In this FDD Talk post, you’ll learn the following:
- Section I – Estimated initial investment (franchise costs) for a Snap-on franchise, based on Item 7 of the company’s 2022 FDD
- Section II – Initial franchise fee, royalty fee, and marketing fee for a Snap-on franchise, based on Items 5 and 6 of the company’s 2022 FDD
- Section III – Number of franchised and company-owned Snap-on outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD
- Section IV – Background information on the Snap-on franchise opportunity, including relevant news updates
- Section V – Presentation and analysis of Snap-on’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:
- number and percentage of Snap-on franchisees for each of the given ranges of “Paid Sales” during the 2021 reporting period, presented in $100,000 increments between $200,000 and $2,000,000+ per year (the sample includes only those franchisees who operated for all 12 months of the 2021 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 in 2021
- Section VI – Key ratios, comparables, computations, and analyses for the Snap-on franchise opportunity (exclusive content for Platinum subscribers)
Section I – Snap-on Franchise Costs
- Snap-on franchise costs, based on Item 7 of the company’s 2022 FDD:
- Real Estate: $0
- Initial License Fee: $8,000 to $16,000
- Initial Inventory: $114,500 to $125,000
- Electronic Signature Pad: $0 to $200
- Supplies: $0 to $400
- Van: $45,000 to $155,000
- Van Insurance (3 months): $688 to $2,063
- Van Delivery Charge: $180 to $4,100
- License: $200 to $2,400
- Acquisition/Development of Revolving Accounts: $0 to $85,000
- Other Equipment, Fixtures, and Expenses: $150 to $170
- Computer Software License Fee: $1,800
- Additional Funds for 3 Months: $4,628 to $19,808
- Estimated Total Snap-on Franchise Costs: $175,146 to $411,941
Section II – Snap-on’s Initial Franchise Fee, Royalty Fee, and Marketing Fee
- Snap-on’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2022 FDD:
- Initial License Fee: $8,000 to $16,000
- Initial Inventory: $114,500 to $125,000
- Weekly Remittance for Products and Services Purchased from Snap-on: the minimum amount is 100% of miscellaneous charges less miscellaneous credits, plus any amount necessary to be $1.00 under your credit limit
- Monthly License Fee: $135
Section III – Number of Franchised and Company-Owned Snap-on Outlets
- Outlets at the Start of the Year: 3,327
- Outlets at the End of the Year: 3,302
- Net Change: -25
- Outlets at the Start of the Year: 3,302
- Outlets at the End of the Year: 3,280
- Net Change: -22
- Outlets at the Start of the Year: 3,280
- Outlets at the End of the Year: 3,287
- Net Change: +7
- Outlets at the Start of the Year: 106
- Outlets at the End of the Year: 139
- Net Change: +33
- Outlets at the Start of the Year: 139
- Outlets at the End of the Year: 137
- Net Change: -2
- Outlets at the Start of the Year: 137
- Outlets at the End of the Year: 141
- Net Change: +4
Section IV – Background Information on the Snap-on Franchise
18 Things You Need to Know About the Snap-on Franchise
Sales Grew by 18% in 2021, but Slowed in Q4
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1. In early February 2022, Snap-on reported its 2021 fourth quarter and full-year financial results, showing gains in sales and profit during the October-December period, though sales grew at a considerably slower rate than the previous quarter. The company posted total Q4 sales of $1.11 billion, up 3.2 percent year-over-year, with organic sales up 2.3 percent. It followed 10.2 percent growth in Q3. On a pre-pandemic comparison vs. 2019, Q4 sales increased 16.0 percent, with organic sales up 13.0 percent.
2. Snap-on’s Q4 operating profit was $232 million on margin of 21.0 percent, up from $216 million and 20.1 percent a year earlier, and from Q3’s $201 million and 19.4 percent. The company’s total Q4 net profit of $224 million topped the $209 million it had a year earlier and $196 million in Q3.
