Vending machine businesses combine product- and service-based business models. These machines have stood the test of times and are marked with rapidly evolving and innovative technology. Before you can start, you will need to assess the options for vending products, location, investment, […]
Vending machine businesses combine product- and service-based business models. These machines have stood the test of times and are marked with rapidly evolving and innovative technology. Before you can start, you will need to assess the options for vending products, location, investment, profit margins and sales channels. It is essential to have a business plan and understand the legal requirements for vending machines businesses.
You might be a good candidate for this high-stakes industry of frozen treats and hot competition. Here are the steps to get your share of this multibillion-dollar business.
- 1 Step 1: Evaluate the Product Options
- 2 Step 2: Evaluate Sales Channels
- 3 Step 3: Evaluate your investment of time and money
- 4 Step 4: Estimate Profit Potential
- 5 Step 5: Plan your Business
- 6 Step 6: Determine Sourcing & Supply
- 7 Step 7: Choose a location
- 8 Step 8: Check Formalities & Legalities
- 9 Step 9: Tap in
- 10 Advantages and disadvantages
- 11 Bottom line
Step 1: Evaluate the Product Options
A vending machine company offers many benefits, including the wide range of products you can choose to sell.
Just over half of the nearly 1.75 million vending machines in the United States will be selling candy, cold beverages, and snacks by 2020. The remainder comes from a wide range of edible and non-edible products. Source: Automat Merchandiser/Vending Market Watch Study
The sector’s fastest growing category is the nonedible (“other”) category. This represents the industry’s increased dynamism, diversification, and growth. These are the nonedible vending products:
- CBD oil
- Hygiene products for personal use
- Supplies for paper
- Products for first-aid
According to an Automatic Merchandiser user poll , some of the most popular vending machine products in 2020 included:
- Salted Snack: Miss Vickie’s Jalapeno kettle-cooked potato chips
- Fieldstone Bakery Grains 2 Go Bars: Healthy Snack
- Jack Link’s Cold Crafted Linkwich: Protein and Meat Snack
- Cold Beverage: International Delight Iced Coffee Caramel Macchiato
- Sara Lee Individually Wrapped Mini Cheesecakes
- Candy: Trident VIBES 12-count
These basic consumer goods can be purchased at retail prices between $1 and $5. However, the higher-ticket items have a higher margin but require more inventory and, if they are food-based, stricter legalities. It’s a good idea to invest in products you are passionate about, familiar with, and interested in. The sky is the limit as long as there is demand.
Step 2: Evaluate Sales Channels
When deciding whether or not to go ahead with vending, you should consider the market’s dominant sub-categories. These are vending machines (50%) and micromarkets (11%). Which channel is best for you?
When we think about the industry, we tend to think of self-contained, autonomous, standalone vending machines. These units allow owners to choose whether they want to sell one, two, or all of the products that they have.
Micro markets find success in corporate environments, hotels, hospitals, manufacturing facilities, and airports. They are sometimes staffed but often rely on automated point-of-sale systems and kiosks. (Source: VendingConnection.com )
Micro markets, sometimes called Grab-and-Go or Grab-and-Go, were established in the early 2000s . They have, like their vending machine counterparts , continued to evolve and thrive with busy, crowded, high efficiency spaces. This model is defined as custom-designed vending market/marts that have a self-checkout kiosk. It provides convenience store feel and offers a variety of prices. You can think of them as the sidelines at large airports, hospitals and cafeterias in office buildings. They are especially popular with captive audiences in workspaces. This is why the average micromarket is located at a location that has 100-150 employees.
Vending Machine vs Micro Market
The startup cost is the main difference between micromarkets and vending. Vending machines are stand-alone, self-contained, and automated. Once they have been purchased and placed, there is no need for inventory or maintenance.
Micro markets are like a mini-restaurant or convenience store. They require more real estate and more inventory.
Step 3: Evaluate your investment of time and money
After identifying your preferred sales channels, it’s time to assess the cost of each option. There are three options for purchasing a vending machine, or a micro-market business: buying a business, starting from scratch, or investing in franchises. These are the costs that you can expect to pay when approaching any of the options. We will be focusing on vending machines rather than micromarkets due to their lower startup costs.
Keep in mind that startup costs are only sustainable for six to twelve months. The ongoing expenses include inventory and supply cost, payment processing, vehicle costs (fuel or maintenance at minimum), vending machine repair, equipment and maintenance.
