FDD Talk: How Much Does an Ace Hardware Franchise Make (Average Revenues and/or Profits)?

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

• Section I – Background information on the Ace Hardware franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an Ace Hardware franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for an Ace Hardware franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Ace Hardware outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Ace Hardware’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2019 (the most recent year for which data is available) average, median, highest, and lowest gross sales for the 701 participating Ace Hardware branded stores (“Reporting Stores”), classified into the following retail formats: Hardware Stores (Convenience, Core, and Super), Home Centers, and Contractor-Oriented Supply

Section I – Background Information

17 Things You Need to Know About the Ace Hardware Franchise

Announces Plans for New Distribution Center

1.  In late August 2021, Ace Hardware announced plans to open a new Retail Support Center (RSC) in Visalia, California. The new facility will occupy more than 1 million square feet and is estimated to bring more than 400 jobs to the region. The new facility will augment the company’s Rocklin, California (Greater Sacramento Area) and Prescott Valley, Arizona distribution centers and will be centrally located in California, between Sacramento and Los Angeles. Construction was scheduled to begin by the end of 2021; the distribution center will be fully operational in early 2023.

2.  Jeff Gooding, corporate vice president of marketing for Ace Hardware, said, “Ace Hardware continuously evaluates distribution capabilities to ensure we meet our growing business demands and offer the best support and service to Ace retailers and our wholesale customers. Opening this new facility is essential for Ace to keep up with our historic growth and better serve our network of retailers, and ultimately, our Ace customers.”

3.  The Visalia RSC will feature new technology, a climate-controlled environment, and improved automation to help streamline and enhance operations – and importantly includes room to expand. Ace has recently built or is in the process of building several new facilities around the country as the company continues to grow. Ace’s network of distribution facilities, strategically located around the world, serves more than 5,500 retail locations. The new Visalia distribution center will serve more than 300 Ace affiliated stores servicing multiple states.

On Track to Open More Than 170 Stores in 2021

4.  In late September 2021, Ace Hardware said that the company had already opened 110 new stores in 2021, and was planning to open at least an additional 60 stores by the end of the year. Ace’s unique cooperative business model offers local entrepreneurs not only the ability to become owners of their local store operation, but they also become one of a limited number of shareholders of Ace Hardware Corporation.

5.  John Venhuizen, president and CEO of Ace Hardware Corporation, said, “Our proposition for consumers is that Ace is the most helpful store on the planet; for prospective new store owners, our proposition is that Ace is the most financially and emotionally rewarding opportunity available. An essential business, rooted in people, that exists to serve others; we are blessed with local owners who genuinely serve the communities in which they reside.”

6.  Globally, Ace has opened more than 900 stores in the past five years, while disbursing dividends of $293 million in 2020 – a 46 percent return for Ace shareholders. Ace Hardware earned multiple industry accolades in 2021, including being named one of the Best of the Best Franchises by Entrepreneur magazine, and ranking 5th among the top 200 largest franchise systems based in the U.S., according to Franchise Times.

Opens First Store Under New Franchise Model in Mexico

7.  At the beginning of December 2021, Ace Hardware announced that it had opened its first store in Monterrey, Mexico on October 28, 2021, with a plan to open 13 additional stores by the end of 2022. The store is the first under Ace’s new turnkey franchise model announced in 2020. Ace now operates in approximately 70 countries and has opened more than 900 stores globally in the past five years.

8.  With 15 employees, the new Ace Hardware store occupies more than 14,000 square feet, with 2,000 square feet dedicated as a showroom featuring decorative tile, plumbing fixtures, and bath accessories. Quality, consumer sought brands, such as Stihl, Big Green Egg, Milwaukee, DeWalt, Sayer, Hilti, Clark & Kensington, Bosch, Philips, Hunter, Steel Grip, and Grill Mark will be available to customers.

9.  Miguel Brunell, Ace Hardware franchisee, said, “We are excited with the grand opening of our first Ace Hardware in Mexico. It is the first of many stores we plan to open. Our team is committed to delivering on Ace’s brand promise of knowledgeable and helpful service, a wide assortment of quality products, and a convenient shopping experience. We look forward to providing our customers with an extraordinary experience and raising the standards of home improvement retail in Mexico.”

10.  Macedonio Garza, Ace Mexico country manager, added, “Mexico is a growing market, particularly for home improvement. With the demand for home repair, maintenance and improvement products on the rise, this is the perfect opportunity to introduce Ace Hardware, a convenient and helpful hardware store model, to serve our neighbors in Mexico.”

