Start a Vending Machine Business

This is a news publication dedicated to disseminating information we have discovered online and readers have contributed to us about the vending machine business.

People are more than willing to pay for convenience.  7-11 has made a fortune on this.  A lot of people are stuck in their offices and will pay big time for a snack.  You don’t need a lot of connections to get into the Vending Business.  One place that we have noticed a lot of vending machine owners shopping is SAM’S CLUB and CostCo Business Center on Beach at the 22.  They sell in volume for the vending companies and convenience stores.  

You might also consider a vending supplier such as GLAZED WHOLESALE in Carson (310)202-1100 ben@glazedwholesale.com.  They claim that they can undercut the mega warehouse club stores on bulk candy and soda.  Also, they offer free delivery.  You need to e-mail them to get a price quote.  (you can compare with online prices of the big warehouse clubs).  Going with a distributer might be a great option if you are buying large volumes of candy and soda.

Do the Math -- Huge gross Mark Ups on Vended Products

 

LET’S DO THE MATH —  Huge Mark-Up on products sold through vending machines

Cans of Soda

To get an idea of what you cold expect to make, let’s look at a popular cola.  I looked for deals at the Sam’s Club in Stanton CA.  As today, April 2011, you can get 32 cans of Coke for $9.74.  That comes out to $0.305 per can.  (You don’t need to pay sales tax when you buy, but you need to pay it on your sales)  If you get people to put in four quarters per can you net of sales tax revenue is $0.921 assuming a sales tax of 8.5%.  If you sell it for 75 cents, you get $0.691.  So the after-tax mark-up would be:

Priced at $1.00  ($0.921-$0.305)/$0.305) == 202.0%

Priced at $0.75  ($0.691-$0.305)/$0.305) == 126.5%

If you look a popular orange drink Sunkist Orange Soda, you can get this for $0.30 per can so the margin would be about the same.

If we look drinks in those plastic bottles, they seem to go for $1.50.  At the aforementioned warehouse store, you can purchase 12 20oz bottles for $11.24

Priced at $1.50  (1.382 – 1.067)/1.067 == 29.5%

Price at $2.00 (1.843-1.067)_/1.067 == 71.9%

If we look at the Gator sports drink, they sell 24 20oz bottles for 14.88

Price at $1.50  (1.382-0.62)/0.62 == 122.9%

Priced at $2.00 (1.843-0.62)/0.62 == 197.3%  

Capital Investment – The Vending Machines

Sams Club offers a Gator drink machine for $3,490.  With sales tax, and shipping you could ball-park this at $4,000.  And I have no clue as to how long these things will hold up.  Let’s guess ten years—that’s about how long a fridge would last, and it makes the math easy.  So how many gator drinks would we have to sell to pay for the machine?

Payback:

At $1.50 per drink, we gross 76 cents on each Gator drink.  This means that if we sell only 10 drinks per week it would take over ten years to pay for the machine.  On the other hand, if we sell 140 cans per week or 20 a day, it would take less than nine months to pay for the machine.  At $1.75 and sales of twenty drinks per day, it would take just over six months to pay for the machine.  If sales averaged to ten drinks per day, it would take about a year and one month to pay for the machine.

But this is for a new machine.  I checked on my local Craigslist and there are a lot of machines for sale.  One seller explained why you can get a deal on a machine, “ the location was not working out, and I need money.”  Almost new gator drink machines were going for as low as $500.  Wow.  If you can find a location that would sell 10 Gator drinks/day @ $1.50 the machine would pay for itself in less than three months.

 

So,what business are you in?  One way to look at this is that you are in the quick serve food business.  And that’s true to a great extent.  But you are really in the (1) real estate business and the (2) machine maintenance business.  Sure the mark-up is big, but that’s only if you can put the machines in a good location.  The success of your business will depend on your ability to knock on doors to find great locations.  Your machines don’t make much money sitting in your garage.  And you are also in an investor.  You pay a great deal up front to buy and install a machine and it pays you back over time.  The mark-up’s are huge but that’s for a reason.

