The keys to building a vending machine business are finding and selling the right locations, having a lot of locations, keeping machines clean and stocked, and maximizing net margins on your inventory. The steps to start a vending machine business are:
- Decide if a vending machine business is for you
- Figure out what type of vending you want to try first
- Pick your products
- Get your machines
- Stock and maintain your machines
There are few ways to get into the vending machine business but this guide focuses on building a business from scratch, Generally speaking, you should expect to earn a few thousand rand a month per machine.
Step 1: Decide If a Vending Machine Business Is For You
Like most startups there is no magic bullet in building a vending machine business. Your chance of success will be better if you’re realistic about the hurdles and hard work involved.
Pros and Cons to Starting a Vending Machine Business
Here are some pros and cons to the business:
- Get to be your own boss
- Can start with just a few thousand rand
- Can scale without physical location overhead
- Business fundamentals are not rocket science
- Shifts in consumer demand open opportunity to replace incumbents
- You’re not stuck in an office
- It’ll take about a year to return your initial investment per machine
- Low margins, so making a living requires having a number of machines which means a lot of time stocking and servicing machines
- You won’t have great profit margins until you’re a sizable operation
- It’s competitive and acquiring locations can be the hardest part
- It’s a lot of physical work
Probably the single hardest part of starting a vending machine business from scratch is acquiring locations for your machines. It is straight up sales. You need to find prospects then approach them and talk them into letting you put in a vending machine this is where we come in and assist you.
If you do place a machine, the next biggest hurdle is going to be driving around to sites to stock, clean, and possibly fix your machines common fixes would include coin and note jams or a possible resetting of a spiral motor. You’ll need to be good at client relations to fend off the competition and know what your customers want over time. You have to do all of this with the knowledge you will not make any real money until you have a number of machines that are placed and generating sales.
Do Some Preliminary Market Research
If you’re not 100% sure you can get it done, do some initial research before diving in.
We at Just Vend Try to get a feel for the foot traffic. We check if folks have other options such as convenience stores. Do they spend a lot of time at that one location. What sort of vending are they likely to want. Upscale locations might want healthier options. Are there missing options such as beverages, snacks, hot food, etc. The things you’re looking for include:
- Number of possible locations and chance of placing machines in your region
- Sense of traffic at those locations
- Types of products best suited for those locations
For every R3000 you want to earn per month you’re going to need have 2 to 4 locations. So if you want to make R12,000 per month you’re going to need to sell and manage 4-6 locations.
Test Drive Selling
After we’ve scouted some spots and created your plan (described below)We provide a formal proposal to the site presenting the unique selling points on why a location would benefit from a vending machine, and a way to talk about the great customer service you’ll be providing. This should give you a good feel as to whether you can get past the biggest initial hurdle, location sales.
Step 2: Figure Out What Type of Vending You Want to Try First
Each vending option varies in machine investment needed, potential demand for given location types, product costs and therefore profit margins, shelf-life, etc. The most common vending machines are candy/snacks/confections followed closely by coldrink units. But you may want to focus on a new niche to entice locations.
Low Cost, Low Margin Options
Low cost, low margin options generally are generally familiar products that have a long shelf life. They have the lowest upfront costs for equipment and inventory. They are also generally easier to keep in stock. But because they are low-cost, familiar, packaged products they tend to have the lowest margins and will require higher turnover to generate enough income. Examples include candy; bottle or canned beverages; and packaged snacks like chips or crackers or cookies, toys, phone cards, gift cards, non-food items like car wash or laundromat supplies, etc.
|Candy||Bottle & Canned Beverages||Packaged Snacks|
Higher Cost, Higher Margin Products
Some products require more sophisticated equipment or have a higher base cost. This means higher startup and operating costs but provide generally higher margins. Examples include frozen or hot foods, high-end fitness foods, hot beverages such as coffee, electronics, etc.
In addition to the machines being more expensive these vending machine types tend to need a lot more cleaning and maintenance than lower cost vending machine types.
Trending Vending Businesses
In addition to more traditional vending machine businesses there are a couple of new segments that are trending in the industry.
One clear trend – at least in certain types of locations like schools, gyms, etc. – has been growing demand for healthier options. These include flavored waters, juices, and sports drinks instead of sodas; fresh fruit; and health bars like granola or protein.
