SuperFranchise covers the franchises that everyone’s talking about, the businesses with an extra edge of swagger, style, or infamy. The big investments, the dazzling brands, the social media superstars, the companies everyone in franchising should know.
- Unlike most franchises, Ace Hardware is a store-owners’ cooperative, in which franchisees collectively benefit from the business’s success.
- Ace is one of the fastest-growing retailers in America, as it absorbs independent stores and expands its distribution network.
- The estimated investment (franchise costs) to start up an Ace Hardware franchise on leased premises is $292,000 to $1,624,230.
- Core hardware format stores, which represent just over half of Ace Hardware franchises, have average annual sales of $2,901,637. Franchisees reportedly make $83,500 to $95,000 per year.
With most franchises, franchisees have no ownership over the brand they work with. Ace Hardware’s cooperative model is different, making the company distinct for more than its age and its customer satisfaction scores.
A Brief History of Ace Hardware
Founded in Chicago in 1924, Ace was an early attempt by small store owners to benefit from economies of scale. By combining their separate stores into a single business, Ace’s founders got better deals on the supplies they purchased. Officially incorporated in 1928, the firm included 11 businesses by the end of that year, and opened its first warehouse in 1929.
With the death of one of its founders in the 1970s, Ace started to change. It began franchising its operations in 1976, letting more people in on the Ace Hardware action and an established brand.
Alongside its move into franchising came another change, in which the usual power dynamics of franchising were inverted. Since the mid-1970s, Ace has been a cooperative, in which the franchisees own the business. As more conventional forms of franchising have spread, Ace has successfully stuck to this model, expanding to over 5,500 stores around the world.
Ace Hardware’s Cooperative Model
Ace’s ownership model might be different, but it’s relatively straightforward.
After the initial fee to buy in, franchisees pay ongoing fees for the brand’s central services, but they don’t pay an ongoing royalty fee. Everything they put in goes toward the running of a company they own.
As shareholders and members of the cooperative, Ace owners are expected to be actively involved in the running of their stores. They have a lot of independence in how this is done, but can’t just run the business as an absentee or semi-absentee owner. They have to shape their stores to make sure they succeed.
Buying into this cooperative brings a lot of advantages for store owners. There are the obvious advantages that come for any franchise, like branding, marketing, and centrally designed procedures. But one of the biggest is the buying power of Ace Hardware. As members of the cooperative, Ace franchisees can stock their shops from the over 80,000 products in the Ace warehouses, bought using the greater purchasing power of this large brand.
With its acquisition of two older distribution companies in the mid-2010s, Ace gained a firmer hold on the supply and distribution of hardware materials in the US. It now provides distribution for companies outside of the cooperative, but it’s still those on the inside who get the best deals. This wider distribution network may even provide Ace with an opportunity for further expansion, as other hardware stores see the benefits the company brings. Ace now supplies thousands of independent retailers, and these are exactly the sorts of people the company wants to bring into its franchise.
Ace’s Steady Expansion
Ace has been expanding steadily over the decades, and the owner cooperative model is the backbone of that expansion. The vast majority of the 5,500+ Ace Hardware stores are franchises, and around 4,500 of them are in the US. Ace is the 13th fastest growing retailer in the US, and it keeps opening more stores.
This expansion hasn’t just come from setting up new stores. A lot of it is based on converting existing businesses to the Ace brand. This is a quicker and cheaper way to get an outlet established. As it’s usually done by an existing store owner who wants the benefits of Ace membership, it means that a store is run with experience and local knowledge from the word go.
For those looking for another way in, Ace offers alternative models that can be run as part of or instead of an Ace store. These include rentals, handyman services, and a “grocery format”, where an Ace Hardware section is added to a grocery store.
Quality as Well as Quantity
A growing network and bulk purchasing aren’t enough by themselves to make a company successful: it also has to provide the sort of service and experience that consumers want. Ace tries to create staff and stores who can do this.
As well as discount supplies, Ace provides its members with skills and training to improve their businesses. The company has hundreds of training courses for franchisees and their staff, and has established its own Centre for Excellence to promote better working practices across the business. Central training combines with store owners’ local knowledge to provide a well-informed service. The result is a company that regularly ranks at the top of customer satisfaction surveys for home improvement retailers.
Of course, there are going to be failures, and quality control is strictly maintained to manage this. Stores that don’t meet standards might retain access to the supply chain, but will have their branding removed by the company. Ace might be swift in its expansion, but it’s also fierce in protecting the reputation of its brand.
With its powerful distribution network and its cooperative approach to ownership, Ace is a powerful and unusual franchise. It takes a lot of investment for a hardware outsider, but for an existing store, it’s a good way to benefit from the power of an existing brand.