The Tool Company That Built a Billion-Dollar Finance Business

The Tool Company That Built a Billion-Dollar Finance Business

Most people think Snap-on sells tools.

They're wrong.

Snap-on built one of the world's most successful businesses by selling something far more valuable:

Relationships. Trust. And finance.

For more than 100 years, the iconic white tool truck has been driving into workshops across the world, bringing premium tools directly to mechanics and allowing them to buy now and pay over time.

It's a business model that's generated billions.

But could it work for you?

In this episode of Good Bad Business, Peter and Rod break down the Snap-on business using the MOAT framework:

Margin. Operation. Advantage. TAM.

We uncover:

•  How Snap-on turned a tool company into a finance powerhouse 
•  Why the famous tool truck is one of the smartest distribution models ever created 
•  The hidden economics behind route-based selling 
•  Whether a Snap-on franchise can realistically generate $1 million in first-year revenue
•  The biggest risks facing operators, from customer finance to territory management 
•  And why this business is built on relationships, not wrenches 

If you think Snap-on's greatest asset is its tools...

You're missing the real business.

Because the truck is the shop.

The relationship is the moat.

And the finance book keeps the wheels turning.

Listen now to discover why one of the world's best-known tool brands may actually be one of the smartest business models ever built.

If you’re thinking about buying a business,
 listen first.

If there’s a business you want us to break down,
 send it in.

And if you got value from this, share it with someone before they sign something they shouldn’t.

Because we don’t want you to get into a pickle.

Transcript

SPEAKER_01 0:09

Welcome to another episode of Good Bad Business. This episode is about Snap-on Tools, a Premier Empire or a Tool Truck Trap from Apical, the team that removes caveats from directors' homes, proudly sponsored by Eventum Optimum. Here's a question. What if I told you that one of the world's most successful companies didn't become successful because of tools? It became successful because of finance. Snap-on started with a single idea. Five handles, ten sockets, five do the work of 50. And more than a hundred years later, the company operates in 130 countries, generates almost five billion in annual sales, and has built one of the most recognizable brands in automotive trade. But here's the part that most people miss Snap-on didn't just sell tools, it sold payment plans, it sold convenience, it sold relationships. Today the famous white tool truck still drives into workshops every week. The van is the shop, the relationship is the moat. And the question we're all asking today is simple. Is Snap on Australia a great business? Or is it a premium badge wrapped around a very hard way of making a living? Welcome to Good Bad Business from A Pickle, the team that removes caveats from directors' homes. And each week we analyze a business using our moat framework. Margin, operation, advantage, 10. And then we answer the tough question. Can it generate a million bucks within the first year of revenue? And is it a good business? Is it a bad business? Or are you going to get into a pickle? Joining me is Rod from Eventum Optimum, our podcast sponsor. Rod, welcome.

SPEAKER_00 2:12

Thank you, Peter. Good to see you again, my friend. This is one of the most fascinating businesses that we've looked at, Peter. It smells, it talks, it looks like a tool company. But underneath it, is it really a tool company or a business? Yeah, is it a finance business? Is it a relationship business? And yeah, is it a business that can predate the Great Depression and still be around, Peter? It has some resilience to it, doesn't it?

