The economics of vending machines

https://thehustle.co/the-economics-of-vending-machines/

by Anon84 • 6 years ago

251 163 6 years ago

vmurthy2• 6 years ago

Somewhat related : Warren Buffett seemed to have an interest in such "low-cost" hustles[0] nearly 75 years ago and seemed to have done well with it:)

[0]https://www.cnbc.com/2018/06/19/warren-buffett-bought-a-25-p...

Cthulhu_5• 6 years ago

I have trouble believing this would still work; why should a barber shop get only a fraction of what people put into the machine? They see that thing all day and will know how much money goes through it, what's stopping them from kicking Buffet out and buying their own?

I think the modern equivalent around here is the odd slot machines and cigarette vending machines at pubs; I'm fairly sure they aren't owned by the pub itself, because of regulations and stuff.

bluGill5• 6 years ago

Because the barber wants to go home after a long day of cutting hair not go restock the machine. Better to get a small profit on an unused corner than deal with inventory management.

kilroy123• 6 years ago

This is a topic I know a fair amount about. For a brief while, I worked at a startup that made software to manage vending machines and handle digital payments, from the device stuck on the front, to accept credit cards.

Basically, the name of the game is location location location. It's very tough to find a good lucrative location to put your machine at. Why? Because there's likely already a machine in such location.

Also, it's a numbers game as many locations don't make that much profit per month. Therefore you have to have many machines, and getting 50-100 machines in great locations is no easy task.

skelseys5• 6 years ago

This article seems to suggest that there's lots of small players competing over marginally profitable locations. There's also a negative externality which can lead to these people destroying their whole business: as people compete over machines that don't make much, they cut costs by not refilling as often and not maintaining the machines.

This means that the general level of trust in these machines goes down. After you lose your dollar a couple of times you stop using them. Aside from trusting official Coke or Pepsi machines, there's no brand loyalty (to the operator - a random name on a small sticker on the machine). So if your machines are well-stocked and in good working order, you won't do any better than anyone else. And after a while there are broken vending machines everywhere, which everyone ignores.

kzrdude• 6 years ago

This suggests that the machines should use clearer branding, but it needs to be a brand that combines maker + operator.

pnathan2• 6 years ago

Are there white papers / briefs out there that have hard information on what quantifies a good location vs not?

Animats• 6 years ago

You need the locations near each other, or time is wasted driving around. There's economy of scale here. The soft-drink people are already there. That doesn't leave much room for the rest of the market.

kelvin0• 6 years ago

I bet this would make a great game! I already have a title: 'Vending machine magnate'.

In any case, congrats to these entrepreneurs, and thanks for sharing.

ZephyrBlu• 6 years ago

The juice doesn't seem worth the squeeze. 40% margin, maybe less and you need a shit ton of machines to make decent money.

You also have to restock all the machines, so it seems like a difficult business to scale that actually gets harder the larger scale you are.

250 machines with 500k in revenue for 2 people doesn't seem like that much. With 40% margins, that's 200k and assumes you have no employees which seems unlikely given the number of machines.

Perhaps I'm way off though, since my perception is probably skewed by tech companies.

imtringued• 6 years ago

You also need to find a place to put the machine. The article mentions paying up to a 25% comission to the owner of the place. Even if you somehow get amazing margins on the machine itself like 70% (assuming you refill the machine for free) it will turn into 45% margin after actually putting the machine down.

We surveyed 23 vending machine owners with various-sized operations and found that the average operator in our sample owned 13 machines that gross $309 per machine per month.

Warning: napkin math.

$309 x 13 x 45% = $4017 x 45% = $1807.65 profit (excluding cost of machine)

It's just a side hustle. Even with higher margins you can never go above $4017 so it's never going to turn into a scalable business. Once you consider the cost of the machines of around $2k each (very low estimate) your first 14 months will net you nothing.

sokoloff• 6 years ago

"Average" (of 23 survey respondents) might not be a particularly great measure. I can imagine many operators would have 1-3 machines on the premises of the business they are actually focused on (a pizza shop or an office cafeteria with a drink and a snacks vending machine), while others might have 75 or more.