Location, Location, Location

The real challenge with this business is finding locations for the machines.  Often established vendors will sell their routs, for a quite a bit of money.  You buy their machines and routs based on how much cash they say they take in.  We noticed one in an Irvine Office building for $15,000 and another one in an undisclosed Huntington Beach location for $28,000—that’s for the contract to have machines in the building and the machines.  But often the vending machines are sold with the location.  Search for Vending Rout in CList to see what people are selling.

Another strategy to find locations is to offer via direct mail or sales calls a free service to office buildings, churches, big box stores, and plants.  You tell them that you will install the machines for free, and you will do all the work involved with stocking the machines and repairing the machines.  Managers like this because they have better things to do than deal with the vending machines in the employee break room.  The nice thing about this strategy is that you can buy your machines after you have the location secured, and if you say they are making money you can sell the location for big bucks on Craigslist.

 

 Great Deals on Craigslist

Before you buy new machines check out the big supply of used hard candy/toy vending machines on Craigslist/ebay.  A lot of people get started with a few machines and then find they have better things to do with their life. (CAUTION although a lot seem to be missing keys.  We are not necessarily  saying anything is bad with that people loose keys all the time and a good locksmith will be able to take care of that problem.  But make sure they have some proof that these are legit sellers who are the rightful owners of the machine.).  Just make sure that it’s possible to still get parts if you need them from the manufacturer.

Those Old Machines are not Trash.  People are dumping their old machines that cannot accept credit cards because we are moving to a cashless society.  The argument goes that the millennials with their smart phones have more important things to do than deal with old fashion money–coins and dollar bills.  They want to use their $600 iphone to pay in the cloud.  (Okay your customers probably get their money the old fashioned way–from mom and dad.)

Well inventor  Paresh Patel has come up with a solution.  His invention, the BluKey™ device works with virtually any vending machine made in the last 15 years, plus millions of other kinds of machines.  It just plugs into the cable that connects the payment pad with the machine and allows people to pay with their smart phone.  The beauty is that it costs less than $50 for the hardware and their cut is less than 4%–just a bit more than you would pay if you hassled with setting up a merchant account at a bank.    www.payrange.com  Check out this video  

So we’ve made a list of the best vending machine opportunities we found in the OC.

Local Vending Machine Suppliers — Large Machines

  • Editor’s Pick for Best Vending Concept  Health food/ fresh food vending machines http://www.healthyvending.com/vending-operators of Los Angeles offers machines that take credit cards and can handle a wide variety of food products.  This concept of restaurant in a vending machine has been very successful in Japan.  It’s a real labor saver because you don’t have to have a sales clerk there 24 hours a day.  You just re-stock the machines every day or every other day.  According to their CEO, Sean Kelly, machine costs range between $6,000 and $10,000.  Startup costs are about $10,000 to get going in the business.  Most of the business people they work with start with five machines, but they are willing to work with you if you want to start with only one or two machines.   Although their machines are more expensive, it seems like you are getting more for your money.  (1) You have to option of more items than just candy and soda.   Their machines might be great for a break room as they can offer more of a meal.  (2) Because you  can offer healthy foods, you have more have a greater ability to secure a location.  Many parents have objected to unhealthy options in most machines, so traditional vending machines are banned from many churches, community centers, gyms and schools. (3) This is the price on new Advanced machines that look great and even have a TV screen above the food advertising the products.  that can accept coins, bills, and credit cards.  (4) Their  vending machines have  remote monitoring technology – it tells you exactly what is selling from your machine in real-time so you know exactly when to stock it (from the comforts of your own home).  So you can buy and bring exactly what you need.
  • Vending Machine King  http://www.vendingmachineking.com/ in the City of Orange was suggested to me as a good place to start looking for reconditioned vending machines.  This guy is the King of Vending Machines and has a crown to prove it.  (I have no relationship with this business, but if I was interested starting a vending business I would check him out first.)  He also repairs machines and has the parts you will need.  He is selling the traditional can, bottle, and snack machines.
  • Gumball.com of Irvine (See Below) distributes large vending machines made by Seaga that can dispence snackfoods and drinks.