SPEAKER_01 2:36

It does, it does, it does, mate. You know, if it looks like a duck, if it quacks like a duck, it's a tool company. It's a tool company. It's just it's a good old Australian expression, isn't it? Uh I was only talking to my wife today about some of the good old Australian expressions. Like, give it a crack. You know, where did that one come up from? Let's save that for another episode. We'll do the framework around Moat about good old Aussie expressions. That's quite interesting, actually. Yeah, no, absolutely. We'll have to send that in to the teammate. Let's go back. Milwaukee, Rod. I've always wanted to say Milwaukee as an Aussie. Yeah, Milwaukee. Milwaukee, yeah, it's a cracker, isn't it? Yeah, there you go. Give that one a crack. In 1920, Rod, Joseph Johnson and William Seedman created interchangeable sockets and handles. The first pitch generated over 500 orders, and Snap One was born. Then came something even more important: the Great Depression. Most companies struggled to sell, but Snap on introduced time payment selling. Customer could buy now and pay later. There you go. They they invented buy now, pay later. Some of the origins, yeah. Oh god, here we go. Here comes the rabbit hole as per usual. Yeah, but there's a quick sidebar. The interesting thing about this business, there's a finance feature. And considering the the sectors that that we're in, right, that's why I thought this would be an interesting topic because that's actually the business model. And the interesting thing about this particular podcast is that we always look at the brand, but break down what is the model that's behind it. I know we tend to talk about Maccas a lot on this podcast, but you know, does it sell burgers? No, it's the burgers that it sells that enables it to become a real estate company. So it's always interesting to do the moat strategy because you start to identify what the actual business actually is and how it operates. And this one in particular, that there is a finance feature, which is the business model. Because even today, many customers cannot afford to pay cash for the most expensive tool sets and the diagnostic equipment. Then after World War II came the mobile van, and salespeople started taking tools directly to the workshops, and the good old modern snap-on truck was born.

SPEAKER_00 5:04

That's absolutely the genius of this business, Peter. It's the workshop that never has to leave work, which is convenience.

SPEAKER_01 5:20

Empires have been built with that framework, haven't they?

SPEAKER_00 5:22

Yeah, and it's one of the things, aren't we? You and I spoke about this prior to the podcast. Uh like I've had relatives who, you know, every time it came along, you know, they got excited and the purchased tools that they may or may not necessarily have needed, but the convenience and the availability of finance made that decision a lot easier to make. And it's a very clever model, Peter.

SPEAKER_01 5:40

Yeah, because it removes the friction. That's what's interesting about it. You go to Bunnings and you've got to physically go there, drive there, you've got to pay cash for it, or put it on the credit card. So they've removed the friction for it. And that's why I was really sort of hoping to do a bit of a deep dive on this, on the convenience element. But let's zoom out. What is Snapon today? It's professional tools, it's diagnostics, it's workshop equipment, repair information systems, storage systems, finance, as we've touched on, and it's distribution through mobile routes and operators. Australia is one of Snap-on's official franchise markets, meaning operators run territories using mobile stores rather than traditional retail shops. So they've definitely taken the expense out of owning a very expensive store. I mean, if you have a look at some of those big tool companies that are out there at the moment, I mean, they've got some massive upfront costs to be able to fit these things out. And more importantly, just the rent and the overall expense. And this particular franchise model seems interesting in regards to not focusing on foot traffic, actually going to where the foot traffic actually is.

SPEAKER_00 6:48

So yeah, it's interesting. And that's the important part, isn't it, Peter? If you're not buying a shop in the traditional sense, you're buying a territory, and the van itself is the shop. So the route is the asset, and also the truck, I guess, with its fully tooled out equipment there. And the customer relationships, I guess, are the inventory. So it is quite a genius little idea. I think we'll delve in this a bit further. The finance element goes down from not just the end client, but also for the franchise or to the franchisee, which is a very, very interesting relationship. So sort of leverage on leverage and availability. So as you say, the friction, a lot of the friction for sales is removed.