(How much does the average mobile app make? Does that low 4-figure amount (edit-to-add: per year) mean that app development is a dead end?)

dmurray• 6 years ago

You can make more by having more machines. How many machines could one person restock? A lot more than 13. Let's say I have to visit each machine once a week on average (seems reasonable given it's sold $75 worth of stuff), I could stock 100 machines spread out over a small city. A lot more if I have many machines located together in say a university or an office park.

The average operator has 13 machines and views it as a side hustle. But that's true for a lot of entrepeneurial businesses. (The average SaaS owner, the average Youtube personality...). That doesn't mean you can't scale the business to where it provides a very decent income stream.

dhosek3• 6 years ago

Gross is the income, not the profit, so you need to subtract the cost of the goods going into the machine to get the profit which will be a lot less than $1807.65/month.

zxcmx2• 6 years ago

It's good money for something accessible to almost anyone.

It doesn't require much capital, doesn't seem very regulated and needs no deeply specialised skills to get started. No franchise. No middleman or supplier lock-in. No fixed rental payments.

Easy to pull in friends & family labour if you need to scale, and if you miss restocking it's no biggie. Nobody yelling at you. Flexible hours. Rarely have to talk to people except about new sites.

Actually not that easy to think of things with all those properties.

lordnacho• 6 years ago

If anything you should be surprised such a thing is profitable, it's a textbook case of "the free market should have squeezed profits to zero".

skelseys5• 6 years ago

If this business is so lucrative, why isn't organized crime involved? It seems like a field where they have a number of comparative advantages:

1. Good at negotiating with local businesses. 2. Good at motivating low-paid employees to handle large cash sums without pilfering. 3. They love cash businesses. 4. More tax efficient than people doing 'side hustles'. 5. Good at managing kick-backs to eg. motel staff.

My guess is that the most 'gold mine' locations are already controlled by entrenched players who defend them using a variety of legal and illegal methods - vandalism of competitors' machines, high rents, kickbacks, threats to landlords.

Then all the marginally profitable locations are competed over by amateurs who routinely lose money and get disillusioned.

mytailorisrich• 6 years ago

From the article:

All costs considered, an operator who makes $5k per month in revenue might take home something like $2k in profit.

That's actually not bad at all.

The issue, as you mention, is that it may be difficult to implement economies of scale. But even 200k for 2 people is something the majority of people would be quite happy with out of a full time job, and considering that this does not require any special degree or training this is very good.

skelseys5• 6 years ago

I think these businesses are impossible to scale because of the trust issue. You can pay someone a decent wage to empty the machines but you lose all your profits. Or you pay them rock bottom to drive around with thousands of your dollars in cash and merchandise. Then they rip you off in various plausibly deniable ways.

throwaway0a5e• 6 years ago

The juice doesn't seem worth the squeeze. 40% margin, maybe less and you need a shit ton of machines to make decent money.

Literally every industry is like this. Ease of entry, margin, stability, pick one.

altacc• 6 years ago

Perhaps I'm way off though, since my perception is probably skewed by tech companies.

Where you're standing makes a massive difference to your perception. Using your back of the envelope calculations, 200k or even quite a bit less is a lot of money to many, if not most, people. The median USA income is apparently 50k, so they'd be earning more than most other people. Compared to a hard working minimum wage job, which can have longer, inflexible hours, this is definitely worth the squeeze for many people.

TwelveNights• 6 years ago

The only thing missing in OP's calculation is the cost of employees. Maintaining a fleet of 250 vending machines alone doesn't seem very possible.

deadmetheny• 6 years ago

This is a bit myopic - $200k for two people for what's basically a no-skill gig is a pretty decent income in most of the country. At that scale it's not a side gig anymore, it's your primary income, and I can imagine the hours are probably comparable to a normal job. And really, I can think of way less appealing jobs that pay worse with less flexibility.

kpommerenke3• 6 years ago

It's not really $200k in income. That number ignores the initial investment (and thus its associated cost of capital) as well as the economic depreciation of the machines (since you have to replace them after, say, 25 years). As I calculated in a different comment, the actual economic profit is negative.

subsubzero• 6 years ago

I'd agree, but its one case study. One of my best friends told me recently he has about 150 vending machines(in the sf bay area), he is the silent partner, providing capitol and his other partner does the stocking and collecting/refilling of coinage. I didn't want to pry into how much he was making but after reading this article it seems like it could be a lucrative side business for a non tech employee. (he is a manager primarily(non-tech)). There must be a number of machines that would be a limit where taking on additional workers/partners ceases to make it a profitable venture.

prostoalex• 6 years ago

Seems like a partnership like that would be based on unconditional trust.

