FDD Talk 2018: Matco Tools Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Matco Tools franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Matco Tools franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Matco Tools franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Matco Tools outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Matco Tools’ financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 Average Total Completed Business for the top third, middle third, and bottom third of the 1,421 Matco Distributors in the United States that were in business for all of 2017, and that reported sales for at least 48 weeks during 2017

• 2017 National Distributor Sales Average for the 1,421 Matco Distributors in the United States who (i) were in business at the beginning of 2017, (ii) were operating at the end of 2017, and (iii) reported sales close-outs at least 48 weeks during 2017

Section I – Background Information

11 Things You Need to Know About the Matco Tools Franchise

Launches New Line of Toolboxes

1.  In early June 2017, Matco Tools launched a new innovative line of toolboxes called Revel. The new line offers two tiers of options, Revel and RevelX, to best suit a technician’s storage needs. Matco Tools said that both versions feature a locking computer drawer, slide-out work surface, numerous power sources, and chamfered handle end caps and trim to protect sharp edges. Although both toolboxes are similar, the RevelX is the “ultra-premium” model, which has more advanced features than the regular Revel.

2.  To create the Revel toolboxes, Matco invested in a new manufacturing system at its Jamestown, New York facility which includes a state-of-the-art robotic welder. The machine not only helps with building stronger quality, but also ensures that no welds are visible on the front of the box. Matco’s T-shaped center shelf and inner walls are fully-welded at the connection points to ensure the toolbox is sturdy, stable, and secure.

3.  According to Matco Tools vice president of marketing Ben Gambrel, “Our new Revel toolboxes completely change the game of tool storage. When designing Revel, we wanted to make sure the box not only shattered boundaries with its design, but that it also included improved safety features to better protect your tools. After collecting feedback and studying how our customers work, we developed new features that allow mechanics to work more efficiently on the job.”

5th Annual Tools for the Cause Program

4.  Matco Tools was one of numerous companies that participated in the annual Breast Cancer Awareness Month campaign that takes place every October. For the 2017 campaign, Matco launched its 5th annual Tools for the Cause program. Through Matco’s program, 15% of the proceeds from the sale of 32 Tools for the Cause products and merchandise were donated to the Breast Cancer Research Foundation (BCRF). Some of the special items available included t-shirts, sweatshirts, caps, beanies, a welding helmet, a plastic creeper, a car pillow, and water nozzle.

5.  Since Tools for the Cause began in 2012, Matco Tools has donated over $750,000 to breast cancer research. Matco Tools vice president of marketing Ben Gambrel said, “Matco Tools is proud to be able to give back to the community through the support of breast cancer research initiatives. There is a 1 in 8 chance a woman will develop breast cancer sometime in her life. We support the Breast Cancer Research Foundation in its efforts to prevent and cure breast cancer.”

Partners with Lincoln Tech to Provide Tool Kits to Students

6.  Over spring 2017, Matco Tools finished providing all Lincoln Tech campuses across the country with professional grade tool kits. The partnership between Matco Tools and Lincloln Tech began in 2016, with Matco promising to provide complete industry-standard tool kits to all Lincoln Tech Automotive and Diesel Technology programs around the country. Lincoln Tech students were also provided with Matco vouchers, which allowed them to purchase their first entry-level tool kit at a nearly 50% discount.

7.  Tim Gilmore, president of Matco Tools, said, “We are proud to provide our high quality tools and equipment products to Lincoln students. Matco’s goal is to provide all technicians with the tools they need to get the job done effectively and efficiently, and we couldn’t be more excited to offer our products to students just starting out in the [transportation] industry. We look forward to building long-lasting relationships with Lincoln Tech students as they grow in the classroom and in their careers.”

Company History

8.  Matco Tools was originally founded in 1946 in Ohio as the box manufacturing division of Mac Tools. The name Matco is an acronym for Mac Allied Tool Company. Matco and Mac Tools have not been associated with one another since 1979, which was the first year that Matco began selling its products directly to professional mechanics and enthusiasts.

