Introduction to Bulk Vending

TABLE OF CONTENTS

	Be Wary of Blue Sky Promises
	What is the NBVA?
	What is "Bulk Vending"?
	Hard Work, High Volume and Low Margins
	Locations are Critical
	Part-Time vs. Full-Time
	Calculating Potential Revenues
	Average Revenues Per Machine
	Machine Selections
	Licensing Laws
	Liability Insurance
	Be a Prudent Investor

A great majority of manufacturers and distributors of bulk vending machines and products are honorable and reputable business people. Over the years, however, a small fringe of aggressive promoters have tried to induce unwary investors into purchasing machines, locations and even entire routes at inflated prices based on false promises of huge profits with little or no work.

This appeal to the greed, inexperience and naiveté of the inexperienced investor, when successful, leads to great disappointment, bitterness and frequently the loss of lifetime savings.

The purpose of this Introduction to Bulk Vending is to give you an idea of some of the facts, figures and background of bulk vending so that you can make an intelligent business decision.

The National Bulk Vendors Association is a national not-for-profit trade assocaiation comprised of the manufacturers, distributors and operators of bulk vending machines and products. The NBVA has represented the bulk vending industry since 1950. Our members extend beyond the borders of the United States and represent a great majority of the volume of the bulk vending business done in the United States. While our membership is about 300 companies, there are thousands of small operators on a full or part-time basis.

The vending industry is a huge multi-billion dollar per year industry. Bulk vending represents less than 1% of the total vending industry and is distinct and unique from the other electrically operated vending machines.

Bulk vending refers to the sale of unsorted confections, nuts, gumballs, toys and novelties (in capsules) selected at random by the customer and dispensed generally through non-electrically operated vending machines. Some bulk vendors operate electrically operated machines which consist of animated novelty and toy vending machines that dispense capsules containing the small toys and novelties and kinetic gumball machines.

Among the distinguishing features of bulk vending, therefore, is that our machines tend to be smaller, less expensive and our products generally are non-perishable. Health and safety concerns are minimal, compared to electrically operated vending machines which may dispense perishable food products. Our machines also tend to vend products for 50¢ or less.

A number of our operators also engage in other types of vending which may include kiddie rides, video games, condom machines, stickers, etc.

There is an old saying in the real estate business that the three most important rules for successful real estate are location, location and location. The same thing is true in the vending business. In the right location, practically any vending machine can generate good revenue. The trick is to get enough of your machines in the right locations and then to service those machines with the right sort of merchandising.

This is easier said than done. There are only a finite number of good locations and the competition for these locations is intense. Existing operators are experienced, frequently well financed and aggressive in seeking new locations. As a new operator, you may be able to find some good locations, but you will have to work harder and be better than your competition. If you rely on a professional locator, remember that the locator wants to get paid a long time before you know whether or not the location is good. All locations are not created equal. Try to pay the locator only a little up front and pay the balance after you can verify the location is successful. Ask the locator to find another location if the one selected does not work well. You should know within 30-60 days if a site is good.

The vending business is a difficult business in which hard working men and women are able to make a decent living. Some of our larger operators are quite successful.

This is not a "get rich quick" industry, nor is profitability assured. Competition is intense among the operators, distributors and manufacturers. Our members work hard, long hours. This is a business for "hands on" people - not passive investors.

Operation of vending machines is a business. You should keep sale records to determine if your locations are profitable. If they are not, be prepared to move and lose the location. There is constant turnover of locations. Stores close, store managers decide to do business with another operator, machines are stolen or destroyed, etc.

If you are an independent small businessman, the start up of a small business is almost always a risky venture. If part of the business is not working out, change it before you go through all your capital and savings. If you overpay for your machines, products and location, your chances of success are minimal. Be skeptical of promises of promoters and do not be impressed by beautiful brochures and glossy pictures. Investigate. Check references carefully. Blue Sky promoters give the names of accomplices as "references" so try to verify independently the distributor and the operators. If they are in your area, go to their offices and try to view their machines on location.

It is possible to operate small vending routes on a part-time basis. Obviously, you must find time during the normal work day to service your machines, hunt for new locations and purchase products. Inexperienced beginners should be prepared to invest considerable time to service and build their routes. People with "seasoned" routes may be able to spend less time. Generally speaking, most people who try to establish a vending route on a part-time basis end up losing their investment after becoming discouraged, especially if they overpaid for equipment, products and locations. Good routes are easy to sell, while new routes are not.

The key feature of unscrupulous promoters is the lure of making a lot of money in a short period of time. Generally, promises which are too good to be true are precisely that - too good to be true.

To make his sale, the unscrupulous vending machine promoter frequently uses a so-called "Profit Chart". These charts are usually not a serious projection of profits, but are little more than multiplication tables. They are almost completely hypothetical in nature and are based upon the supposition of an imaginary volume of sales. As a result, these charts are a misleading device to entice an inexperienced investor.

Do not take seriously a promoter who says "If a vending machine does five vends a day, then 100 vending machines will do 500 vends per day." The math is perfect, but the question is whether the particular vending machine can realistically do five vends per day, especially at the location you may be able to place the vending machine.

