You see them almost everywhere you go: coinoperated machines dispensing food, beverages, newspapers, cigarettes, laundry products, personal care items, postage stamps, candy, even contraceptive devices.
“What an easy way to make money,” you might think.. “Just get a few vending machines, keep them stocked, and haul the coins away to the bank.” Many people have, indeed, achieved financial success by owning vending machines. Most of the industry today consists of small, independent local firms where initiative and hard work can yield both a comfortable income and the pride of accomplishment. Mergers of some independent local operators have produced multimilliondollar vending corporations.
But the hard truth is that many inexperienced people who try to establish vending machine businesses are doomed to failure. This booklet is an attempt to assist investors by describing the pitfalls a potential vending machine operator must sidestep.
Don't Believe In "Business Opportunity" Miracles
Similar offers have appeared in classified and display advertisements in local newspapers and on radio and television throughout the country. They are part of a scheme which has left in its wake a trail of disillusioned and defrauded investors. The plain fact is that the scheme's true purpose is to sell equipment and merchandise to people who answer each advertisement. By such "Business Opportunity" advertising, unscrupulous vending machine promoters mislead prospective purchasers into believing that some sort of employment is being offered. Sometimes, headlines such as "Route Manager Wanted" convey the impression that the advertiser is offering a job.
Many advertisements fail to disclose that vending machines are even involved in the offer. They mention vague generalizations about an "opening" or a "money making opportunity" rather than disclose that the proposition consists of the outright sale of machines for which the purchaser assumes full responsibility. Reputable vending machine manufacturers seldom advertise to recruit new entrants. Therefore, all advertisements should be checked closely for the identity of the advertiser and the specific claims being made.
Socalled "requirements" that the "applicant" have a car and furnish references could serve merely to conceal the fact that the promoter is interested only in whether the prospective investor has the money to buy some vending machines. Promises that the applicant's investment is "secured by inventory" are meaningless. How much "security" is there in a machine and a few cases of bubblegum?
People responding to such advertisements usually receive, by mail or telephone, invitations to meet a representative of the company, usually at a hotel or motel. There a salesperson paints a glowing picture of the profits that the buyer of vending machines and merchandise will receive from this investment. Typically, he or she applies pressure for a quick decision to prevent a careful study of the offer.
Specific Tactics to Watch Out For:
Inflated profit projections: Elaborate charts showing the profit possible with a certain number of sales per day often have no basis in fact, even when based on average industry statistics.
Location services: The salesperson may say that the company employs an expert locator to find prime locations for its machines. Actually, the company's assistance usually ends once it finds an establishment willing to have a vending machine on its premises. An operator who starts with poor locations cannot hope to compete with professional vending companies to capture good locations. Poor locations are not only unprofitable for sales but also invite vandalism.
Many times the socalled expert locator has no experience with local vending conditions, and even an experienced vending operator would have difficulty finding profitable vending locations quickly in a city other than his own. Legitimate vending machine manufacturers usually do not offer to locate machines for the purchaser. Such offers from manufacturers or distributors often are a tipoff that the promotion is fraudulent or that the previous operator of the equipment has defaulted.
Training programs: Experienced industry sources say that sales work is a good 50 percent of any operator's job and that no one can be a successful vending machine operator unless he or she can solicit accounts for his or her equipment. Promised training programs are generally either superficial or nonexistent. Even though many present vending company owners started their businesses originally with just a few machines, it is impossible to be trained as a successful vending operator in one or two weeks by a salesperson from out of town.
"Good deals" on machines: The typical salespersons are usually independent agents who buy vending machines from manufacturers and then resell them to inexperienced people who hope to find an easy way to earn extra income.
A few machine manufacturers sell vending machines to promoters under private labels, taking no responsibility for the machines. When the traveling distributor who may pose as a manufacturer's representative disappears or goes out of business, the purchaser is stuck with no way even to trace the real manufacturer to purchase repair parts. Better Business Bureaus have received complaints that machines purchased under these circumstances jam, break down, or otherwise give unsatisfactory service.
Furthermore, victims often find that they have bought machines at two or three times their actual value measured by the price of comparable equipment. It is virtually impossible for such victims to retrieve more than a small fraction of what they paid for the machines - if, indeed, they are fortunate enough to dispose of them at any price.
"Discounts" on merchandise: In addition to selling equipment, many promoters offer "bargains" on the merchandise to be vended. Buyers tend to find that such merchandise cannot compete in quality or price with merchandise sold by experienced vending machine operators or in overthecounter retailing. Overloading inexperienced investors with perishable merchandise or stock which they cannot sell at all is another common complaint.
Repurchase plans: Offers by vending promoters to buy back inventory from investors who no longer want to sell the products involved are seldom, if ever, workable. Usually the promoter is long gone on a vanished trail by the time an investor tries to exercise this option.