SPEAKER_01 7:24

Yeah, absolutely. Before we continue, a quick word from today's sponsor, Eventumoptium. Business is tough enough and you don't need to deal with debt on your own. Eventumoptium is the Latin phrase for the best result. And that's exactly what their team is focused on delivering. The best result for business owners. Whether it's asset protection, creditor pressure, business turnaround, restructuring, or pre-insolvency advisory, their team works with directors to create practical solutions before the problem becomes a crisis. Because the best time to solve a business problem is before it becomes a pickle. To learn more, visit eventum optium. Let's hear what the market thinks. Positive feedback sounds like this. The best stuff. It really does work better. Still using the tools from my first toolbox. Tools that make work easier. 20 separate people's choice awards voted by technicians. That's a big one. And that actually tells us something. Now for the negatives. They charge the heck out of you. Most customers can't afford to pay cash. Well, that's that's negative for the customer, you meant. Yeah, yeah. Yeah, well, that definitely is definitely negative for the customer. Price competition is intense. And that's when you sort of notice something. The complaints aren't about the tool quality, they're about the business model that's wrapped into tools. And it's what we had spoken about previously, even before the podcast. The tools are that good, they don't break. The quality is that good. There's no resales, there's no repeat customers. You say you only sell it to them once. Like one of the reviews there is that I've had it from my first toolbox. That bloke's probably been gone for the last 40 years. He's never bought another pair of them.

unknown 9:20

That's right.

SPEAKER_00 9:22

That's probably a good segue to come into the margin, I think, Peter, isn't it? Because they are an expensive tool, they are deemed as quality. So from that basis, it's not a supermarket, it's uh more a high end, probably the turnover is lesser than it would be in a blower end product. But the corporate economics are excellent. Snap-on generated US $4.7 billion revenue last year with 22% plus operating margins. The tools group alone delivered 21.7% operating margins. So that sort of brings the questions for the root operators or for the franchise ore. So the economics, the trickle-down economics between the franchise or to the franchisee to the business, there are large margins there. Before the franchise ore, though, they're basically have distributors of their product, and the franchisee has the relationships with the client. So it's a very, very interesting model, Peter. The research estimates the best case is $1.3 million revenue, the base case around the $1 million revenue, Australia's is, of course, and the worst case around $750k. So still reasonably high revenue numbers, you know, for a non-shop-based business. Strong root operators can potentially generate around or over $270,000 EBITDA before the owner takes out a salary. So there's a bit of fat there for an operator, and they do get, in the true sense, a franchise oil provides a lot in this instance. From the margin, there's a fairly fairly reasonable margin there, Peter.

SPEAKER_01 10:48

Yeah, but that's only if the customer keeps buying, which is what we're talking about before. Very true. If the customer comes back, the revenue continues. If the customer ain't coming back, well then it's certainly stagnant. You've got to go out there and find more customers. And if you're restricted by the territory, there's a bit of a conundrum there. Yes. So what do you score, Rodney? Out of margin, out of ten.

SPEAKER_00 11:11

I mean, it's an interesting one because there is a high margin. And whilst I believe come to those points you've made correct late repeat business and consistent competition and the like, it's still probably an eight and a half. It's quite a large margin, Peter. Yeah.

SPEAKER_01 11:25

Eight and a half for Rodney. I agree with you. It's a high margin business. It's a premium product. You're selling premium tools at a high margin. So I also agree with you. I'm going to give it an eight out of ten. So eight and a half for Rodney, eight for myself. It's going to be operation. We're in agreement this week, Peter, which is to give it for last week. I was in a bad mood last week.

SPEAKER_00 11:50

Don't cross this last week.

SPEAKER_01 11:52

Yeah, that's right. It just wasn't working for me last week. I didn't like that business. Let's get to operation. This isn't a tool business, it's a discipline field of sales. You're almost like a field salesman out there. And the franchisees, they are managing inventory, product demos, customer visits, financing conversations, the collections, the warranties, and the relationship managers. I'm getting a headache just thinking about it.

SPEAKER_00 12:21

And that's the challenge, isn't it, Peter? I mean, you're the salesperson, you're the debt collector, you're the merchandiser, the business owner, the customer services representative. I mean, every day, despite looking like a franchise or giving you a system, it's not a passive income. It's all about those relationships and operation of the business. There's a lot involved, this one here. And I think from an operational point of view, it's not for the faint-hearted. And I'm sure there's also a lot of technical skills required as well. You're on the ball. This is not a passive income where you sit back and wait for it to come to you, you're in the face of the customer day in, day out.