We can help you get the small-business loan that you need.
Expect to Invest $3,000-$10,000
Although it requires little capital, starting a vending machine company from scratch will require a lot of effort and time. A startup vending business is the best option for you if you are able to manage it and build it. This approach offers flexibility, allowing you to start small and build a reputation and brand, while still growing. Although features and capacities vary, the cost of purchasing one new vending machine is anywhere from $1,500 to $10,000.
The self-start method, in addition to the machine’s cost, requires inventory, branding and marketing, sales activity and inventory management. This is along with all the back-office costs and expenses of running a startup such as accounting and legal compliance. This allows you to start small, and then grow at your own pace. Different machines are made to fit different products. Here are some common machine costs as per Naturals2Go.
- Soda Machines starting at $3,600
- Snack Machines starting at $3,000
- Candy Machines starting at $1500
Step 4: Estimate Profit Potential
Prior to you can commit to starting a vending company, it is important that you determine your profit potential, particularly after determining the startup costs associated in your preferred approach to market entry.
To estimate the profit of your vending machine(s), first, use Vending.com’s handy tool. It is easy to adjust variables such as the number of machines, sales per hour, profit per product and more.
The average vending machine generates more than $75 per week ($300+ per month). Some make less, others make more. The money in this industry comes from the volume.
The vending machine business can be a side hustle (defined as two to three vending machines), or a lifestyle (large vending companies have thousands of machines all over the world). It is highly scalable which adds to its appeal. Start with the smallest numbers, and scale up to determine profit potential. This is the best way to estimate your projections for the business plan.
Did you know?
IBISWorld states that Compass Group PLC has a 3% market share and will generate $202.4 million in vending-specific revenues in 2020.
It’s easy to locate a desired spot to assess foot traffic. If you’re interested in renting or receiving a commission from vending sales, some businesses will share the information with your business. We’ll be discussing location selection shortly.
Profitability also depends on the same factors that small businesses depend on: a detailed plan, capitalization and clear target market. A smart product mix, strategic location strategy and healthy profit margins. Any business, even vending machine companies, can suffer from a weakness in its core business model.
Step 5: Plan your Business
Even though the one page business plan is the most popular, it’s hard to find a bank loan officer who doesn’t want to see a business proposal. If you don’t require money, there are many great business planning models. But if you do need it, a business plan is essential. This is the format that we recommend, especially for those who are looking to finance their venture.
- Executive Summary
- Included: Business Objectives, Mission Statement and Keys to Success. Financing Request
- Summary of the Company
- Included: Startup Summary, Startup Capital Summary and Location, Ownership, Competitive Advantage
- Products and services
- This includes: Business Model, Products and Services, Fulfillment, Future Products and Services.
- Market and Industry Analysis
- Market Segmentation, Target Market Analysis, Industry Analysis and Competitor Research
- Marketing Strategy and Implementation Summary
- Included: Marketing Strategy, Sales Strategy and Forecast, Pricing Strategy, Milestones, and Pricing Strategy
- Management and Organization Summary
- Included: Ownership Background, Management Team Gaps, and Personnel Plan
- This includes: Suppliers, Machine Service and Maintenance Plan and Stocking Decisions
- This includes: Break-Even Analysis and Project Profit and Loss. Projected Cash Flow and Balance Sheet. Business Ratios.
Step 6: Determine Sourcing & Supply
After you have created a plan of attack for starting a vending company and secured financing, it’s time to start securing your supplies. You will need to have a working computer and a phone. The key ingredients for your vending business are the inventory and machine(s).
The first major investment in your vending machine company is to acquire one or more machines. You can either buy new or used machines, or finance or lease them. Vending machines have evolved to be more sophisticated and specialized over the years, giving retailers many options depending on what product they are selling. You can see some of the latest, highly-tech products currently available on Vending.com.
A new vending machine costs anywhere from $1,500 to $10,000 depending on what bells and whistles you want. There are many websites that allow you to purchase vending machines, such as OnlineVending.com or Vending.com. Companies like Naturals2Go or EVending.com can help you finance new or used machines depending on your needs.
DiscountVending.com can be a supplier who sells used and new vending machines. It is possible to find vending machine suppliers close to you to ensure that your purchases support the local economy.