11.  Ace Hardware franchisees in Mexico benefit from a turnkey business model and a trusted brand with nearly 100 years of renowned service. In addition, Ace International has a staff of 27 at its office in Monterrey on hand to guide and support franchisees every step of the way. The franchise program in Mexico offers a variety of flexible store formats ranging from 300 square meters to 3,000 square meters, and the local stores offer both Mexican and global brands to meet the needs of the home improvement consumer.

Company History

12.  Ace Hardware was founded in 1924 by Richard Hesse, E. Gunnard Lindquist, Frank Burke, William Stauber, and Oscar Fisher in Chicago, Illinois when they decided to unite their smaller individual hardware stores into Ace Stores. The group came together to increase their buying power and profits.

13.  As a cooperative, Ace was able to negotiate lower prices on merchandise purchased from wholesalers. Within two years, Ace shifted into a wholesaling organization, purchasing directly from manufacturers and storing merchandise in its own Chicago warehouse.

14.  The company continued to grow over the next few years and by 1931, it had changed its name to the Ace Hardware Corporation. By the end of the next decade, Ace Hardware had wholesale sales of more than $7 million from the 133 stores it supplied. Over the next few decades, Ace Hardware expanded around the United States.

15.  In 1973, longtime president Richard Hesse (the last surviving Ace founder) retired and sold the company to its member-dealers, thereby forming a dealer-owned hardware cooperative. Independent retailers became the exclusive shareholders in the company and pushed Ace’s growth even further. In 1985, Ace surpassed $1 billion in wholesale sales for the first time.

16.  Ace continued its strong growth around the United States and also globally. Today, there are Ace Hardware locations in more than 60 countries. To keep up with demand, Ace Hardware has 17 distribution centers in the United States, and additional distribution facilities in China, Panama, and the United Arab Emirates.

Entrepreneur’s Franchise 500

17.  Ace Hardware ranked No. 12 on Entrepreneur’s 2022 Franchise 500 list.

Section II – Estimated Costs

• Detailed estimates of Ace Hardware franchise costs, based on Item 7 of the company’s 2021 FDD.

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

• Detailed information on Ace Hardware’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  4,310
• Outlets at the End of the Year:  4,353
• Net Change:  +43

2019

• Outlets at the Start of the Year:  4,353
• Outlets at the End of the Year:  4,370
• Net Change:  +17

2020

• Outlets at the Start of the Year:  4,370
• Outlets at the End of the Year:  4,441
• Net Change:  +71

Company-Owned

2018

• Outlets at the Start of the Year:  108
• Outlets at the End of the Year:  123
• Net Change:  +15

2019

• Outlets at the Start of the Year:  123
• Outlets at the End of the Year:  186
• Net Change:  +63

2020

• Outlets at the Start of the Year:  186
• Outlets at the End of the Year:  206
• Net Change:  +20

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• The financial performance representation presented in this Item 19 should not be considered as the actual, potential, or probable results that you will realize from the operation of your store.

• Ace Hardware’s members are not required to furnish their stores’ financial results to the franchisor. However, members may participate in the Retail Financial Report (RFR) which is prepared by Profit Planning Group, Inc., (PPG) of Boulder, Colorado. The data submitted to PPG, by Ace Hardware’s members, is the basis of this financial performance representation.

• The financial performance representation does not include data from Ace Hardware stores operated by the franchisor’s subsidiary, Westlake or GLA.

• The 2019 RFR prepared by PPG used single store operations data voluntarily supplied by 701 participating Ace branded stores (“Reporting Stores”).

• The franchisor has not audited nor independently verified the information furnished by the Reporting Stores; however, it believes this financial performance representation has a reasonable basis.

• The Reporting Stores represent 15.3% of total domestic member stores operating as of December 28, 2019, which was 4,556.

• All but five of the Reporting Stores had been open at least one 1 full year. The average number of years each Reporting Store had been operated, as of the end of 2019, was approximately 18.7 years, ranging from 0 to 72 years.

• As of January 2, 2021, 690 of the Reporting Stores were still operating.

• The Reporting Stores were classified into the following retail formats: Hardware Stores (Convenience, Core, and Super), Home Centers, and Contractor-Oriented Supply.

• Hardware Stores cater to Do-It-Yourself consumers, focusing on repair, replacement, and small projects. Hardware Stores are further separated into three different categories by hardware square footage.

• Home Centers serve the small contractor as well as the Do-It-Yourself consumer, carrying basic hardware plus expanded millwork, windows and doors, lumber and building materials, and kitchen and bath lines.

• Contractor-Oriented Supply caters primarily to building and remodeling contractors, featuring lumber and building materials as well as essential core hardware items.