Listed below are some industry figures on average revenues per machine, but there is also another part of profitability beside revenue. Expenses are frequently ignored by the dishonest promoter. The "profit charts" of those promoters usually fail to take into account important expenses such as store commissions, car expenses, equipment depreciation, taxes, license fees, insurance, overhead, etc. Our Association does not publish "typical expense averages", but we know the expense components that operators incur. Individual results vary greatly between members and, in part, depend upon the size of their company, the region they operate and the type of locations where their machines are located.

According to the 2007 annual Census of the Industry compiled by Vending Times, here are the average annual revenues from these different types of machines for 2006:

	Number of Machines	Average Annual Revenue	Average Per Machine
Capsule Venders	692,000	$178,536,000	$258
Novelty Capsule Vender	13,000	$5,135,000	$395
Nut/Pan Candy Vender	413,000	$85,078,000	$206
Ball Gum Vender (includes an estimated 80,000 charitable/civic organization placements)	911,000	$110,231,000	$121
Flat Vending (special-purpose and multi-purpose machines, including stickers, temporary tattoos, sport cards, etc.)	210,000	$36,960,000	$176

If the average 25¢ capsule vending machine generates $225 per year, that unit will produce 900 annual vends or a little less than 2.5 vends per day. Some locations obviously will do better, some worse.

We estimate that an average charity machine generates around $7.00 per month, or $84 per machine each year. This is less than one vend per day. In part, this lower sales volume is due to the secondary locations at which these machines are located and, in part, due to the presence of multiple charity machines at many locations.

Giant gumball machines, spiral machines and the newly introduced "kinetic" gumball machines may produce substantially more revenues, but they also cost considerably more. The novelty appeal of giant gumball machines has declined, but some locations still do extremely well. The kinetic machines have great customer appeal, but are too new to determine their profitability and reliability.

If a promoter is touting higher revenues from a particular machine, products or location (or any combination of these), be critical and ask questions. If the promoter gives you a multiplication table showing an assumed number of vends times the suggested retail price, find out what operators are actually realizing from those machines at all their locations. Do not assume that you will be able to place machines in the prime, high traffic locations. Those locations are competitively fought over!

We are fortunate to have a handful of machine manufacturer members who display a great variety of bulk vending machines each year at our Annual Convention. Bulk vending machines are not expensive - typically between $40 and $125 per machine for non-electronic units (compared to perhaps $1,000 to $3,000 for the larger, electrically operated kinetic bulk vending machines or other vending machines that dispense soda, cigarettes, candy bars, etc.)

Most operators enjoy long useful lives with well made vending machines and therefore are prepared to spend a little more to buy a quality machine. You are therefore urged to compare and inspect several different varieties of machines before you select. Among the most important considerations are reliability, suitability for your particular purpose, the ability to withstand abuse, attractiveness and cost.

The public generally and children in particular will abuse your machines. Sometimes the abuse is accidental (a child tips over a machine while trying to climb on it) and sometimes the abuse is intentional (trying to break in to steal the contents or the coins). Machines that are designed with parts that can be easily changed if damaged may assure longest life.

Virtually every state and many of the counties and cities license, regulate and/or tax vending machines. Some of the regulations are intended to protect the health, safety and welfare of the consumers, while others attempt to raise revenues to pay for the ever-increasing costs of government. We cannot generalize about these laws and licensing requirements. Some are very tough and some are very favorable. Our members have been extremely successful in convincing legislators that our portion of the vending is unique and is entitled to relief, but licensing fees in some parts of the country can wipe out all profits.

You need to determine the requirements in your geographical area. Our association reports annually on the most important federal and state laws affecting the bulk vending industry, but it is not possible to keep track of the applicable laws of each state, county and municipality. We also publish a List of Partial Relief which details favorable vending treatment.

Every prudent businessman considers the cost of insurance as part of his operating expense and the bulk vending business is no exception. We are fortunate that so few serious injuries have been sustained in our industry, but children sometimes do strange things that can result in machines falling over and injuring a child. Our operators frequently "package" their liability insurance with other insurance coverage on their motor vehicles and/or offices. The Association does not have an insurance product to offer or recommend.

Obviously you should check out as carefully as you can the information furnished from a promoter. Ask to speak to other operators. Both the honorable and the unscrupulous promoters will usually have selected names for reference purposes. The problem is that some of the unscrupulous promoters give names of people who will answer all of your questions exactly the way the promoter wants them answered, even if the answers are not true. Some of these "references" are not even in the business. Try to be a prudent investor and check out a variety of sources to get a perspective on the industry.

A number of our manufacturers, suppliers and distributors advertise regularly in Vending Times and Automatic Merchandiser, trade journals which service the entire vending industry. The phone number of Vending Times is (212) 302-4700 and the phone number of Automatic Merchandiser is (414) 563-1619. Our Association does not carry advertising from its members. We publish a directory of our members and distribute this list annually to members in good standing. The membership list is only sent to members.

In any event, do not allow yourself to be pressured by the salesmen who invariably push for an immediate decision which leaves you little or no opportunity to do your research. INVESTIGATE BEFORE YOU INVEST!

If you already have lost money due to an unscrupulous promoter, we would like to know about it. In 1997, the NBVA approved an Amendment to its Constitution and By-Laws to ban promoters who disseminate false or misleading financial information. We cannot get your money back, but we may be able to protect others. Contact your Attorney General if you believe you are a fraud victim. Some Attorneys General actively pursue promoters to force them out of business.

This page was last edited on January 25, 2008