 

Hard Candy and Small Item Vending Machines

Toy/Hard Candy Vending Machines

HARD CANDY/TOY VENDING Parents will hate you, but kids will need to get rid of all that change.  Photo by Amboo Who (cc) http://www.flickr.com/photos/amboo213/

HARD CANDY/TOY VENDING Parents will hate you, but kids will need to get rid of all that change. Photo by Amboo Who (cc)

These machines vend a handful of candy or toys in plastic containers.  The good thing about these machines is that it’s an impulse item.  And sometimes parents need to put coins in the machine to get out of the store.  And they don’t take up much space!  We haven’t done the math, but the markup  must be huge.  50cents for a hand full of candy!!  And the same goes for plastic toys–they are paying what you used to pay for a box of Crackerjacks and you only selling the toy.  (+) And unlike other vending products, toys and hard candy don’t go bad for years!!  (+) And they don’t take up much space so they can go where other machines will not fit.  But there are some negatives with this type of vending (-) the maximum price is set at a four coins = $1.00 for newer designs and 2 coins 50cents for older designs.   (-) they are easily stolen.  We noticed a lot of them for sale on the internet missing keys–not sure why.  (-) A lot of affluent customers only carry credit cards so now days they don’t have extra change.

 

  • Gumball.com  Gumball.com This company opperates out of Irvine.  So they can get you what you need fast and with minimal shipping costs.  This local company is the place to start with if you are interested in smaller vending machines.  They offer a large variety of small machines (made by Seaga) ideal for vending anything from k-cups, Medical Products,  snacks for an office setup, and of coarse toys for a more retail location.  They also sell gumball machines from different companies.  Product: They offer a wide variety of capsules or Acorns from 1 inch to 4 inch sizes.  You can even buy empties if you have a special product you would like to fill yourself.  And they offer your young customers licenced products–everything from South Park to the NFL.  Parts: In addition to that they sell parts to a wide variety of vending machines–including locks. 800-260-0010

 

  • Weswtway Vending Machines  http://www.westwayvending.com/ of Chino Hills.  They sell vending machines.  They have hundreds to choose from.  But they have not put them up on their website.  Contact them @ (909) 629-9913  support@westwayvending.com to see what they have in stock.
  • Enter Vending  www.entervending.com This is a bulk supplier out of Florida that supplies candy, bouncy balls and a small toys in addition to all the machines from the big manufacturers.   If you purchase more than 3 items you can get bulk pallet shipping rates.  They are the exclusive distributer of the  Twister Vending machines (see video below).   You can consider these machines is that they offer entertainment in addition to candy.  This will grab the attention of young customers and their parents.   They provided the video below :

 

  • U-Turn Vending http://www.uturnvending.com  They are in Idaho and they make the machines that dispense supperballs and gum balls.  They don’t provide prices on their website.  But the best deals on these machines is to look for don’t- wanters on e-bay or Craigslist.   We saw some going for $300.
  • Brand Vending Products.  http://www.brandvendingproducts.com/ This Arizona Company sells new machines that vend everything from stickers, to gum balls, to toys in those plastic acorn things.  (Surf’s Up the building’s  cleaning crew will hate these things as kids will be kids with the gum and stickers.)  This is a great application for smaller areas where big machines will not fit in.  They also sell the parts to fix the machines when they stop working.   This is also where you get the popular Squishland items and the the machines that sell them.  And they have “fish eggs.”  Kids fill the plastic container with water and watch them grow.  We don’t exactly know what these are, but if you have kids ask them.  They appear to be for kids under ten.
  • Northwestern Vending Machines www.nwcorp.com  These machines are available at Same Club, just search for gum ball machine http://www.samsclub.com/sams/gumball-machines/2252.cp They can either vend hard candy or toys in plastic capsules   This company has been making these things since 1909 and they are still around.  Their 80 series can be up to 50 inches tall.
  • Oak Manufacturing www.oakmfg.com This Vernon California company has been making the classic toy and hard candy vending machines that we all know since 1948.  They have large glass top where you can see the candy or toys and a red bottom.  You insert a coin, and your candy or toy comes down the slide in front of the machine.  The reason they are called “Oak” machines is that the plastic containers that toys com in are referred to and shaped like acorns.  You can also vend loose candy that kids take in their hand or pick up off the floor when they open the door to the slide.   Since they have been around for years, there are of plenty of these machines that are used (they don’t cost much new) and the company still sells the parts.
  • Eagle Vending Eagle made hard candy/toy machines similar to Oak and Northwestern, but it appears they are out of that business and you may have problems finding parts.  Some people said that Oak Vending machine parts are interchangeable, but we are not sure.
  • Gumballs.com www.gumballs.com  (Different from Gumball.com) Gumballs is a place where you can get the toys, stickers, super balls and even bulk candy for these machines.  They also sell machines.  This is also a place where you can buy the capsules.  When we checked they were selling 2000 for $80.00.  Assuming $20 in shipping that comes out to about 5 cents per unit.
  • CandyMachines.com http://www.candymachines.com Is a San Marcos company that sells all to stuff that goes into these machines.  (This might be a drop shipper.)  We noticed that they had a special on 2,000 Supper Balls for $100.  So if our math is right, that’s 5 cents per super ball.