If the other partner is responsible for restocking and collecting the cash, you have to take their word that revenues are what they claim.

jamesskarzynski2• 6 years ago

You're right. This is why (as they said in the article) there aren't any massive players in the market. It's viable if you have a few machines in your area that you restock as a hobby, but the minute you add in any sort of overhead, your margins will dry up immediately. Plus, the numbers in the article are actually a little high. 25% margins or less are more common, and generally a single machine will only bring a few hundred or less per month in profit.

asdff6• 6 years ago

Why wouldn't you just contract a service company to stock and maintain your machines? I don't see how this isn't an excellent entirely passive opportunity. If the returns are low, that's still money you didn't have last month and money you could potentially spend on another machine to exponentially increase your business. If you are contracted with a service company you could scale infinitely.

miohtama• 6 years ago

I would be also interested of costs. The article seems to have gross figures only.

prophet_• 6 years ago

All costs considered, an operator who makes $5k per month in revenue might take home something like $2k in profit.

I was looking for the same, the above helped me to get an idea about the net income.

crispyporkbites4• 6 years ago

This line doesn’t line up with the data also in the article. The gross margin on each product is about 40%, you then lose 15-25% on stocking the machines, plus have to pay for gas, a car, insurance, repairs, initial outlay of machines etc.

You’re getting maybe 5% net margin.

amelius• 6 years ago

And let's not forget that an iPhone is basically a vending machine in your pocket ...

self_awareness• 6 years ago

I have no idea why you're getting downvoted, what you wrote is true.

Finnucane• 6 years ago

I've never gotten a bag of M&Ms out of my iPhone.

crispyporkbites4• 6 years ago

Here’s the real lede:

Ibanez’s YouTube channel, which chronicles his life as a vendor, boasts 362k subscribers and now earns more than his machines.

The margins on vending machines are tiny and the net revenue is not enough to sustain much beyond minimum revenue. If you had a few hundred or thousand machines this would be a great business, but it’s a long way up from 1-2 machines. Many of the people in this feature are boasting about only having to do 2-3 days of work every 2 weeks, they won’t get the scale they need.

Cthulhu_5• 6 years ago

lmao, that's a good one. It's like those reality soaps on Discovery (e.g. the gold miners), always complaining that they didn't find nearly enough to make ends meet, but surprise surprise, next season they buy tons of new equipment. They're not in the gold mining industry, they're in the acting industry.

The motorcycle / car customizers aren't as much into that business as they are in the acting & marketing one. Worked great for OCC, the show turned them into an internationally recognized brand. Wouldn't be surprised if they earn more off of merchandise than motorcycles.

howlgarnish2• 6 years ago

Surprised to see no mention of Japan in the comments. As any visitor can attest, the country has way more vending machines than anywhere else I know of, and in way more categories. Soft drinks, tea (hot and cold), coffee, beer, hard liquor, tobacco, snacks, ice cream, rice, toiletries, even the semi-apocryphal used panties.

The article below outlines some reasons why, but it seems to boil down to high cost of labor & real estate, high population density and heavy public transport usage. In suburban shopping arcades (shotengai), which by and large are dying a slow death, it's not uncommon to see closed stores that have literally been replaced by a vending machine or two (often owned by the store owner) retailing the same products, particularly for liquor and tobacco.

https://www.businessinsider.com/why-so-many-vending-machines...

Not that Japan has the monopoly on weird vending machines:

https://www.norwegiansalmon.com.sg/

em500• 6 years ago

There are lots of weird and wonderful vending machines around the world: https://www.straitstimes.com/singapore/live-crabs-and-lego-s...

Symbiote• 6 years ago

In Romania I came across an egg vending machine. There was a padded cushion where the eggs dropped down.

http://www.eggvendingmachines.com/wp-content/uploads/2011/09...

namdnay2• 6 years ago

There are cheese vending machines in several towns in the Alps:

https://www.filbing-distribution.com/s/cc_images/cache_60041...

