Matco Tools
· AutomotiveMatco Consumables Supply
Building a second distribution channel for auto shop consumables
- Shops served nationwide
- 150k+
- Distributors (DBRs)
- 1,900
- NA consumables market (2021)
- ~$3B
Background
Matco Tools has core competencies in auto repair, supply chain, e-commerce, and the financing and sale of tools and hardware parts. Based in Ohio, Matco services over 150,000 shops across the U.S. through more than 1,900 distributors, who make the point of sale directly with customers.
Creating a hypothesis on consumables
The majority of the consumables market is underserved or ignored by the large players. Consumables are the next adjacency to the sale of tools and carry a high margin, and customers already trust Matco and its distributors. Hence, we proposed a structure where a second franchisee from Matco handles the supply of consumables to the same stores that the primary tools distributor is already visiting.
Proposed operating model
Two franchisees, split by product line, both calling on the same shop.
Primary franchisee, tools
Secondary franchisee, consumables
Sells tools for diagnostic repair, maintenance, cabinets, and more.
Sells fasteners, clips, spray cans, lubricants, and chemicals.
Visits the shop every Monday.
Visits the shop every Tuesday.
An existing tools franchisee purchases a second franchise and hires a new employee to sell consumable parts.
The employee manages shop inventory on a weekly basis, auto-replenishing stock and making additional sales.
Will not sell consumables directly, since the added workload would distract from day-to-day tool sales.
Invoices the customer for supplies directly, increasing Matco’s visibility with shops.
Who we spoke to
- 8
- Store locations visited
- 6
- Store types surveyed
- 160+
- In-person interviews conducted
We conducted in-person surveys with store owners across the country to uncover their pain points and understand how they currently get consumables delivered.
Types of stores surveyed
Snapshots from the field
Matco distributor trucks and the shops we visited during in-person interviews.
Building a value proposition
The goal was to understand what it would take for store owners to switch from their current consumables supplier. We conducted over 160+ in-person interviews and summarized their responses below.
Competitive landscape
An overview of the current competitive landscape and how Matco wins.
| Competitor | Strengths | Weaknesses | Why Matco wins |
|---|---|---|---|
| National MROs Kimball Midwest, Winzer, Wurth | Maturity in market with an established supply chain network. | Trust issues with over-stocking. | Trust of DBRs, potential for adjacencies, and a scaling brand with an automotive focus. |
| Independent & local stores Rogo, Ram, Cavalier | Large inventories and same-day deliveries in brick-and-mortar stores. | No scalability, and may struggle to switch to EVs. | Able to offer auto-stocking and keep up with tech advancements. |
| National autoparts AutoZone, O’Reilly’s, Napa, Carquest | Brand recognition and large brick-and-mortar inventories; customers tend to buy in bulk. | Not auto-restocking. | Offers a higher level of service and auto-restocking. |
| Online retailers Amazon, eBay | Easy to order without contracts; fast delivery. | Can’t assess customer inventory; employees take time to place orders. | Offers a higher level of service and auto-restocking. |
| Matco | 1,900 DBRs and a national brand trusted by 150k shops. | No footprint in the consumables market. | Trusted national brand with a strong, established distributor presence. |
Market opportunity
Market description
On- and off-highway vehicle aftermarket MRO.
Market stats
~$3B North America consumables TAM (2021), low-single-digit CAGR, low cyclicality.
Growth drivers
Age of vehicles, miles driven, and increasing car parc complexity.
Market economics
40%+ gross margins in a fragmented competitive landscape.
How do we scale
An acceleration plan for scaling the supply of consumables, leveraging Matco distributors and their existing relationships with partners and individual stores.
>10 stores
Pilot phase
- Matco DBRs place orders directly into the partner’s POS system.
- The partner handles fulfillment while invoicing is managed on the back end.
- Matco collects payment from the franchisee and pays the partner.
- The partner also helps train new franchisees.
- Margins: 30% partner, 40% Matco Consumables, 35% franchisee.
200 stores
Scaling phase
- Scaling DBRs place orders directly into a Matco-provided POS system.
- The partner drop-ships, with the option to move product into a Matco warehouse for fulfillment.
- Matco takes over responsibility for franchisee training.
- Margins: 30% partner, 40% Matco Consumables, 35% franchisee.
200+ stores
Maturing phase
- The need for a partner is eliminated.
- Matco acquires or disintermediates the partner and brings the supply chain function in-house.
- Franchisee margins increase to scale faster and improve defensibility.
- Margins: 40% Matco Consumables, 35% franchisee.
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