SPEAKER_01 12:53

From what we know, the franchise or other than a brand, there isn't a great deal of support. And if you're purchasing this type of business, you are essentially a one-man operator. All of the points that we just read out a moment ago, that's where it starts to affect you as an operator, unless you've been able to build a team behind you to be able to focus on that. But then that's eating into your margins. So margins, and yeah. Yeah, so then the operation side of things, that's going to be a low one for me, I think, Rodney.

SPEAKER_00 13:27

Yeah, look, I think so too, Peter. I'm actually thinking it's a five. I think there's a lot involved in this franchise, and it seems simple externally. I think when you break it down on the number of roles and requirements from the operator, I'll give it a five, Peter.

SPEAKER_01 13:42

It's a three for me. Yep. Yeah. Operation, there's too much into it. For a one-man operator, I don't believe they're getting enough support from what we know. So it's an interesting one.

SPEAKER_00 13:52

We've had a bit of first-hand experience with Brent, haven't we? Yeah.

SPEAKER_01 13:56

Yeah, which is why we thought we'd do this because we share a couple of mutual customers in this particular industry. That's why we thought, okay, let's break it down, let's find out why they're in the pickle and are we able to turn that business around. So yeah, it's always a good one to discuss things of first-hand experiences. Yes. What about the advantage, Rod? So for me, the moat, look, that's really the real one, isn't it? Like Snap One has spent more than a century building trust with mechanics. And that there you can't replicate. That's the real moat.

SPEAKER_00 14:28

That's exactly right, Peter. Look, I think you probably, if we delve down, we break that into three layers. Brand. I mean, anything that's been around since the 90s and 20s is doing something right. And uh even for soft office hands like us, we know what we know. We all know the snap-on brand. It's huge, it's a huge brand, Peter.

SPEAKER_01 14:46

So I think uh how good are you using a socket wrench, Ron?

SPEAKER_00 14:49

A what? A socket wrench, yeah, exactly.

SPEAKER_01 14:52

Yeah, exactly. Exactly.

SPEAKER_00 14:54

Well, I've heard of one, right? So that's a good one.

SPEAKER_01 14:56

Yeah, yeah, it makes those clicky sounds.

SPEAKER_00 14:58

Does it open a beer can, does it, or does it help us? No, that's right.

SPEAKER_01 15:01

Does it help me open my bottle of beer? Does it need a socket wrench?

SPEAKER_00 15:04

So I think the brand's probably the biggest uh the throw, but then the distribution. I mean, that's a really good point here, Peter. It turns up at the place of work where the customer works. So it's a hard sell, it's in the face, but it is very much about the relationship and distribution and getting out and about. And of course, that depends which area you are, you know, how many customers you have and the growth of the overall economy. So it is very dependent on a lot of things here. And then the thirds, and I think this is probably one of the most important ones, is the finance. Many competitors sell tools, Peter, but you know, very few competitors sell tools, credit, service, convenience, the whole package. It's been made easy for both the franchisee and the customer, the way it's been structured. So I think on the advantage side of things, there's a number of benefits that unlike the operation, I'll probably have a reasonably high score here to the way it's been put together. I would say an eight for the advantage.

SPEAKER_01 15:56

Yeah. For advantage, eight for odd. How do you feel, Peter? I'm not that generous. Because I looked at the bow repairs are tire companies, and I compare that to the bunnings of the world to sort of use that as an analogy, because now you've got big companies such as Ludmobile that's now offering a tyre, and the tires they'll bring the tires to you. So they're having a mobile workshop out the back. So with Snap-on, I mean, what's stopping Bunnings from creating some vans and giving some finance and doing exactly the same thing and replicating it?

SPEAKER_00 16:38

I think the brand and the whole putting it together, you're right, it can be done, but it's it wouldn't be cheap or easy to replicate. I feel like there are some barriers to entry there from the startup costs and the finance facilities. I mean, Bunnings doesn't have a finance facility itself. I mean, it has credit accounts, but as such, yeah. It's interesting you say that. I mean, it could be replicated, but I don't think it'd be easy to replicate as well.