You could easily sell the Supper Ball for 50cents, so the mark-up would be (50-5)/5 or 900%.  Another example is that you could get 50 South-Park balls for $25 so each one costs you 50cents.  You could sell these easily for 75cents and make a hefty 50% mark up.  But some of your best markups might be in hard candy.  M&N’s, Jelly Beans, …

 

Gambling Machines-Crain Machines

These machines are kind-of like gambling because it’s a game of chance.  The kid or adult does not know if she will get a toy, and the game owner has put in a few expensive toys.

 

DVD and Video GAme VENDING

DVD’s are not Dead.  There are many people who prefer to get their videos from a machine rather than sign up for an expensive service such as Cable TV.  And there are some people who don’t have high speed internet at home so Netflix is not an option.  If you only want to rent a few movies a month, it a lot cheaper to get them from a machine.  For instance, renting is a better option than Video on Demand for Grandparents who aren’t up on technology, people in RV’s–used for vacation or housing, and lower income people who move often or are credit constrained.   Because machines have lower overhead they have replaced most rental stores (remember Blockbuster and Hollywood Video?)

You have probably thought about buying a Red Box Vending machine.   All Machines are owned by the Outerwall Company which also owns CoinStar.  They do not sell or lease machines to independent businesses.  They have locked up a lot of great locations in big chain stores.  But the sellers of video rental machines point out that there are a lot of opportunities in locations where they are not.  The logic is that this big company deals with malls and big chain stores and does not have time to deal with the mom-and-pop landlords and retail businesses.

These machines take a lot more investment to get going, and a lot of things have to go right for someone to rent a movie.  Your machine needs to be hooked up to the internet to process credit/debit cards, you need a merchant bank account, you have to be in a safe location because dvd’s and games are easily pawned so crime is an issue, the mechanics of the machines are more complex than a machine that just drops a candy bar to a slot, and you unless you are in a place that served visitors such as a camp ground, you will have to churn the inventory.  On the positive side, you can re-rent the same movies and games for years, and the footprint (rent) is low.

And again, you might score a deal on a used machine, so check that out first.

  • DVD Now www.dvdnow.net This is a competitor to RedBox.  Owners can stock Blue-Ray disks and video games — whatever you feel will rent in your locations.  You can buy your movies and video games retail, used, or at a discounted price from their network.  They can get you early releases that come out around the same time as RedBox and VOD.  The machines are rather expensive as they are complex.  They have to take credit/debit cards.  Pricing is not provided in their website.  According to their website “With DVDNow Kiosks [we’re not sure how many] you can be in your own business in less than 45 days for under $25K. “
  • Movie Mate  moviemate.com This company manufactures and installs video rental kiosks.  The company does not provide pricing on their website, but we saw one ebay seller state that her machine cost $22,000 new–take that with a grain of salt.  Prices were all over the place on the internet for these machines–$4,000 for an older model to $10,000 for a hardly used model on e-bay.  These include 2000 videos.  Don’t forget to include shipping costs.  As with other vending machines, if they lose their location they just gather dust in garage.