Restricted territories: Sometimes the salesperson promises to give an investor an exclusive territory free of competition. In other instances he or she convinces the buyer to pay a premium price for a restricted territory. In either case, purchasers later find that the promoters have allowed other buyers to invade their reserved areas. Established vending machine manufacturers usually do not assign territorial franchises or rights. In certain circumstances territorial restrictions may be a violation of the antitrust laws. And in your community there will generally be no such thing as a protected territory free from competition with other local companies.
Leaseback arrangements: Occasionally deals are made in which a purchaser leases the machines and then hires the seller to service them including collecting the money. Instances have been known where the cost of servicing has been much greater than the money turned in by the servicing company.
Guarantees: Both written and oral guarantees are a stockintrade of the unscrupulous vending machine promoter. Often, they are worthless because the sales agency cannot be located and the manufacturer will not honor them.
Legitimate manufacturers who produce machines under their own names take responsibility for the equipment they manufacture. However, the manufacturer who sells to promoters, or whose salespersons are completely independent of the factory, may take the position that it is not responsible for what the person who sold the equipment promises, since the latter is not an employee of the manufacturer but an independent agent who buys at wholesale and sells at retail.
Packaging limitations: Some vending machine offers are for machines which can accommodate only merchandise which is packaged in a special way. This might mean that a special insert or holder is required for the product so that it can be purchased only from the promoter. This may be misrepresented as a competitive advantage, whereas in reality it limits the purchaser from using other supplies or varying the product offering.
Promises of success: The profit from vending is in pennies or fractions of pennies per dollar in sales and volume. Out of the money that is collected from machines, the operator often pays a commission to the location owner on whose property the machine is placed.
The operator must also meet such expenses as rent, licenses, insurance, machine maintenance and parts, taxes, telephone, legal fees, electricity, truck repair, gasoline, tires, depreciation of machines and equipment and all other normal business costs. These hard business facts are glossed over by the promoter interested only in a quick profit on the sale of machines rather than building a permanent business.
Do Your Homework
In view of the persistent problems of deception and outright fraud in vending promotion schemes, the Council of Better Business Bureaus suggests you apply the following checklist to any offer of vending equipment or routes:
A No on even one question above is a bad signal. Do not commit yourself in any way or sign anything unless you answered Yes every time. Even if the proofs suggested seem satisfactory to you, ask someone who knows both you and the businesses in your community to evaluate your chances for success.
Assess Your Chances For Success
Before spending your savings on a business opportunity in the vending industry, take these steps:
Look At Yourself:
If you can say Yes to most of these questions, you at least have the potential to become a good vending operator. Most of the people in the vending business today had to ask themselves questions like these before they decided to go ahead.
Look At Your Market:
Because few communities today are without vending operators, it is important to take a good look at the companies already active in the vending business in your area.
Get Professional Advice:
Fortunately, a number of people are ready to help you think your way through these questions and the many others that will come up before you put the first candy bar in your first vending machine.
You may wonder why you should consult all these people before you're even in business. But consider this example: Let's say you want to start off with just candy vending machines. There are more than half a dozen firstrate machine manufacturers and more than 100 companies making candy bars for vending operators.
To make an intelligent decision on even these limited questions you need to talk with several machine manufacturers to compare their equipment, their sales stories, their prices, and the help they can offer you.
Likewise, listen to the advantage of several product suppliers and base your selection on your own comparison of their presentations. The advantages to this reasoned approach in comparison to a pressured meeting in a motel room with a traveling promoter should be obvious.
Check Federal, State and Local Requirements
The Federal Trade Commission and many states regulate the sale of franchises and business opportunities. Companies that deal in interstate commerce must comply with the federal regulations requiring disclosures regarding the business opportunity and the business history of the franchiser. Several state laws have similar requirements.It is wise to check with a local attorney and with state or federal authorities to determine whether these requirements apply to the situation you are considering. Specific details of the disclosure requirements are provided in the Better Business Bureau publication, "Do's And Don'ts In Advertising."
Understand that if you decide to start a vending company you will need to check with appropriate state and local officials about what licenses, permits and applications will be necessary to do business within the area. State and local sales taxes, health and sanitation fees, and workmen's compensation costs are just a few of the operating expenses you will have to consider.
Many state and local public health departments require licenses to operate a food service business (which a vending operation usually is) in their jurisdictions. If you are starting a new business, plans may have to be submitted for their review prior to starting any construction.
Narrow Your Options Wisely
Alertness and hustle can make the difference between a wasted investment and a successful business. Informed decisions should precede commitment. When you think you have reached a final choice, ask yourself still more questions about:
The Product to be Vended:
Location and Placement:
Tips to Remember