FDD Talk 2020: 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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Matco Tools’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 Average Total Completed Business for the top third, middle third, and bottom third of the 1,453 Matco Distributors in the United States that were in business for all of 2019, and that reported sales for at least 48 weeks during 2019

• 2019 Weekly National Distributor Sales Average for the 1,453 Matco Distributors in the United States who (i) were in business at the beginning of 2019, (ii) were operating at the end of 2019, and (iii) reported sales close-outs at least 48 weeks during 2019

Section I – Background Information

15 Things You Need to Know About the Matco Tools Franchise

Introduces New Diagnostic Scan Tool

1.  In early May 2019, Matco Tools introduced MaxFlex (part number MDMAXFLEX), a full-featured, Android-based diagnostic tablet that was designed for pure flexibility to meet the needs of all technicians and budgets in the professional automotive industry. This affordable tablet is designed to flex three different ways to fit the needs of all technicians.

2.  First, out of the box, the unit can be used as an enhanced code reader. Secondly, if a technician only usually works on certain vehicle makes and models, the user can create a customized monthly subscription plan and only pay for the coverage they need. Third, the tablet can also be configured to include a fully-loaded software package with annual updates. Using the MaxFlex, the user can gain complete OE-level access to Asian, European, and domestic applications for module coding, resets, relearns, and bi-directional capabilities.

3.  All three subscription configurations are compatible with Matco’s automotive repair database – MaximusFix. This database provides technical service bulletins, flow charts, wiring diagrams, and other manufacturer documents needed to help the technician get to the fix and efficiently complete the job.

4.  According to Ben Gambrel, vice president of marketing for Matco Tools, “In addition to our top-of-the-line Maximus 3.0 model, we wanted to expand our Maximus line by introducing a more affordable option that offers our customers the ability to configure the scan tool to fit their diagnostic needs. The MaxFlex is affordable and flexible to allow all technicians to have industry-leading diagnostic capabilities at their fingertips.”

Partners with Motor Information Systems to Distribute Manuals

5.  At the end of February 2020, Troy, Michigan-based Motor Information Systems announced that Matco Tools will be the exclusive distributor of Motor’s collection of repair manuals and labor time guides. This is the first time in more than a century of providing this type of information to automotive repair facilities that Motor Information Systems is using a distribution network.

6.  Matco Tools is a recognized manufacturer and distributor of automotive repair tools, diagnostic equipment, and toolboxes. This partnership will allow repair professionals to access tools and repair manuals in the same place, at any of Matco’s 2,000 distributors nationwide.

7.  Jeff Nosek, executive vice president of revenue for Motor Information Systems, said, “Motor is thrilled to partner with Matco to offer new benefits and improved access to our existing and future customers. Matco’s extensive network of nearly 2,000 distributors will allow customers to easily obtain the MOTOR data they need to operate a successful business.”

8.  Hilda Shipcka, vice president of marketing and ebusiness for Matco Tools, added, “We are looking forward to being able to provide this product to our customer base. This new opportunity will help our Matco distributors continue to grow their business in the market.”

Ranked a Top Franchise on Entrepreneur Magazine’s 41st Annual Franchise 500

9.  In mid-January 2020, Matco Tools was ranked in Entrepreneur magazine’s Franchise 500, the world’s first, best, and most comprehensive franchise ranking. Placement in the Franchise 500 is a highly sought-after honor in the franchise industry, making it one of the company’s most competitive rankings ever.

10.  Recognized as an invaluable resource for potential franchisees, the Franchise 500 ranks Matco Tools No. 32 for its outstanding performance in areas including unit growth, financial strength and stability, and brand power. This brings Matco up 5 places from their previous 2019 ranking.

11.  Jason Feifer, Entrepreneur’s editor-in-chief, said, “The 500 companies on this list all have something in common: They understand what consumers want now. They may be an upstart in a brand-new category, or they may be a brand like Dunkin’ that’s ranked highly on our list for decades. But either way, making our list means they’re forward-thinking, nimble, and closely in touch with their customers’ needs – because in an ever-changing business environment, that’s what a franchise must do to thrive.”

12.  Factors that go into the evaluation include: costs and fees, size and growth, support, brand strength, and financial strength and stability. Each franchise is given a cumulative score based on an analysis of more than 150 data points. Over its 41 years in existence, the Franchise 500 has become both a dominant competitive measure for franchisors and a primary research tool for potential franchisees. This will be Matco’s 20th consecutive Top 50 ranking and is a testament to its strength as a franchise opportunity.

Company History

13.  Matco Tools was founded in 1946 as the box manufacturing division of Mac Tools, which was started in 1938 in Sabina, Ohio. Matco continued to be a part of Mac Tools until 1979, when the companies parted. This was also the year that Matco started selling its tools directly to professional mechanics and everyday consumers through a network of independent franchised mobile distributors. Additionally, Matco unveiled its now iconic hex and eagle logo, which has remained relatively unchanged over the past four decades.

14.  Today, there are Matco Tools distributors in all 50 states as well as Canada and Puerto Rico.

Entrepreneur’s Franchise 500

15.  Matco Tools ranked No. 32 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Matco Tools franchise costs, based on Item 7 of the company’s 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

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

2018

• Outlets at the Start of the Year:  1,721
• Outlets at the End of the Year:  1,711
• Net Change:  -10

2019

• Outlets at the Start of the Year:  1,711
• Outlets at the End of the Year:  1,771
• Net Change:  +60

Company-Owned

2017

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

2018

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

2019

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

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• Presented below in Charts A and B are certain operating and sales results from 1,453 Distributors during the period from January 1, 2019 through December 31, 2019.

• 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 2019. 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 – 2019

• The chart reflects the operating data for 1,453 Matco Distributors in the United States that were in business for all of 2019, and that reported sales for at least 48 weeks during 2019.

• Matco is not providing, and this chart does not reflect, information regarding Distributors who started during 2019, or those who left the system or stopped selling Matco products during 2019.

• The 3 groupings of Distributors (Top 1/3, Middle 1/3, and Bottom 1/3) included 484 Distributors in the Top 1/3 group, 484 Distributors in the Middle 1/3 group, and 485 Distributors in the Bottom 1/3 group.

• The term “Total Completed Business” means the total cash or revenue a Distributor received during 2019, 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 include 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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