Quite useful actually, avoids long queues on Sunday morning when everyone wants to pick up some cheese on the way home

Tor32• 6 years ago

I counted 16 vending machines side-by-side outside a random shop I visited in "my" town (the town where I stay when I'm in Japan).

And yes they're everywhere. I appreciated them particularly the first couple of years I visited, as at that time shops insisted on you paying as accurately as possible, they tended to refuse accepting banknotes if that implied returning a lot of coins. Strange thing, and that has since changed (i.e. that's not a problem anymore), but, back then the easiest way out was to simply buy a 100yen coffee from a vending machine, paying with a note, and keep the change to use in shops.

greggman3• 6 years ago

Been here since 98, never ran into the issue of not being able to pay with banknotes because of returning lots of coins. In fact quite the opposite. Go into a convenience store, buy a pack of mints for $1.04 (104 yen) hand them an $100 bill (10000yen) no one blinks an eye.

Most convenience stores in the USA won't accept $100 bills AFAIK.

I can see if it was some tiny store and they couldn't make exact change then yes, they'd have an issue.

Also, liquor (and maybe beer) I think may have changed. I haven't seen a beer/liquor machine since 2016 but the one I saw then required an id card to prove you were old enough to buy. Tobacco too apparently (I don't pay attention to cigarette machines)

https://ja.wikipedia.org/wiki/Taspo

dingaling2• 6 years ago

We used to have to acquire large numbers of quarters to do our laundry in the USA, and the easiest way was to feed a $5 bill into a vending machine and press the 'reject' button. Clunk clunk clunk clunk...

mc322• 6 years ago

It also helps that it’s a high trust society and you don’t get a lot of delinquent kids breaking in to get cigs or beer. Obviously cameras help with that.

codeulike• 6 years ago

Yes I thought that when I visited. A vending machine on the streets of a UK city full of beer and cigs wouldn't last 3 minutes.

cfmcdonald• 6 years ago

The U.S. used to have cigarette vending machines. I believe they were phased out due to the desire to enforce age limits for smoking more strictly, not because of theft.

My general impression is that the U.S. used to have more vending machines in general ~30-40 years ago. I remember soda machines being outside of every grocery store, but I don't see that anymore. Newspaper vending machines also used to be common. But I don't have any data to back that up.

raxxorrax• 6 years ago

So now they have salmon in vending machines... Tried to buy some fish once and the cashier just laughed at me and wanted to sell me fishing equipment.

xyzzy_plugh• 6 years ago

If North America was speckled with machines vending hot canned coffee, I would use them far more often than e.g. Starbucks. I drank so many Boss coffees last I was in Japan, they're so convenient -- no line, not too-hot-to-drink, open 24/7, such as in the early dawn. Just a wonderful thing.

ComputerGuru4• 6 years ago

I’m not sure what you refer to as early dawn, but here in the Midwest all Dunkin’ Donuts and many Starbucks are open at 5am.

Side note: it blows my mind each time I’m in California and I have to drive forty five minutes or more to find a Dunkin’.

de_Selby• 6 years ago

Climbing Mt Fuji in Japan is a reasonably serious climb (for ordinary people). At 3600m you need to think about altitude acclimitisation and it's best to sleep overnight on the way up.

The achievement is only undermined by the fact that there is a literal queue of people in front of you for the entire ascent, and by the fact that after completing the climb you are greeted with a vending machine at the summit!

wenc• 6 years ago

Like most people, my first thought was "how do they restock those machines?"

Turns out the summit of Mt Fuji has civilizational amenities, and there's actually a vehicle that goes up to the summit via a trail.

https://www.flickr.com/photos/182302882@N05/48439659072/

NikolaeVarius• 6 years ago

Thats about 12,000 feet. You dont need altitude acclimatization for that, it'll just suck a decent bit more than normal. I just went backpacking at 13k+ feet without any prep, it was fine outside of needing to take more breaks.

ryanmarsh• 6 years ago

Also, ATM machines. When my daughter was sick with cancer ten years ago I was a contractor. I couldn’t put in enough hours because I was always at the hospital with her. The handful of ATM’s I owned at the time allowed us to keep paying our bills.

Cash isn’t as common now (pre-COVID), and even less so post, but my guess is there’s still money to be made in some parts of the world.