Step 3: Pick Your Products
If you’ve gotten this far, you think you can sell some locations with sufficient traffic on placing a vending machine and what potential products might sell well in those locations. Now you need to think through what products will be in the machine and at what price. Ready for some math?
Let’s compare 2 different “healthy” snacks: granola bars and rice cakes. Let’s assume your supplier is Makro.
A 24 count variety box of Granola bars costs R144.00. That means each bar costs you R6.00.
A 30 count variety box of rice cakes is R120,00 or R4.00 per bag.
The general consensus in the industry is you want to try and markup your product 100% or more and round to the nearest quarter. So in the case of our Granola Bar you’d ideally sell this for R12.00 for a profit of R6.00 each. For the Rice cakes we’d sell at R8.00 for a profit of R4.00 each.
According to our profit estimation calculator and the human element taking into consideration we estimate that on a site of 100 people visiting daily to that site a quarter of the total amount of people would in fact make use of your vending machine services. With this in mind we can safely assume that 25 people would convert to 25 vends per day.
We can also take into consideration the work hours and the amount of days per week the location stays open for trade.
So lets take a look at a quick calculation:
Amount of people on your site : 100
Site is open 5 days a week
Sites operating hours are 7am-5pm daily.
Assuming a worst case scenario we must project a quarter of the total amount of people per site to make use of the machine on a daily basis therefore 100 people divided 4 quarters = 25 people.We must assume all factors like people bringing their lumch to work, people or people leaving the office daily,possible canteen on the site,people possibly selling there own snack items at the office etc...
So lets calculate the expected profit: 25 people x 5 days per week at an average of R6.00 Profit (the money you have earned from the R12.00 Granola Bar) R750 profit per week which amounts to roughly R1500 per week turnover, this equates to 1300 vends per year calculated on 1 spiral item.
Generally at a sell rate like the above your machine would need to be checked on once every 2 weeks however we advise in the first month to keep a close eye on the unit because remember we worked on a worst case scenario and your machine could easily double or tripple this figure.
There are factors that influence sales in your machine such as running specials on end of stock line item, reduced spiral items, stocking the correct items to the enviroment or your sorrounding. Remember the items you pack in your machine are for your clients who consume them and not us as operator/owners.
So what are the tricks of trade?, My golden rule is Get Involved!, engage with your audience! and dont ever make an assumption what your audience might like when you havent done your homework.
Tip: Create a mailing list and every week send mails out to the company employees of the special promotions you have going on at the moment, as mentioned above.
So product mix, pricing, and demand at a given price are going to influence exactly which products will max out profit.
A typical vending machine has 32 to 40 items to select from so you’ll need to work through that many options. It doesn’t have to be that complicated. This example was just to show the impact of product selection, pricing, and demand on profits. Generally speaking you should pick items you think will sell well at your location and experiment with pricing, keeping in mind what others are charging.
Another thing to keep in mind is that you’ll get better prices at large snack wholesalers and even more if you go directly to manufacturers. But each of these require very large and consistent order sizes. If you manage to get to a certain size you should check out these options later on.
Step 4: Get Your Machines
Buying a new vending machine usually costs between R70,000 and 120,000 new and R15,000 to R60,000 used. The main factors include the type of machine – snacks, frozen, coffee, etc. – and the features that come with the machine. Assuming we’re talking about a healthy snack machine, typical main features that you’ll need to decide on are:
- Size and configuration
- Refrigerated or not
- Customer payment options
- Electronically programmable prices
- Aesthetic design
Size and Configuration
Size and configuration will depend on the available space for the machine and the types of products you plan on stocking. Do you want a 32 or 40 selection machine and the accompanying variance in width? Snack bags tend to come in two sizes that will fit in a machine. Snack bars tend to have a different size rack than chips.
Refrigerated Or Not
This is pretty straightforward. If you’re going to have cold beverages you’ll need a refrigerated model with requisite racks for bottles.
Customer Payment Options
The main payment option question is whether your vending machine has a credit card reader or not. Most vending machines do not have a credit card reader. However people are carrying around less and less cash, especially in more upscale locations. So cash-only machines have lower revenue than those with card readers,snapscan devices. But having a card reader/snapscan adds:
- Higher upfront cost of R3000 to R10000 depending on the device you use
- Requires a cellular connection
- Adds a transaction fee of 3% to 7%
- Minimum fees of R70 to R250 per month
A small but growing option on vending machines is availability of paying with your phone using for example Google or Apple payment apps. If your locations are in more affluent locations this is something you may want to look at.