There are several options available to secure initial and ongoing inventory, depending on how many machines your company has. It’s a simple transaction to purchase vending machines. However, inventory is a partnership that will last a lifetime. So make sure you do your homework and choose wisely. Consider the following criteria when choosing a supplier to supply your product:
- Financial: Find suppliers within your price range who offer financial incentives, such as loyalty programs and discounts and bonuses; fast delivery times; and generous terms and conditions of payment.
- Product: Find suppliers that have a consistent supply of fresh products and who can provide the qualities and characteristics you are looking for in your inventory. Check to see if your suppliers offer a guarantee or stand behind their product.
- Relationship: A business partnership is a relationship. Particularly if you are interacting with sales or delivery personnel, assess the company’s customer service, credibility, and attitude.
Your supplier selection will be influenced by the characteristics and quality of the inventory that you wish to stock your vending machine with. We’ll be looking at suppliers from this perspective, as cold beverages account for nearly 25% (23%) in vending product sales. Below are some examples of cold beverage suppliers for startups with just a few machines.
- Membership Clubs
- Examples: BJ’s and Costco. Sam’s Club.
- For new vending businesses that don’t require a lot of inventory, membership clubs might be more beneficial. You can also enjoy the benefits of a membership as a civilian shopper. Keep in mind, not all membership clubs will be the same. For a 35-case Classic Coca-Cola 12-oz Cans, we shopped at each club. The prices ranged between $10.99 (or $0.31) to $13.21 (1,381 or $0.38 per can). You still make $0.31 per can if you adhere to the keystone of 100 percent markup. When you add inflation, demand and overhead costs and compare market pricing, the profit per can is $0.44. This gives you a nice margin of 58%.
- Ecommerce: Specialty Retailers and Wholesalers
As you scale up, wholesalers will be a good option. They can purchase larger quantities at a more affordable price per unit. It’s the benefit and incentive of buying in bulk: A lower price-per-unit means greater profit-per-unit-sold.
Step 7: Choose a location
Finding the right locations for a vending machine business is both an art and science. Location is more important than product mix for a vending machine business’s success. Vending machines can be moved to other locations if they aren’t profitable. When evaluating potential locations for your machine(s), keep the following in mind:
- Is my target customer in the following areas?
- How close is it to a captive audience
- How do you get to the location?
- How close are you to other food options
Overwhelmingly, vending machines in the US are located at manufacturing facilities and office buildings, meaning that captive, daytime workers are the main customers of these machines. Manufacturing and office sites similarly represent the majority of micro market locations. These kinds of locations are plentiful in many parts of the country, presenting strong market opportunities for new entrants.
If you are still having trouble finding the right spots, consider reading The Secret Formula for Getting High Traffic Vending Locations by Robert Patterson. You can also check out VendLoco, an online location generator from Vending Connection. It may be worthwhile to invest in the long-term at $1.25 per prospect.
Machine placement involves relationship management, sales, and mutual benefits. There are two options for payment for location, space lease, or participation location.
- Space lease: You have the option of paying a fixed monthly rent, space lease, or rent to the machine space owner. This rate doesn’t change regardless of machine income. You can expect to pay around $50 per month for a machine, depending on where you live and how much it costs. Do not sign a lease that lasts more than six months. The location might not be as appealing as you thought and you may want to have the machine moved.
- Participation location: Vending machine operators sometimes pay their landlords a commission for gross machine sales–a type profit-share. This could be a 60/40 split or 10%-25% of vending machine revenues. Although the landlord might already have a plan in place for approaching this opportunity, it is important to bring your goals into the conversation.
A successful partnership is a win-win situation for both the partners. Therefore, negotiate a plan that benefits both of them.
Step 8: Check Formalities & Legalities
Every industry, every sector, and every business type has its own set of legalities. Here is a list of legalities and formalities for vending machines businesses:
- Name and legal entity
- Find a business name and website availability. File your business entity to your Secretary of State website.
- Although it is not required by law, any business established with formality ( as a business entity like an LLC ) is set up for success. It is highly recommended that you adhere to our recommended legalities and formalities. This will ensure that your business is set up legally, formally and intelligently.
- Register for Taxes
- Apply for an EIN: Taxes are required even for a vending machine-only business. Register for taxes after you have filed your business structure. You can apply for a Tax ID (Employer Identification number) at the IRS website.
- Sales Taxes: After you have your EIN and business registration information, go to your state’s Department of Revenue website. Register your business by searching for “Sales and Use Tax” or selecting it.
- You can set yourself up for success by getting this business formality addressed early. Separating your personal and business finances will simplify business, taxes and life, as well as allowing you to build good business credit.