SPEAKER_01 17:01

Hard, yeah, yeah, yeah. It's a hard one. I think you're right. I think you turned me the other way. The brand is gonna be a tough one to overcome. Are you gonna want a Bunnings brand versus the knockoff brands in which they have? Or if you're a true mechanic, you're gonna go for the snap-on every day of the week. Every day of the week. Yeah, I agree.

SPEAKER_00 17:21

They think they're playing that, don't they, Peter? They do. The perception of a being. That's right.

SPEAKER_01 17:26

It's the Hermes of tools. I've been hanging around my wife for far too long, Rodney. They don't sell her mes at Big W, do they? I wish they did. So I was gonna go last. I'm gonna be around the five. I think it can be replicated. I think it's only a matter of time. Yeah, it's a tough one to overcome the brand, that's for sure.

SPEAKER_00 17:47

Yeah, two ways to interpret that, and I can understand why you come from there, Peter. Yeah, it is replicable. All right, I guess that moves on a good C-Wave onto Tam better. Australia, I mean, with comparables, it is quite a niche market tools. So our figures went through. We looked more at vehicles and sales here. So Australia side of record 1.22 million new vehicles in 2024. I'm sure somewhat influenced by the instant asset write-offs and all the government incentives there.

SPEAKER_01 18:13

Quick, get a hybrid.

SPEAKER_00 18:16

I mean, but the vehicles are becoming more complex now, and there's no question that independent workshops remain strong thanks to right-to-repair regulations. So it really is becoming more of a niche sort of area and complex area now. So and every technician in this space needs tools, and I'm sure that Snap-on is moving with these additional requirements. The research estimates that Australia's Snap-on route opportunity is somewhere between 43 million beta and $88 million US annually. So it's a big gap there, but certainly a big number. And you know, you and I have seen firsthand with some clients we're assisting that can be a variable revenue path. So very much dependent on the operator and the location and route that they do have. But it's weather dependent, not completely, but it certainly impacts it. And viability of staff is paramount. You can't let the truck sitting in the garage and make money. There's no passive income.

SPEAKER_01 19:07

Yeah, you've got to get on there.

SPEAKER_00 19:09

Yeah.

SPEAKER_01 19:09

You've got to be knocking on doors. You do. Yeah. Building relationships. That truck's got to be on the road. And you know, it's a decent TAM, but it's not really infinite. Like, is it really large enough? And importantly, is it recurring? So, you know, for me, I don't think the TAM's actually that big in the mobile two market. I mean, they've sort of carved out their own niche and sort of built their own TAM.

SPEAKER_00 19:32

I think they've got carved it out, but from here, you know, what other opportunities exist?

SPEAKER_01 19:37

We talk about that all the time. What are the boltons? What are the vertical integrations?

SPEAKER_00 19:40

The vertical integrations. Yeah. What are the vertical? But I think unless they go into candy and sodas on the side, it doesn't really seem to be much that they can really do. So look, I'm probably going to come in at around five on the TAM, Peter. It's a tough one. I was looking at this. I could even probably go touch lower, to be honest. But yeah. What do you think, Peter?

SPEAKER_01 19:59

Yeah, it's one of those things where every episode that we've done, every TAM that we've always tried to look at and break down, like it's within the billions. Mobile franchising for tools just isn't that big. It's a small TAM. And can they vertically integrate? As I was saying before, can they put tires? But then you don't want to move away from what the actual brand stands for. It's snap on tools. You can't really add anything other because it seems like they've handbraked their own brand and their identity by having tools within the actual brand itself. So you can't actually add verticals into it because they've handbraked it by the actual brand. So you know the brand is great, but they've also restricted their success.

SPEAKER_00 20:40

And they're current and the recurring sales, as we said before. It's such a good brand that they don't break. Correct. Yeah.