3. Nick Pinchuk, chairman and CEO of Snap-on, said, “Our fourth quarter performance was encouraging, as it reflects our continued upward trajectory, reaching new heights in sales, profitability and earnings, directly in the face of the ongoing pandemic, rising inflation and varying supply chain inefficiencies.”
4. For the full year, Snap-on’s 2021 sales totaled $4.25 billion, up 18.4 percent vs. 2020, with organic sales up 15.1 percent. The company’s 2021 net profit of $820.5 million was up considerably from 2020’s $627 million. Operating profit of $1.12 billion topped 2020’s $880.5 million, while net profit of $841 million topped 2020’s $646 million.
CEO Says Company’s Business Model Protects It from Supply Chain Issues
5. As most industries continue to face supply chain issues, Nick Pinchuck, chairman and CEO of Snap-on, pointed out during an earnings call in late October 2021, that the company’s business model protects it from the issues currently hitting other industries. Pinchuck said, “We found opportunities on our runway for growth and improvement even amidst these challenging times, and you can see it in the numbers, encouraging.”
6. Snap-on reported net sales of $1.04 billion for its third quarter, a 10.2% increase from 2020 and up 15.1% from 2019. Net income also improved from $179.7 million to $196.2 million. Pinchuk said the company’s direct selling model and strong brand position allow it to be more agile in pricing while vertical integration and a shorter supply chain make it less vulnerable to supply issues. When shortages do occur, he pointed to the company’s more than 80,000 SKUs and broad product line as a tool to sell around shortages. Pinchuck added, “It’s not like we weren’t without impact, but we kind of overcame it.”
7. Asked if there are any areas where issues did occur, Pinchuk said he might have expected to see it in the commercial and industrial segment, which has a wide range of products. “You might have a kit with 1,000 items in it and you have to ship it complete, yet that business was up pretty well in the quarter,” he said.
8. The C&I segment reported a 14% increase in net sales to $351.4 million and increased operating earnings by $10.5 million to $53.6 million. Pinchuk said Snap-on’s vertical integration means the company is not buying a lot of items. “Most of the stuff is in our house,” he said, adding that the company does buy steel in the U.S. along with sourcing computer chips from the U.S. where possible.
9. Pinchuck added the company is “very aggressive in spot buying.” “We go out and spot buy because we don’t buy large quantities of any one thing,” Pinchuk said, noting the difference with automakers who might be locked in with a supplier and then face challenges when a port shuts down because of COVID cases or some other disruption.
10. He added, “That’s why we are not seeing so much in terms of shortage. It may be still a little cost increase, but then we’re agile pricing. So we don’t have such a big problem in that regard. I’m not saying we’re not actively working because, boy, our people are putting a lot of energy into it, but if you look at the numbers, pretty well managed.”
11. Even with potential advantages in dealing with supply chain issues, Pinchuk said Snap-on isn’t necessarily in a position to capture business from competitors that may be facing more constraints. “Our technicians either decide to buy Snap-on or they decide to buy another group of products,” he said, noting a technician likely wouldn’t opt to buy a Snap-on tool just because their preferred brand isn’t available. “It certainly puts us in a better position to grow and probably capture new customers who might not be serviced by these people,” Pinchuk said. “There’s some of that, I think.”
12. Snap-on was founded in 1920 by Joseph Johnson and William Seidemann in Milwaukee, Wisconsin. Johnson and Seidemann were engineers who worked together. At the time, more people were buying cars and Johnson felt that professional mechanics needed better tools to make their jobs easier. So Johnson and Seidemann began developing a new kind of wrench. They eventually came up with a set of five wrench handles with ten interchangeable sockets.
13. Johnson and Seidemann used their two demo sets and some brochures to sell over 500 C.O.D. orders. To build on their initial success, Johnson and Seidemann consulted with Stanton Palmer and Newton Tarble to market and sell their product. To facilitate the demand for the Snap-on wrenches, a large factory was built in Milwaukee.