ATM machines are cheap, about $1,500. If you put them in places where people REALLY need cash (strip clubs, festivals, etc...) you can make a fine living.

I eventually sold mine to a friend because my consulting required me to travel and you lose all your profits if you have to pay a company to manage (refilling) the money for you.

I have some funny stories like the time I was sitting behind a strip club in a bad part of town at night with $30k in cash waiting on a tech because the magazine jammed.

I once had to withdraw 60k in $20’s for my friend and business partner at the time. He was out of the country and is 18 year old cousin was refilling the ATM’s. His ATM’s were two hours from me. We sat in the back of a large Wells Fargo branch with money counters and VERY SERIOUS (read: terrified) EMPLOYEES as I handed the $60k they just counted to a kid and sent him on his way. LOL

In the ATM biz everyone knows each other and lending money is common and done on a handshake. The reason is, if you can’t be trusted with cash you don’t last long. So if you’ve been around nobody had a problem letting you borrow $100k in duffle bags in the parking lot of a Home Depot at 6am.

Everything is tracked because the ATM’s all go through a data provider that handles the bank interchange. You should see the volumes of money that pass through them. Even the small ones back then would process hundreds of millions in $USD a year. When you lend someone money you call Chris at the data company up and say “I’m borrowing $50k from Tom so send the next few wires to him”.

M-F you get an ACH from the previous days withdrawals plus whatever fee you charged. Monday’s includes Fri-Sun. It’s an interesting business and it’s fun. I never got robbed but I’m ex military and stayed strapped and aware of my surroundings.

jbverschoor• 6 years ago

Not in the Netherlands anymore, as they'll simply bomb your house for the ATM

dylan6043• 6 years ago

I would have assumed that strip clubs owned/operated the ATMs inside their clubs. Why not make that much more money from their customers?

When recreational marijuana became legal in CO, the ATMs close to the shops were always out of cash because they only dispensed $20 bills when everyone was trying to pull out $300-$400 at a time. The smart ATM owners started dispensing larger denominations to avoid the Out of Cash problem

pierreogi• 6 years ago

Seems like it would be a pretty interesting business to get into, my dad is thinking about it, since he works as an operator right now. Seems like water has best margin :D

vlan0• 6 years ago

Vending machines are still all over college campuses in the US. But I suspect the small outfits cannot compete with the big players in this scene. Seems like it's all just coke or pepsi.

bluGill5• 6 years ago

coke and pepsi own their own machines (not entirely, but many of them). However there are a lot of other things sold in vending machines that coke/pepsi don't control.

fortran77• 6 years ago

In NY you’d have to deal with the mob to break into the business at all.

AQXt2• 6 years ago

It might not be a good investment, according to the article:

- Many of the best locations — places with heavy foot traffic, or large worker populations — are already saturated with machines.

- Some owners have to make 100+ calls before landing a decent location. In the end, they often end up paying the owner a commission of 10%-25% of gross sales to drive home the deal.

- And these figures are pre-expenses. The business comes with its share of overhead costs. For starters, ~50% of revenue goes toward the cost of items that go in the machines.

- Most vendors have seen a 10-50% dip in revenue this year due to the stressors of the pandemic.

MivLives• 6 years ago

Also not really addressed, what's the life span of a vending machine?

I know I've seen some ancient ones out there, but most seem pretty new. It says new ones are 3k, if it lasts five year that's sixty dollars a month.

Cthulhu_5• 6 years ago

Vending machines last way longer than 5 years; 25 years at least, the only thing is they require maintenance and repairs every once in a while, and the payment system may need to be swapped out depending on developments (e.g. accepting cards, contactless, phones, google/apple wallet, alipay, bitcoin, etc).

drpgq• 6 years ago

Yeah it seems like being a Lyft or Uber driver where your hourly pay ends up getting driven towards the minimum wage.

asdff6• 6 years ago

That might not matter if these are passive investments. If you have a company servicing your machine, so what if your profit is low? Save your money and buy a second machine, then another one, then enjoy your exponential growth on your vending empire. If things are making money you aren't doing poorly, especially when you might not ever have to visit one of your machines and can work another job or pursue your interests.

smogcutter3• 6 years ago

The problem is that dividing owning the capital (of the machines) and performing the service doesn’t really make sense in this circumstance. This isn’t a situation where you’re creating efficiency by specializing. What does the servicing company need you for? If all you do is own the machines, they can do that themselves without complicating their business at all.

