How This Third-Generation Family Business Has Minted 70 Millionaires

///How This Third-Generation Family Business Has Minted 70 Millionaires

How This Third-Generation Family Business Has Minted 70 Millionaires

If you’ve driven through Upstate New York or Vermont, there’s a decent chance you’ve stopped at a convenience store with a brick-red-and-white cursive logo whose distinctly ’50s vibe brings a little ice cream parlor nostalgia. Inside, there’s the standard convenience-store fare, chips and sodas, but there’s also usually an ice cream counter. This would be one of 330 Stewart’s Shops, which are scattered throughout Upstate New York and Vermont. And yes, the ice cream–sold in scoops as well as pints and half-gallon paper boxes, with names like Mousse Trail and Tilt-a-Swirl–is as good as they say.

It’s far more than a convenience store with a reputation for selling its own homemade ice cream, as New Yorkers know it. It’s a $1.5 billion business with 4,500 fiercely loyal employees–and a case study in agility for not just surviving three generations of family leadership, but also deftly moving into new lines of business as consumer tastes change.

Sweet Growth Strategy

Back in 1917, Charles V. Dake and Percy W. Dake bought out their family farm on Daketown Road, due south of Daketown State Forest, from their father. They had the aim of more widely distributing their dairy products, according to the Stewart’s Shops company. They churned butter in hopes of getting it onto local store shelves. But by 1921 it became clear to them churning ice cream would be more lucrative–and that first year they sold 4,000 gallons of “Dake’s Delicious Ice Cream.” They bought a Model T and hand-delivered barrels to nearby cities, including Saratoga, Troy, and Schenectady.

The brothers continued enterprising through the years–eventually adding pasteurization facilities catering to local dairy farmers. Then, World War II changed everything.

Butter rationing turned the brothers’ state-of-the-art dairy facility into the largest butter producer on the East Coast, seemingly overnight. Charles’s son, Charlie S. Dake, had shipped out to serve in the infantry in Europe.

When he returned home in 1945, there was a fresh job waiting for him. His father and uncle had purchased a little ice cream store called Stewart’s, and a small dairy. It held licenses to sell milk in other towns, which the Dakes wanted. They reopened the storefront, and stocked it with their own ice cream–which they could produce much more of after the wartime sugar shortages eased.

Charlie Dake saw opportunity, and opened additional similar Stewart’s shops in nearby Saratoga Springs, and a couple neighboring hamlets. In five years, he had expanded Stewart’s Shops to 50 locations–and with vertical integration on his mind, Charlie petitioned the Department of Agriculture for permission sell milk produced in its own Saratoga dairy. (Until that point, the company couldn’t sell its own milk in its shops.)

Expansion through acquisition continued through the 1970s and ’80s, and as such its brand of vertical integration also widened. Today, roughly three-quarters of Stewart’s Shops’ inventory is created or distributed by the company itself–most items originate from nearby. It even owns its own gas tankers. Employees do freezer maintenance, and keep other parts of the physical locations clean and in working order. So, unlike chain stores or franchises, when extreme weather hits the area, Stewart’s will often be the only store open. This strategy lets the company keep costs low for shoppers, with 90 percent of inventory priced lower than competitors’.

Beating the Odds

Now in its third-generation of leadership–Gary Dake, grandson of Charles V. Dake, became president of the company in 2003–Stewart’s is something of a unicorn. Not only has it beaten the odds among its fellow family-business brethren–just 30 percent of firms survive into the second generation, with 10 percent lasting into the third generation–it is also fiercely private. The company regularly eschews national media inquiries, such as Inc.’s request for comment in this story, for instance. It has also opted to remain a private company, even as going public–that is, allowing its stock to trade in the public markets–offers often lusted-after liquidity.

“It’s unusual to see companies this large and valuable not list their shares on the public market,” said David Yermack, a professor of finance at New York University’s Stern School of Business. “If you look at why companies like Microsoft or Google go public, it’s to offer shares to employees–so they get something out of it.”

Stewart’s gives back to employees in other ways. It has long had an employee-stock plan, and in 2001 converted it to an employee stock ownership plan, or ESOP, which means about 40 percent of the company is owned by workers, whom Stewart’s calls “partners.” Anyone who works more than 1,000 hours a year becomes a “partner,” and accrues part of the ESOP. For 2017, the company contributed $11 million to it–about 15 percent of gross pay.

According to Stewart’s, 1,000 of its roughly 4,500 workers have a balance of over $100,000, and nearly 70 have a balance greater than $1 million. (In New York State, dairy and milk production accounts for nearly 26,000 jobs.)

Treating workers well, by giving them flexibility, benefits, and retirement accounts, relieves  the pressures to go public. It also bolsters retention and loyalty among employees. And that has another upside, suggests Margarita Tsoutsoura, the academic director of the John and Dyan Smith Family Business Initiative at Cornell’s SC Johnson School of Business: “Employees may work harder or be more loyal to such a firm,” she says.

Read more at Inc.