FDD Talk 2019: Snap-on 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 Snap-on Tools franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Snap-on Tools franchise, based on Item 7 of the company’s 2019 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Snap-on Tools franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Snap-on Tools outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Snap-on Tools’ financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• number and percentage of Snap-on Tools franchisees for each of the given ranges of “Paid Sales” during the 2018 reporting period, presented in $25,000 increments between $175,000 and $1,500,000+ per year (the sample includes only those franchisees who operated for all 12 months of the 2018 reporting period and for which the franchisor has received Paid Sales information for the full period)

• average discount to franchisees from suggested prices, based on all franchisee purchases of Products from Snap-on Tools in 2018

Section I – Background Information

16 Things You Need to Know About the Snap-on Tools Franchise

Announces Fourth Quarter and Full Year 2018 Results

1.  At the beginning of February 2019, Snap-on Incorporated announced 2018 operating results for the fourth quarter and full year. Some of the highlights included:

• Net sales of $952.5 million in the quarter, down $22.1 million, or 2.3%, from 2017 levels.

• Full year net sales of $3,740.7 million, up $53.8 million, or 1.5%, from 2017 levels.

• Full year net earnings of $679.9 million, or $11.87 per diluted share, compared to net earnings of $557.7 million, or $9.52 per diluted share, in 2017.

2.  Nick Pinchuk, chairman and CEO of Snap-on, said, “We’re encouraged by the strengthening of our product lines and by our unique position with customers, serving as the underpinning of our overall earnings growth. Despite near-term challenges in a variety of environments, we continue to see clear progress on a number of our runways for growth and improvement including: the Commercial & Industrial Group extending its penetration of critical industries; the building of our activity in emerging markets like India; and the continuing recovery in our U.S. van channel.”

3.  Pinchuk added, “We believe Snap-on’s value proposition of making work easier for serious professionals remains strong and effective in vehicle repair and our other end markets, and we believe we have abundant opportunity to further strengthen our position along our runways for growth and to engage our runways for improvement, the Snap-on Value Creation Processes, continuing our positive trajectory as we move through 2019 and beyond.”

4.  Snap-on expects to make continued progress in 2019 along its defined runways for coherent growth, leveraging capabilities already demonstrated in the automotive repair arena and developing and expanding its professional customer base, not only in automotive repair, but in adjacent markets, additional geographies, and other areas, including extending in critical industries where the cost and penalties for failure can be high.

Offers Interactive Accessories Catalog for the First Time

5.  At the beginning of 2019, Snap-on Tools introduced its interactive accessories catalog for the first time on the brand’s website. The interactive accessories catalog contains all of the products that professional technicians need to make their Snap-on diagnostic tools more powerful to maximize capabilities, improve productivity, and increase profits. Snap-on’s new catalog can be downloaded to a computer, iPad, or tablet.

6.  Helen Cox, senior marketing manager, Snap-on Diagnostics, said, “The new Snap-on interactive accessories catalog is loaded with items that will help diagnostic tools do more, work harder and last longer. For example, technicians can maximize their diagnostic tools’ potential by adding even more capabilities with accessories such as cables and adapter kits. With accessories like docking stations and foam organizers, they can configure their tools to fit their work environment and style. They can also add security and peace of mind to their investment with cases, screen protectors and extended warranties.”

Launches “Snap-on Stickers” Photo App

7.  At the end of September 2018, Snap-on launched the “Snap-on Stickers” app for iOS devices on iTunes and Android devices on Google Play. The initial launchpack contained 20 stickers – 14 animated and six static – for a range of uses in text conversations. Created for franchisees, technicians, and other Snap-on fans, this set of stickers spans every possible #mood from “On my way!” to “You can fix it!” Upon downloading the app, users can easily send stickers within mobile messaging and edit photos.