SPEAKER_01 20:46

So they drop the tools and just call it snap on and then add other verticals onto it so they make the trucks more successful. I don't know. It's snap-on tools that don't snap. It's Chinese brand, it'd just be you know every six months every six months snap. It's right, yeah, it's right. They've worked it out. So for me, it's a three for me. It's not that big. I'm not a big fan of the TAM.

SPEAKER_00 21:10

Yep, yep, and I can completely understand that. So that's an interesting one, mate. So do we have a look at the mate scoreboard uh from here? I think I was eight. I was eight behind and you were eight, is that right? I was eight. For the operation, I was five, and you were three. Yep. With the advantage, I think I was at eight and you were at five. Correct. And for the TAM, I was five, and you were three. So I think that's 45.5 out of 80. That's exactly that might's a pass. Yeah, I'm a bit surprised at that, and I probably if I if I went back a bit, Peter, after sort of you and I have sort of discussed this, I might have been a little bit harsher with my scoring in a couple of areas. So I feel like I've been a little bit generous uh in this one, and uh I mean it it is a very well renewed. Brand and you know it does sales and credit facilities and personalized, make it it is recognized and it's got that niche in the market, but will it continue? I think it's dependent on economics. And you know, you and I have had first hand experience how it is a tough business to run for the operator.

SPEAKER_01 22:15

So it is but look at some of the brands that are out there at the moment. This business was established in good old Milwaukee. Well, how about the Milwaukee? But what about the Milwaukee brand? I mean, that's a great brand. That's some really good tools and some really good equipment that you can buy at the local Bunnings and the MITA 10. And I know, you know, with a lot of the trade's that I'm also friends with, they've got the radio, they've got all the other gadgets and equipments that come with it as well, with the actual tool. So they've been able to vertically integrate a lot of other additional, suppose a lifestyle brand around the actual tour, around the actual product. Because if you can get an SG and a radio, that's interesting. I think that's just the opportunity that Snap-on has missed. I feel like the brand, they have handicapped themselves by the actual truck itself and the equipment. Yes, it's great equipment, but what are the verticals? Have they built a lifestyle brand around it? And we know from first hand experiences that the franchise all they do want to make sure that the trucks are loaded up with tools because that's how they make money, let's be honest.

SPEAKER_00 23:18

100%. Although we have seen where the pressure from the franchise or to the franchisee to take on product is real, and that puts pressure on the franchisee at the point of sale to be constantly pushing the product, and you've got to be careful that because relationships what sells, and you can't be pushing all the time in relationships, so it's high pressure sales in some respects, and yes, the credit facilities make it a little bit easier, but even so, eventually they've got to pay the piper, haven't you? Of course.

SPEAKER_01 23:44

Well, they're buying the stock off their balance sheet, and then they're trying to sell the tools via finance to their customers. It seems like it's a pretty sort of strong recurring loop where you could get caught up in that pretty quickly.

SPEAKER_00 23:55

Yeah, very much so. Well, should we do the good old $1 million first year test, Peter, and just have a look at uh let's run the numbers. What do you think? Over to you, mate. All right, mate. So a new operator, I guess, making let's say 20 workshop calls per day, which keeps them on the road a fair bit, five days a week, 48 weeks a year. So based on that million dollar number, you need uh $208 revenue per call. Every call across the year possible? Or I'd say absolutely it's possible. Is it easy? 100% no, that's quite a large, even with the high margin product, that's quite a large number. Yeah, I think it's pretty tough, uh, Peter. I think the numbers are fully stretched. What do you think?

SPEAKER_01 24:34

I think you were very generous in this episode, Rodney. Yeah. Because you do need very strong territory, you need that workshop density. You've got to have the sales skills because if you're a mechanic and you're used to being in a workshop and all of a sudden you decide to take on one of these franchises, it doesn't necessarily mean that you're a salesman. It's two different skills. That's right. You know, and so then you've got to go out there and start learning how to network and build that customer trust. And if it's a big enough ticket for a diagnostic sale, well then okay, well, then that's going to help with your cash flow for the next couple of months. But then, you know, as we know, that recurring loop comes around pretty quickly and it starts compounding into your cash flows if you're not getting the tools out there. So, you know, you might have one big ticket item, but you may not sell that other ticket for another six months. So, what happens in between? So, look, the mass works, but the education, I think, is really the challenge. You know, what's their target audience? The target audience is essentially mechanics that understand the tools, but are they teaching them to be salesmen and really good business operators?

