Are you considering investing in vending? Currently in discussions with a company that promise to get you into the vending industry?
It's not a simple as you might be led to believe. Just like any business, there are pitfalls that could cost you big $$$.
Do not take all the information fed to you by the seller as gospel - spend some time researching the industry, talk to other sellers of equipment, attend a vending association meeting, where you can meet other operators in order to find out more about the industry.
Just to be clear, IVMOA is not about to sell you anything.
We represent many of the independent vending companies throughout Australia.
We are concerned that many individuals that invest in this industry, get caught up in the sales hype and end up paying excessive amounts for "vending businesses" and equipment or losing their investment completely'
We are also concerned that investors in any business that end up doing their capital isn't good for any industry.
To assist you may an informed decision, we have compiled a list of points that you may wish to ask of the company that you are considering investing with.
1. If you are given any projected industry averages or turnover, where has this info been sourced?
There has never been any survey done on the vending industry in Australia, so where has the data been obtained that you are being offered? BIS Schrapnel recently (2002) completed an overview of the vending industry in Australia and they have indicated that the average sales for a drink vending machine is $4,200pa.($80/week) Is this similar with the figures you are offered? If you would like a copy, contact them, the cost for the report is $17000?
The reality is, that cold drink vending sites average less than $100 per week in turnover across the country. Whilst there are obviously sites that do more there are many more that do a lot less. Any projections that you are given that indicate sales any higher are possibly incorrect. Will the company selling you the business warrant that the past sales are accurate? What guarantee that if for any reason that you lose the site within the first three months, that they will undertake to provide you with a replacement site to a similar value at no extra cost?
The US publication Automatic Merchandiser has vending industry reports should you wish to download them.
2. What is the minimum number of staff on a site, necessary to justify a vending machine?
This will vary depending upon the type of business (manufacturing, 24 hour call centre, school etc), but on average you should half the number of actual staff members located on the premises throughout the day, and then assume that they might purchase a snack or drink from the vending machine. this means that if there are 50 people on the site, you could safely assume that they would make 25 purchases a day. simply multiply this by 5 working days to get a weekly sales figure, then multiply by say 48 weeks to get your annual sales. Your annual sales less your costs of purchasing the products will give you your contribution level, and that, less your direct costs of running your business (wages, transport, workcover, site commissions etc ) will give you're your net profit.
In order to work out your return on your investment, simply take your net profit divided into your cost of purchasing the individual vending machine. How does this compare to the promised return on investment offered by the sellers of the equipment? We have seen huge returns being offered by the sellers of vending machines and sites, but in many cases the return being offered is far less than can be practically achieved.
3. Is the equipment you are being offered suitable, and will it hold it's value?
You may be offered vendors ranging in price from $1,500 to $15,000. A visit to any of the vending machine distributors (you can find them in the Yellow Pages) will confirm if the price you are offered is fair and hasn't been inflated. There have been cases recently where investors bought a particular brand of snack vendor for $8,000, and there is no support for it in Australia. They are currently selling 2nd hand for $500 (if they can find a buyer!) That $1,500 vendor you are offered, have a browse through other ads (Businesses for Sale or Trading Post) they'll be there for $50-$200. Doesn't that indicate that the equipment may be overpriced initially?
Are you being oversold on the number of machines necessary to adequately service that site? Many unsuspecting entrants to the industry end up purchasing equipment on a site that is in excess of what is actually required to service that site. The customer will be very happy, the seller of the equipment will be very very happy, but what kind of return on investment will you be making if you have paid for say three VMs, when plainly two VMs will do the job?
4. Location of the Equipment
A vending machine, no matter what it's cost, is of no use at all if it isn't out on site earning money. How secure are the locations you are offered? You may have a signed agreement, but if the location management no longer wishes to have you there, will it be financially wise to outlay the thousands of dollars in legal fees it will probably cost, to fight the decision in the courts? Be aware that vending has become a cut-throat industry, the vendor you are offered has probably replaced another company's. And there are another 50 vending companies out there that will do their best to have your VM removed and theirs installed. Also, a signed agreement can be a double edged sword, what if you are secure in a 3-5 year agreement and there is insufficient turnover to cover your costs?
5. If the offer you are being given is that good, why are you being offered it?
Wouldn't you think that the company offering you this deal would keep the vendors and service them? Or is the seller going to make their profits from the regular fees & charges you will be paying?
6. Will you be permitted to obtain your supplies from any source?
Quite often lately, investors are required to obtain their products from nominated suppliers. The company you have invested with may have a deal negotiated with a supplier that will pay them a percentage of your purchases. Shouldn't you be paying a lower price from the beginning?
7. If you enter in to a business deal and never end up owning the business why buy it.
Why would you want to “buy “ a business where you never actually own the asset of the equipment? One of the joys of the vending business is that you can build a business one machine at a time if it suits you, but you also have the flexibility of selling the business or parts of the business in the event of you deciding to get out of the business. You will never be able to do this unless you have clear title to all the assets that you want to sell.