9.  The company is known for producing high quality tools and its product line now includes over 13,000 different items such as wrenches, screw drivers, gauges, and specialty tools. All Matco hand tools come with a lifetime warranty.

10.  Matco started franchising in 1993 and today, there are over 1,755 Matco distributors across all 50 states, Puerto Rico, and Canada.

Entrepreneur’s Franchise 500

11.  Matco Tools ranked No. 36 on Entrepreneur’s 2018 Franchise 500 list. This is the 18th consecutive year that Matco Tools has earned a spot on the annual list.

Section II – Estimated Costs

• Please click here for detailed estimates of Matco Tools franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Matco Tools’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  1,520
• Outlets at the End of the Year:  1,616
• Net Change:  +96

2016

• Outlets at the Start of the Year:  1,616
• Outlets at the End of the Year:  1,682
• Net Change:  +66

2017

• Outlets at the Start of the Year:  1,682
• Outlets at the End of the Year:  1,721
• Net Change:  +39

Company-Owned

2015

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2016

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2017

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  2
• Net Change:  +1

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• Presented below in Charts A and B are certain operating and sales results from 1,421 Distributors during the period from January 1, 2017 through December 31, 2017.

• Chart A reflects the average gross revenue figures, referred to as “Average Total Completed Business,” for the Matco Distributors, which includes the revenue from the sales of Matco Products and other products. Chart A also includes the median, and the highest and lowest gross revenue figures.

• The information is segregated into thirds, based on Total Completed Business.

• Chart B reflects the average weekly sales figures for the Matco Distributors for 2017. Chart B also includes the median, and the highest and lowest weekly sales figures.

• The data in the charts are obtained from the Distributors through the MDBS system. As Distributors purchase Products from Matco, they also report on sales made and revenue received. A weekly sales report is generated if the Distributor places an order to purchase Products in a given week.

• Therefore, the information in the charts is based solely on data received from the Distributors through MDBS. These figures have not been reviewed or audited by Matco.

• Other than the revenue figures below, the charts do not include any estimate of, or specific or historic data regarding, costs, expenses, or debts that a Distributor has incurred, or may in the future incur.

Chart A – Average, Median, Highest, and Lowest Numbers in the Range of Total Completed Business – 2017

• The chart reflects the operating data for 1,421 Matco Distributors in the United States that were in business for all of 2017, and that reported sales for at least 48 weeks during 2017.

• Matco is not providing, and this chart does not reflect, information regarding Distributors who started during 2017, or those who left the system or stopped selling Matco products during 2017.

• The 3 groupings of Distributors (Top 1/3, Middle 1/3, and Bottom 1/3) included 474 Distributors in the Top 1/3 group, 474 Distributors in the Middle 1/3 group, and 473 Distributors in the Bottom 1/3 group.

• The term “Total Completed Business” means the total cash or revenue a Distributor received during 2017 including sales tax collected, from the sale of all products and services. This includes revenue from the sale of Matco Products and products acquired from third parties.

• The revenue received by the Distributors is comprised of cash sales, Time Payment collections from previous sales, credits received by the Distributor from the sale of Purchase Security Agreements (which are installment contracts), cash received based on monthly invoices and customers (usually products sold to a shop or business and not an individual), and rebates based on timely payments for products.

• One of the differences between “Total Completed Business” and “Sales” is that “Sales” reflects all sales, even if some payments have not been received, and “Total Completed Business” reflects sales only based on cash collected and PSA credits collected. Therefore, there is a difference due to timing and collections.

• Another difference between “Total Completed Business” and “Sales” is that the figures reported by Distributors for Total Completed Business includes sales tax collected, and that the figures for Sales do not include sales tax.

• The “average” is calculated by adding the total business for all Distributors in the group, and dividing that number by the number of Distributors in the group. This does not include any Volume Payment to Terms bonus, or rebate payments.

• The term “median” means the data point that is in the center of all data points used.

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