 

 

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SURF’S UP The best values seem to be from don’t-wanters.  They purchased a machine for their facility and now they need to sell or they just didn’t realize how much work was involved.  The business they were servicing went out of business or they just weren’t making the money they thought of.  Search CList for more info.

Pizza Vending Machine  Let’s Pizza of the United Kingdom/Netherlands is bringing it’s popular pizza vending machine to the US.  They will be setting up a factory and marketing office in the US soon.  It is real pizza cooked in a few minutes.  The machine uses fresh dough, adds pizza sauce, adds cheese and toppings and then cooks the pizza.  The suggested retail price for the pizza is about $6.00.  This is their UK website http://www.letspizza.co.uk/home.html They do not state how much the machine costs, and you will have to have a a 220v outlet installed (like for an electric clothes dryer) to run the machine.  Video

 

 Education and Associations

Automatic Merchendicer Magazine, formerly Vending Market Watch Magazine www.vendingmarketwatch.com  This online magazine has all the information on vending machine technology and upcoming shows.

National Association of Automated Merchandising.  As with most industries, vending machine manufacturers and operators have an association for the United States and Canada.  The association has an annual convention in Las Vegas.  (Tax Deductible trip–ask your tax adviser)  This is where you will want to learn about the latest and greatest vending machines.  They also have educational opportunities in the way of speakers at their expos and conventions.

National Bulk Vending Association This is an association of non food (i.e toys and hard candy) vending machines.

Vending Times As the name suggests, this is a publication for people in the vending machine business.  They seem to have another publication called Vending Market Watch  While their focus is national in nature, you will find a lot of interesting ads that you will not find elsewhere–especially in the second publication.  For instance, info on parts, locks for vending machines, special hand trucks, kits to retrofit older machines with LED lighting …  People targeting vending machine operators advertise in these publications.

vendiscuss.net  This is a discussion board by vending machine operators that has been around since 2007.

Vending Machine Business Regulation

The State Board of Equalization has a pamphlet to help you understand how to pay tax on vending receipts.  It’s Publication 118  which goes over what is explained by Regulation 1574.   (If these links don’t work, it means that they have updated the Board of Equalization website again.  Just do a google search for boe.ca.gov and publication 118 or Regulation 1574 )  The way we read it, you can get one resell permit from the B.O.E. for all your machines.  For info about getting a resale permit, see our Regulatory Compliance Page and scroll down to the last 20 % of the page.

You will also technically need a city business permit.  Don’t worry about zoning, this is just a “revenue thing” for local governments.  They know most office, business, and retailers will have vending machines.  In some cities, however, you may not be able to sell sugary snacks and sodas to kids in public or private schools, or after school facilities.   Just call and ask the city what their rules are.

You may need a health permit from the Orange County Health Department.  They allow most pre-packaged processed foods to be sold without a health permit.  For instance sodas, candy bars, chips, … But you will need a health permit if you sell certain products.  According to the OC Health Department, “You must obtain a health permit for vending machines dispensing products such as coffee, sandwiches, ice cream, dairy items, etc. You will need to provide a current list of vending machine locations.”  In other words they will inspect to make sure that your machines are in a clean rodent/bug  free area.  Your machines are clean, and that the dispensed items are kept at the right temperatures.  Items such as milk and Mayonnaise can spoil if they are kept at the wrong temperature  or exposed to the air.  That’s why most pre-made sandwiches have the mayo in those little packets rather than already spread on the bread.   (See # 39, 40)  Also, you are not supposed to use your garage, or any part of your home, for food inventory storage.  “(Y)ou cannot store and/or distribute food products from a private residence. Food products shall be stored at an approved location which has a valid health permit.”  The permit application is no longer on line, you need to contact a representative in their wholesale food department 714-433-6096.

Photo credit Hard Candy/Toy  Vending   Amboo Who http://www.flickr.com/photos/amboo213/

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