- Permits and Licenses
To get started, start with our Business Registrations and Licenses and Permits Guide. Then, move on to the sections below.
- Federal: It is important to know what you are selling in order to determine the applicable federal licensing requirements for vending machines businesses.
- Food/Beverage Service License. If you operate a micromarket or vending machine that sells food and beverages, you may need a food service licence. To learn more about the requirements, please refer to the FDA Food Business Guide.
- ADA Compliance: Vending machines are a physical business located in public places. Access to them is subject to the Americans with Disabilities Act (ADA). Although the ADA guide can be a bit overwhelming, you can still read the ADA Small Business Primer for the essentials.
- State A vending machine business’s state license is determined by where it operates. To get started, visit the CandyMachine.com Vending Regulations by State guide.
- Local: To operate vending machines, your city or county may require a vendor license, local food services license, a permit/permit for vending, or other licensing requirements. Check with your city and county to determine what is required, as well the local health department.
- Federal: It is important to know what you are selling in order to determine the applicable federal licensing requirements for vending machines businesses.
Each vending machine company has its own contract. However, there are some common contracts that you will encounter.
- Rental Agreement A rental agreement is necessary to protect both the business owner and the tenant.
- Service Agreement This agreement describes the terms and conditions of a particular service between a provider and a customer. This document is valuable to protect with clients, suppliers, and business partners.
- Certificate Of Occupancy: It is possible that some form of certificate of occupancy (CO), will be relevant depending on the nature and location of your business. This document certifies that all applicable building codes, zoning laws and government regulations were met.
A business owner can join LawDepot.com for $7.99 per month. This allows unlimited access to custom contract templates including rental agreements and service agreements.
Every business should have general insurance. You can consult with your insurance company to determine the best way to protect your personal and business interests.
Step 9: Tap in
Some industries have a lot of industry support, resources and news. Vending seems to be one such industry. It’s crucial to keep up with the latest trends and technologies in a market that is constantly changing. These are some must-read resources for anyone who is considering starting or maintaining a vending machine company.
- Vending Market: This is the premier source of vending, micromarket, office coffee service and industry information.
- National Automatic Merchandising Association – Trade association for the convenience service industry. This includes vending, micromarkets, office coffee service and foodservice management. Access to industry data, publications, trade shows, an application, and many other benefits are included in membership.
- VendSoft – In addition to their Vending Management Software, VendSoft can also provide industry data, resources and articles.
- Vending Times – This trade publication covers US Vending and Convenience Services.
- Vending Connect: This resource offers vending news as well as a Vending Resource Directory.
Advantages and disadvantages
Each industry has its pros as well as cons. You should consider all of it and decide if the pros outweigh any cons. IBISWorld lists some of the main advantages and disadvantages in the vending machine industry.
- Low concentration
- The top four vending operators dominate 6% of the industry, leaving the rest of the sector highly fragmented and split up between small and large companies.
- Low startup costs and overhead
- The main expenses for this industry after starting are vehicle fuel, maintenance and inventory. This industry is open to anyone with less than $5,000. That’s a very low investment for any business.
- Positive outlook for growth
- This industry expects moderate, but positive growth with a projected 2.1% annual industry revenue growth through 2025.
- Globalization poses low threat
- Globalization and external competition are threatening many industries, businesses, and sectors. However, international trade is not an issue for the vending machine industry.
- The best thing about the vending machine industry? It’s simple to start small and then scale up as you need. You can start a vending company with just a few machines, and eventually scale up to manage hundreds of machines.
- Lifecycle in decline
- Despite modest industry revenue growth in the next years, it is expected that the number of operators will decline slightly.
- Assistance to the industry
- This industry does not have any industry-specific assistance or tariffs.
- Technology change
- While tech-savvy business operators may not see rapid technological change as a problem, it does present a threat to traditional business owners. Many owners are forced to adapt their operations and keep pace with market changes and customer demand.
- High competition
- This industry is not only at risk from increased competition and new entrants, but also from automation by outside operators such as convenience stores, drug shops, and grocers, who are open late and offer automated checkout for speed and convenience.
Vending machines are a business that can make a lot of money if you put in the effort, time and money. However, vending machines are dependent on greater profits so a business that sells vending machines must have a large fleet. You could become the next vending industry kingpin by focusing on wins in location, customer access, healthy profit margins, product variety and machine volume.
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