8.  Yvette Morrison, vice president of marketing for Snap-on Tools Group, said, “We know that Snap-on brand loyalty is evident with both our franchisees, who love to deck their trucks out in Snap-on gear, and technicians, who proudly affix the Snap-on name in a myriad of shop applications. Every day we find ourselves thankful for our fans and their unwavering zeal. As the digital media landscape continues to expand, this app is an opportunity to insert a unique communication platform right in the hands of our users.”

9.  Morrison went on to note that stickers are an increasingly popular way to communicate, and imagery is more quickly consumed than text, sometimes more aptly conveying emotion. Branded stickers inspire a sense of shared community and provide fun, engaging content for consumers. Snap-on partnered with Bare Tree Media to illustrate and animate the stickers, and develop the app based on its trusted sticker-photo-keyboard platform.

Company History

10.  Snap-on Tools was founded as the Snap-on Wrench Company in 1920 by Joseph Johnson and William Seidemann in Milwaukee, Wisconsin. Prior to starting their own company, Johnson and Seidemann were engineers who had an idea that would revolutionize automotive repair and make work easier for professional mechanics.

11.  Johnson and Siedemann spent their weekends using crude bending jigs and pure muscle to create two sample sets of five handles and ten sockets. Using only these demo sets and brochures, Johnson and Seidemann generated over 500 C.O.D. orders. This success led them to create the Snap-on Wrench Company.

12.  Johnson and Seidemann brought in Stanton Palmer and Newton Tarble to market and sell their
new Snap-on wrenches. Palmer and Tarble took the tools directly to customers at their places of
business and demonstrated the benefits, which became the cornerstone of the company’s marketing success.

13.  In the 1930s, Snap-on continued to grow despite the struggles of the Great Depression. Since mechanics couldn’t afford the tools at the time, Snap-on became the first in its industry to offer credit or “Time Payment” selling. This allowed mechanics to use the tools and earn money while they paid them off. This was the precursor to the Revolving Account payment plan used by Snap-on today. Also during this time period, Snap-on began selling internationally.

14.  Over the next few decades, Snap-on kept on expanding and improving its products. The company was even the preferred supplier to the government during World War II. To increase durability of hand tools, the military upgraded the Snap-on material specifications and authorized buying nickel alloy steel, which ultimately became a Snap-on standard.

15.  In 1990, Snap-on became the first mobile tool company in the U.S. to convert to a franchise operation. Standardized product and business operations, training and support, a focused marketing plan, and the National Dealer Advisory Council, later renamed the National Franchise Advisory Council (NFAC), were introduced to increase support for franchisees and to foster a strong relationship between Snap-on and its franchisees. Since then, Snap-on Tools has continued to innovate and expand its product lines to meet the needs of customers around the world.

Entrepreneur’s Franchise 500

16.  Snap-on Tools ranked No. 18 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Snap-on Tools franchise costs, based on Item 7 of the company’s 2019 FDD.

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

• Please click here for detailed information on Snap-on Tools’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  3,295
• Outlets at the End of the Year:  3,340
• Net Change:  +45

2017

• Outlets at the Start of the Year:  3,340
• Outlets at the End of the Year:  3,340
• Net Change:  0

2018

• Outlets at the Start of the Year:  3,340
• Outlets at the End of the Year:  3,327
• Net Change:  -13

Company-Owned

2016

• Outlets at the Start of the Year:  130
• Outlets at the End of the Year:  117
• Net Change:  -13

2017

• Outlets at the Start of the Year:  117
• Outlets at the End of the Year:  121
• Net Change:  +4

2018

• Outlets at the Start of the Year:  121
• Outlets at the End of the Year:  106
• Net Change:  -15

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

Part 1 – Paid Sales

• The following Statement of Paid Sales (“Statement”) illustrates various levels of sales reported by numerous franchisees in the Snap-on system for sales activity during the 2018 reporting period.

• Paid Sales are presented in $25,000 increments for paid sales between $175,000 and $1,499,999 per year.

• The franchisor compiled the Statement from information reported to it by its franchisees.