14. Palmer and Tarble identified other cities where they felt Snap-on could be successful and the company opened more branch offices to reach more customers. By 1925, there were 17 branches and 165 salesmen selling Snap-on hand tools direct to mechanics. While the company continued to grow, Johnson continued to innovate. He created the No. 6 Ratchet, which was the first ratcheting attachment Snap-on produced.
15. To survive the Great Depression and World War II, Snap-on implemented novel practices that would later become standard across many industries. Snap-on salesman knew that people didn’t have money, but began asking them what they would like when they did have money later. This was the world’s first wishlist, which Snap-on initially called “Dream Orders.”
16. Snap-on also began offering “Time Payment” selling, or “T.P.” The program allowed mechanics to earn and use their tools while they paid off what they owed. This program still exists today and is known as the Revolving Account payment plan.
17. Snap-on continued to grow both domestically and internationally over the next few decades. In 1990, the company decided to start franchising. To stay relevant, Snap-on has consistently added new tools to its catalog and has adapted to newer technologies. Today, Snap-on is a widely recognized brand and one of the largest tool manufacturers in the world.
Entrepreneur’s Franchise 500
18. Snap-on ranked No. 21 on Entrepreneur’s 2022 Franchise 500 list.
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Snap-on Franchise (Item 19, 2022 FDD)
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 2021 reporting period.
- Paid Sales are presented in $100,000 increments for paid sales between $200,000 and $2,000,000 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 2021 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 2021 are not included in the Statement nor are franchisees who failed to submit all Paid Sales information for all of 2021.
- Snap-on had 3,600 franchises that operated in all or part of 2021. Of those 3,600 franchises, there were 183 franchises that ceased operations due to retirement, cancellation, non-renewal, or other termination and 130 that transferred their franchise business to a third party. Of those 313 franchises, 75 still operate one or more Snap-on franchise businesses.
- Of the 183 franchises that ended operations during 2021, 17 franchises operated for less than 12 months.
- Of the 130 franchises that transferred their franchise business to a third party, 3 transferred their 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
- Less Than $200,000: 22 (0.73%)
- $200,000 to $299,999: 65 (2.15%)
- $300,000 to $399,999: 168 (5.57%)
- $400,000 to $499,999: 321 (10.64%)
- $500,000 to $599,999: 421 (13.95%)
- $600,000 to $699,999: 455 (15.08%)
- $700,000 to $799,999: 437 (14.48%)
- $800,000 to $899,999: 368 (12.19%)
- $900,000 to $999,999: 252 (8.35%)
- $1,000,000 to $1,099,999: 163 (5.40%)
- $1,100,000 to $1,199,999: 147 (4.87%)
- $1,200,000 to $1,299,999: 66 (2.19%)
- $1,300,000 to $1,399,999: 54 (1.79%)
- $1,400,000 to $1,499,999: 35 (1.16%)
- $1,500,000 to $1,599,999: 18 (0.60%)
- $1,600,000 to $1,699,999: 13 (0.43%)
- $1,700,000 to $1,799,999: 2 (0.07%)
- $1,800,000 to $1,899,999: 3 (0.10%)
- $1,900,000 to $1,999,999: 3 (0.10%)
- Over $2,000,000: 5 (0.17%)
- Total: 3,018 (100.00%)
Part 2 – Gross Profit
- The common definition of gross profit is the net sales made less the cost of goods sold.
- The franchisor sells Products to you at discounts ranging between 10% and 43.9% from suggested prices.
- Based on all franchisee purchases of Products from Snap-on in 2021, the average discount from suggested prices was 33.75%. This percentage also includes cash discount for the timely payment for Products purchased, but does not include any additional discount that may be offered by Snap-on from time to time.
- You need to be aware that the franchisor does not have records that identify the actual selling price of Products sold by franchisees or the value of Products purchased by franchisees from suppliers other than Snap-on. This calculation assumes that the sale of Products by franchisees is at the suggested price. However, it is likely that some franchisees sell above suggested prices, that some sell under suggested prices, and that some sell certain Products above and certain Products below suggested prices.