jpomykala• 6 years ago

I work at telemetry system called VendingMetrics. We initially created this with my dad who got over 20 years experience in vending. I must to say, it’s much harder business than everyone thinks. Different machines, different settings, firmware, motherboards, external devices. Many things can go wrong but yeah if you are lucky and like old-tech it could be work for you. :)

opportune• 6 years ago

I find it interesting that the operators are buying from Sam’s club rather than a legit wholesaler. $0.50/unit for soda is ridiculous

I looked into this a few years ago because someone on reddit wrote a long post about I couldn’t find. The ROI looks amazing until (as the article alludes) you look into how much labor is required to keep the operation going. It kind of works if you have capital and your time has low opportunity cost.

I think the smart way to do it would be to start a franchise that provides machines with financing, acts as a wholesaler, etc so you can take a cut of the operation with less capital investment and less driving around to actual machines. But then that starts looking like an MLM...

chillwaves• 6 years ago

Knew a guy who had vending machines at my office.

He was a UPS driver and many of the vending machines were on his typical route.

Seemed like a good side gig.

from• 6 years ago

I found this odd too. Most of the largest wholesalers have microscopically thin margins (i.e., they're not making much from you), whereas grocery stores tend to be a lot higher. I'm not an expert in the food distribution business but it seems most wholesalers (McLane, for instance, https://www.mclaneco.com/content/mclaneco/en/customer.html) are happy to take new customers. Maybe Sam's club is offering a better deal than wholesalers on specific items because of coupons/sales and whatnot?

jamesskarzynski2• 6 years ago

I tried this a few years ago and I can really attest to just how awful an idea buying a used machine is. I found a decent condition one on craigslist for $100. I bought it, and it's been stuck in my garage for 2 years now. I must have gone through $200 of parts just trying to get the bill collector to work, and it still doesn't. It would be at least a few hundred more to bring it to a place that can fix it. If you're thinking about doing this, you need to make sure that every part of the machine works, because if you're just starting out I can guarantee that you won't be able to do the maintenance yourself.

slingnow• 6 years ago

I think the awful idea is paying $100 for something that costs well over 20-30x that cost new, according to the article, and expecting it to work without investing a significant amount of time and money.

pnathan2• 6 years ago

One big takeaway here from this is that you can compete on inventory. Keep the high-volume items that are popular, but also sell, e.g., masks, sanitizer, other knickknacks that are relatively disposable and are good impulse buys.

biztos3• 6 years ago

I was pleased to find dairy vending machines in Greece, for when you can't wait for that yoghurt:

https://popupcity.net/observations/cooperative-milk-vending-...

Apparently they are farm-to-machine, which is also nice. Seemed to get plenty of use at least where I was in Thessaloniki.

stephen_cagle• 6 years ago

I think of Amazon Go stores as giant vending machines that you can walk into.

halfnormalform• 6 years ago

If you find this topic interesting, there’s a book by Kerry Segrave called ‘Vending Machines: An American Social History’ that’s surprisingly readable for a book about the history of vending machines.

ed25519FUUU2• 6 years ago

I'm surprised that no is mentioning the cost to power a soda machine (refrigeration). Do places just eat the bill for your giant refrigerator?

DoreenMichele• 6 years ago

The article doesn't cover a scenario I am familiar with: If you own your own small business doing something else and also have one or more vending machines to help make that work.

Growing up, I knew a guy named Clark. He ran a barber shop and he drove a school bus and he did leather work in the back room of his barber shop during slow times and he had a soda machine in his barber shop.

Restocking was a matter of getting bottles of soda out of stacks of supplies in the back room where his leather working stuff was. I know because my parents had a store next door for a while and I sometimes restocked his machine when he was too busy to get to it just to have something to do while bored out of my mind hanging at my parent's store.

I wrote about that once, probably badly:

https://noonegoesthereanymore.blogspot.com/2020/06/clarks-ba...

commonturtle• 6 years ago

Really interesting article. Still two questions about the economics that I don't understand:

1/ Why no economies of scale? Why aren't there companies that own 100k machines throughout the country?

2/ Why don't the venues run their own vending machines?

The economics of vending machines

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