• The Statement includes only information received from franchisees who operated for all 12 months of the 2018 reporting period and for which the franchisor has received Paid Sales information for the full period. Accordingly, franchisees who began or ended operations during calendar year 2018 are not included in the Statement nor are franchisees who failed to submit all Paid Sales information for all of 2018.

• Snap-on had 3,670 franchises that operated in all or part of 2018. Of those 3,670 franchises, there were 214 franchises that ceased operations due to retirement, cancellation, non-renewal, or other termination and 129 that transferred their franchise business to a third party. Of those 343 franchises, 72 still operate one or more Snap-on franchise businesses.

• Of the 343 franchises that ended operations during 2018, 19 franchises operated for less than 12 months. Included in that 19 is one that became a Snap-on employee.

• Of the 129 franchises that transferred their franchise business to a third party, one franchise transferred its franchise business after operating for less than 12 months.

• Some franchisees reporting Paid Sales information have chosen to operate with a sales employee on either a full or part-time basis. Having an employee may impact their Paid Sales. Snap-on does not track which franchisees have sales employees.

• If a franchisee operated an additional franchise, that additional franchise is reported as a separate “franchise” in the Statement.

• The Statement does not include information on Paid Sales for Snap-on employees who sell tools and equipment to customers that are similar to a franchisee’s customers or Paid Sales of Independents because Independents are not required to submit Paid Sales information.

• Snap-on franchisees do not have to report their total revenue to the franchisor. A franchisee’s Paid Sales (defined below) should approximate “total revenues,” except that a franchisee’s sales of tools and equipment purchased from a source other than Snap-on and the value of tools and equipment accepted by a franchisee as a trade-in may not be included in the Paid Sales figures reported to the franchisor.

• A franchisee’s Paid Sales means the sum of: (1) all of the franchisee’s cash sales and revolving account collections; and (2) all open accounts and credit sales assigned to Snap-on or Snap-on Credit by the franchisee.

• To the extent sales taxes are reported to Snap-on by the franchisee, they are included in Paid Sales.

• All franchisees included in the Statement were requested to use the same definition of Paid Sales in the reports submitted to Snap-on.

• Cash Sales are those sales for which a franchisee receives a cash payment, which includes debit and credit card payments, at the time of the sale, including any cash down payment received on an open account, credit sale, or a lease.

• Revolving Account Sales are credit sales between a franchisee and a franchisee’s customer where a franchisee extends personal credit, usually at no interest, to finance the customer’s purchase of tools and equipment.

• Revolving Account Collections are the collections made by a franchisee on revolving account financing extended by the franchisee.

• Open Account Sales are short term credit sales made by a franchisee to businesses which the franchisee assigns to Snap-on and for which Snap-on gives the franchisee immediate credit as if the franchisee’s customer had paid in cash. Included in Paid Sales is the dollar amount of the credit (which excludes any down payment and trade-in allowance) given to a franchisee when Snap-on accepted assignment of an open account.

• For certain customer purchases, a franchisee may assign to Snap-on Credit, with Snap-on Credit’s consent, the Credit Sales contracts (including “Extended Credit Contracts”) for customer purchases. Snap-on Credit credits a franchisee the net sales price (which excludes any down payment and trade-in allowance) for the tools or equipment being sold. This credit is included in Paid Sales.

• Most states require that a franchisee collect and pay sales tax on purchases made by the franchisee’s customers. To the extent sales taxes are reported to Snap-on by the franchisee, they are included in Paid Sales.

• Percentage totals may not equal 100% due to rounding.

• Reported Paid Sales are based on franchisee reports submitted weekly and do not correspond exactly with the calendar year. Some weekly reports cover Paid Sales beginning a few days before the start of the calendar year; others end a few days after. In all cases, Paid Sales figures above reflect no more than one year’s Paid Sales.

• The Statement reflects the various levels of Paid Sales in all parts of the United States and the level of sales may vary based on several factors such as: your management skills, experience and business acumen, local economic conditions, local market for your Products and services, and competition.

Number and Percentage of Franchisees Reporting Per Paid Sales Level