Step 5: Maintain Locations
Ok, you’ve got your machine and you’ve got your products. Now we only have the hardest step left, acquiring locations. The main things you need to keep in mind are:
- Certain location characteristics
- Common location types
- It’s a sales process so manage it that way
- Maintain the relationship over time
Certain Location Characteristics
The main things you’re looking for are foot traffic and conversion of that foot traffic. Good locations are going to have some common characteristics including:
- High amount of foot traffic, e.g. schools
- Removed from other options, e.g. midsize offices in remote office parks
- Lengthy wait times with no food options, e.g. small veterinary hospitals
- Late night visits when restaurants are closed, e.g. small to midsize hotels
The biggest mistake made by people new to the vending industry is picking a location that doesn’t have enough traffic. A combination vendor should yield R1500 turnover per week with the correct payment devices added, after 6 months this has not yielded any growth then consider a new location and have your machine relocated, Don't just keep on purchasing and placing machines.
Common Location Types
Everyone on location is going to have its own particular potential but here’s a short list of places to consider placing your vending machines.
|Office complexesFactoriesGovernment buildingsSchools/CollegesHospitalsHealth care facilitiesCommuter hubsCommunity centersHotels and motels||Car dealershipsRepair shopsLaundromatsVeterinary hospitalHealth clubsSports clubs, e.g. martial arts, yoga, dance studiosAirportsCar washes|
There are many other perfectly suitable locations to place a vending machine. Keep in mind the size of the space you have available, whether your machine will be inside or outside, and what kind of competition your products will be facing.
It’s a Sales Process
The biggest hurdle in starting your business is not going to be the machines or the inventory, it’s going to be selling just like every other start up. You need to build a sales funnel large enough to produce enough location sales. You’ll need to work on conversion rates. You’ll need to have a thick skin for all of the rejections.
After you close a location your sales responsibilities don’t end. Competitors are going to try and take your locations. You’re going to want to manage your product mix and pricing to max out revenue. The best way to do these 2 things is to maintain a close relationship with the business owners and the users who shop at your machines. Build personal relationships and trust. It’s the biggest barrier for competition. Make sure your delivering great service. Listen to feedback on what might be better replacement items.
Step 5: Stock & Maintain Your Machines
Once you’ve sold your locations the 3 most important things you can do to drive sales are keep the machines 1) well stocked, 2) clean, and 3) functioning.
Clean, well-lit, well-stocked vending machines are more inviting and drive sales
Keep The Machines Well-Stocked
The more empty your vending machine is the more stale your remaining inventory looks to prospective users, costing you sales. So keep your machines as full as possible. Since you’re just getting started you probably won’t be investing in a remote monitoring system which requires a few hundred dollars in equipment per machine and also requires a backend 3rd-party monitoring service and related software. So plan on making frequent trips to check on your machines in the beginning until you have a feel for how quickly your inventory goes.
Keep The Machines Clean
Keeping your machines clean accomplishes 2 things: increases sales and reduces maintenance cost. If your machines are dirty prospective users will associate that with poor quality food. Your machines are mechanical. So cleaning them regularly will reduce the number of vending failures and reduce the need to fix internal mechanisms.
Keep Your Machines Functional
Regardless of how clean you keep your machines they will eventually breakdown and you’ll need to fix them from time to time. A commercial-grade machine may require one or two service calls per year, at an approximate cost of R1500–R2000 each, depending upon who provides the service and where the machine is located. Smaller, less expensive, lesser-designed machines often require much more service.”
Bottom Line: Easy Start, Work to Build
Starting a vending machine business is straightforward but it’s a lot of work to build a sizeable business. You’re going to have to get good at finding and selling locations, good at having the right mix of product and prices, and spend a lot of time to keep enough machines stocked. Keep in mind the 5 steps to get started:
- Decide if vending machine business is for you
- Figure out what type of vending you want to try first
- Pick your products
- Get your machines
- Stock and maintain your machines
If you get through these well you’re on your way to building your vending machine empire.
If you’re considering financing the purchase of one or multiple vending machines. The right financing can help you build your fleet of vending machine much more quickly.