Convenience Hardware Format (stores with a retail selling space up to 6,000 square feet)

• Number of Reporting Stores in Category:  129 (18.4% of total)
• Median Annual Sales:  $1,468,805
• Average Annual Sales:  $2,385,510
• Highest Annual Sales:  $29,496,525
• Lowest Annual Sales:  $122,811

Core Hardware Format (stores with a retail selling space of 6,001 to 12,000 square feet)

• Number of Reporting Stores in Category:  354 stores (50.5% of total)
• Median Annual Sales:  $2,108,729
• Average Annual Sales:  $2,901,637
• Highest Annual Sales:  $35,142,881
• Lowest Annual Sales:  $97,365

Super Hardware Format (stores with a retail selling space of more than 12,001 square feet)

• Number of Reporting Stores in Category:  160 (22.8% of total in sample)
• Median Annual Sales:  $3,491,082
• Average Annual Sales:  $4,750,102
• Highest Annual Sales:  $64,513,733
• Lowest Annual Sales:  $991,711

Home Center Format

• Number of Reporting Stores in Category:  41 (5.8% of total in sample)
• Median Annual Sales:  $4,220,752
• Average Annual Sales:  $7,230,427
• Highest Annual Sales:  $45,228,960
• Lowest Annual Sales:  $795,719

Contractor-Oriented Supply Format

• Number of Reporting Stores in Category:  17 (2.4% of total in sample)
• Median Annual Sales:  $4,722,220
• Average Annual Sales:  $5,544,933
• Highest Annual Sales:  $14,423,423
• Lowest Annual Sales:  $1,390,583

• When reviewing the financial performance representation, please remember that Reporting Stores within the hardware format contain diverse types of outlets including, but not limited to, grocery stores, agricultural cooperatives, and traditional retail outlets.

• In addition, if your store is a new store, its financial results may differ significantly from the results of stores that have been open and operating for a number of years.

• Individual retailer operating and financial performance is dependent on the following factors, among others:

• Type of store/outlet – Financial performance for these varying types of businesses is significantly different, with different cost structures. Performance can also vary significantly within type.

• Location – In the current retail environment, the location of the store in relation to the target market is a critical decision and factor in retail success. Although the franchisor often assists the member or prospective member in market and demographic studies for both new businesses and expansion plans, the final decision rests with the member. A good location will not guarantee success. In the changing retail marketplace, location, like the economy and competition, can be affected by changing local conditions.

• Management abilities of the owner – Since all stores are independently owned, this is one of the most important factors. Ownership and management of a retail store is difficult and demanding. Store hours, depending on location, can cover up to 80 hours per week. You select both management and hourly employees for your store. Although training programs currently are offered by the franchisor, the franchisor is not required to provide any training; all store training is controlled by you. The franchisor believes that owner-operators are more successful than absentee owners.

• Capitalization – Initial capitalization is of the utmost importance in opening a new store. Retailers must expect to operate unprofitably for a period of time and have adequate capital to fund the project until acceptable results are obtained. Adequate inventory levels must be maintained to support sales. Adequate capital in the business continues to be important to be competitive within local economic and competitive conditions and to fund growth of the business or store expansions and remodeling.

• Local/regional economy and competition – Every marketplace is different and changing. Although the franchisor assists retailers with market analysis, conditions may change within a very short period of time. Competition from mass merchandisers, online retailers, and discount chains has also increased and intensified, with a few competitors having very aggressive, and unpredictable, expansion plans. Members in all markets, large and small, must be prepared for changing economic conditions and increased competition, both through aggressive retail programs, quality management, and adequate capitalization.

• How these factors interrelate for any particular store can vary by store and can have a significant effect on operating and financial performance.

• You are responsible for developing your own business plan for your store, including budgets for investments in inventory, leasehold improvements, and fixtures and equipment; forecasts of sales and operating expenses; and other elements appropriate to your particular circumstances.

• Prospective members generally utilize industry data and knowledge about the actual proposed location and market to prepare a detailed business plan, sales forecast, and proforma financial statement tailored for the specific operation.

• The prospective member’s sales forecast is often done at various ranges of performance whereas his or her proforma financial statement is based on his or her single best estimate.

• While the franchisor’s field personnel may assist prospective members with their business plans, sales forecasts, and/or proforma financial statements, the prospective member is responsible for the soundness of all assumptions contained in all such plans, forecasts, and proformas.

• Consult with your own financial, business, and legal advisors to forecast sales, estimate expenses, and prepare budgets for your store.

• Some Ace Hardware stores have sold and earned these amounts. Your individual results may differ. There is no assurance that you’ll sell or earn as much.

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