based STCR.