SPEAKER_00 25:36

And you and I have said this over a long period of time, Peter. A good tradesman or a good salesman doesn't necessarily make a good businessman and trying to transition from these skills that sales and tools necessarily go together. So I 100% agree it's a tough one. It's possible, but very hard, isn't it, mate?

SPEAKER_01 25:52

Yeah, and there's really five risks that stand out for me. I mean, number one is the credit risk, the customer finances the purchases, bad debt really starts to hurt. I think number two, it's the operator dependency. The dealer really is the business. And so that's for me, that's what we just touched on multiple times throughout today's episode. Number three, it's price, it's competition. You know, we mentioned Milwaukee tools that are out there that really have been able to build a strong brand around that. Total tools, I mean, these businesses are everywhere and they're large, they have extremely huge, strong format stores and large stores as well. So you're getting some significant buying power with total tools. You know, the big red buildings, you see them everywhere throughout the country. Bunnings, obviously, online retailers. I mean, bunnings have their own marketplace now. You can buy a lot of tools within their marketplace that's outside of the retail stores. But that's a threat.

SPEAKER_00 26:50

Online retailers is probably a bigger threat than we probably we have discussed today. I mean, these days people want to buy from the ears of their desktop or their phone, and we probably haven't even talked about that in this one today, have we?

SPEAKER_01 27:00

You get tools on Amazon. I mean, we're focused on the retailers, but what about buying tools on Amazon? I know a lot of my tradespeople that I know, they're doing it.

SPEAKER_00 27:07

Yep, yep.

SPEAKER_01 27:08

And it's being delivered straight to them, so which basically actually disrupts the business model of Snap on tools. Like you're buying it online, it's being delivered straight to you. You know, we haven't touched on that. And I think this is where if the operator that's running a mechanical workshop, what do I need a Snap-on franchise when I can just order it through Amazon and get it delivered to my workshop? It's the same principle. Absolutely, it is that really starts to affect the brand reputation of Snap-on. So, number four, I think, is really that brand expectation, which is what we just mentioned about. You know, the premium brands, they don't really get second chances, they're around for a long time. And number five, we talk about it every time on this podcast: labor skills, and the skill shortage.

SPEAKER_00 27:54

Yeah, absolutely, Peter. I mean, the more I think about this, the more I've been too generous in my numbers, and I if we get again. Let's do it again. A few more visits, Peter.

SPEAKER_01 28:04

I think if we did this podcast tomorrow, it's not going to be a pass.

SPEAKER_00 28:07

No, I agree. I agree. Yeah, it'd be a different answer again for sure. So, I mean, I guess that's a question. Let's have the final vertical Peter. So for me, is it successful? Is it for the successful for the snap-on franchisee or the snap-on franchise or then the franchise or model will remain strong, but at the franchisee level, which it all comes down to, it's hard. Uh increasing competition. We just talked about online there. Look, it's an excellent business model, and it's lasted the test of time. You know, not many businesses have gone from the 1920s to remain today, which is absolutely incredible. But everything potentially has a use by date, Peter, and nostalgia doesn't sell quite often, it does sometimes, but consistently maybe not. For the franchisee operator, maybe it's a different answer. We talked about the high margins on the product, but repeat sales, top product, I think there's probably uh limited sort of sales and profit these franchisees have. So yeah, I would say it's a very, very tough model. I certainly for you have the old smell test, would you put your own into it and operate one? The answer is probably no.

SPEAKER_01 29:06

So honestly, I think after doing this podcast, I think Snap One's gonna have their blockbuster moment. If they don't pivot to online sales and have a very, very strong e-commerce store, and I suppose look at it as similarly to what we spoke about last week with the dry cleaners, where they've got like a distribution hub and they can have all of the tools into the one distribution hub. And if they're selling tools in your area, for example, is the franchisee going to benefit off that particular sale within the e-commerce store and really have the best of both worlds where you've got the store being the ban, but also online sales and the local franchisee within that area can get a little bit of a clip off the top. If they don't start pivoting to that type of model, they're gonna have a blockbuster moment. Netflix is gonna come in and just completely wipe out the retailers, and in this case, being the mobile workshop.

SPEAKER_00 29:56

And I think that's a challenge, Peter, because they've got such a brand, they've kind of kept themselves a little bit elitist from the competition up until now. But by remaining that sort of elitist sort of level, they're sort of diminishing their vertical integration, as we talked about previously. So how they do that without making themselves the same as competitors is going to be a very, very difficult challenge.

SPEAKER_01 30:15

The Harvey Normans of the world have got the same issue where you've got the franchises that are all screaming out to be able to sell more online, but then the franchise laws going, Well, how do we split the sales with the franchisees in the local areas?

SPEAKER_00 30:32

Yeah. Yeah, that's a dilemma. It really is a dilemma. I mean, it's I'd be interested to keep an eye on this business, uh Peter, to see where it goes from here, to be honest. It's probably a very pivotal time for this.

SPEAKER_01 30:44

I think it is they're gonna have to pivot fast because you know what we've identified today really is actually quite interesting because if they don't start thinking about their e-commerce platform and allowing their franchisees to benefit from the e-commerce sales, you know, it's not that hard to do. Yeah, the local franchisee just gets a percentage of the sale online in that specific area. It's whether or not the franchise will want to do it because at the end of the day, they're making money out of the tools that they sell to the franchisee.

SPEAKER_00 31:15

Yes. I mean, the brand and replacement, you know, any any faulty v uh faulty of tools that is uh is what they strive on, but there's a limited market for that. So you're right, Peter, 100% right.

SPEAKER_01 31:26

So look, you know, it's a strong business model, but it's hard to operate. And if it's relationship driven, the franchisees really need to be disciplined. And if you're happy living off a route, you know, gray, this can be a good business, but it's not passive. And I do think this is gonna be one of those businesses that get disrupted very, very fast. It's gonna have its Netflix moment, as we mentioned. So, is it a good business? Look, it's a strong brand, you're gonna get a strong route, it's a strong operator. We know firsthand that there's a lot of franchises that are being sold to another operator, so you've got you know consistent revenue and customers and things like that. So that's a good thing, but it doesn't mean that can't be disrupted. It can be a bad business if you've got a weak territory and poor collections, like if your processes are not well structured and if you have low customer engagement. So I really think there's a very, very strong pickle risk with this industry. It's not passive, you can't get weak sales and weak discipline, and there's too much over-reliance on credit, and there's the big pivot, as we mentioned. So is it a good business? Yeah, maybe for the right owner that wants to retire, has been a mechanic for a long time and you know wants to cruise around and see his customers and catch up with his mates type of thing. But is that a business or is that a lifestyle? Yeah, it's a lifestyle. Yeah, it's more of a lifestyle. So, and it can be quite disruptive for the wrong operator. So, for me to wrap this up, another cracking episode, Rodney. I think we really just sort of broke this down quite quite well and and really identified some of the potential risk that we've seen. And hopefully, if you are thinking about purchasing this type of business, we've brought a couple of points to the forefront because you know the van is the shop, the relationship is the moat, and the credit book really is the old lubricant. I mean, that's what keeps it going to use a mobile mechanic sort of pun. But look, if you if there is a business that you want us to break down, please send it in because we don't want you to get into a pickle. And if you like the podcast, please send it to a friend. It helps others find us. Rodney, thank you again. Thank you, Peter. Have a lovely day, my friend. You too, mate. Have a good one.