Looking to start a cashless vending business? Not sure where to begin? Here’s all you need to know about owning a successful cashless vending business.
Explained: The endless opportunities of cashless vending
The vending and unattended retail industry has a long history, with the first coin-operated vending machines being introduced in England in the early 1880s. Although the industry has come a long way with its focus shifting to smart vending and cashless payment options – the business continues to remain ripe with opportunities.
1. Advantages of a vending business
While every industry has its pros and cons, there are several advantages that make starting a vending business especially lucrative. To begin with, the initial cost of starting a vending business is relatively low. You can set up shop with only a couple of machines and scale your business once you become profitable. You don’t need a dedicated office space or additional machinery, other than a vehicle that can help you regularly stock the machine.
Once the machines are in place, they will make extra money for you on the side without interfering with your day job. Vending machines basically advertise themselves, sell your stock, and collect money up-front on your behalf – saving you from the pain of tracking accounts receivable.
No specialized skill is required to learn the basics of running a vending business. Modern telemetry solutions simplify tasks such as tracking sales, inventory management, and monitoring machine health, which means even your family can assist with running a profitable cashless vending business.
And let’s not forget that this is a business that’s relatively safe from the adverse effects of both globalization and events with major economic implications, such as COVID-19.
2. Types of vending businesses
There’s virtually no limit to what you can sell through a vending business. Many different types of vending machines found around the world today sell everything from books and crafts to luxury goods and cars.
However, since choosing the right equipment is important for a vending business, here are some broad categories to consider:
Bulk vending: Typically found in arcades and in waiting areas with high foot traffic, bulk vending machines are used to sell unsorted candy, gumballs, and trinkets in capsule form. Though they may not bring in a lot of profit at once, these machines can be lucrative because of their low-cost and minimal maintenance requirement.
Food and beverage: These machines tend to be the most in demand. According to a report by Automatic Merchandiser, nearly three-quarters of the vending market in the US comes from food and beverage vending machines. In 2020, specifically, cold drinks represented 30% of vending machine sales, while snacks (salted snacks, bars, mixes, etc.), confections (pastries and cookies), and candy made up 40% of sales.
Specialty vending: When you don’t want to limit yourself to just food and beverage items, you can consider cashless vending of specialty products. These machines cater to people looking for specific products in different situations. And some popular product categories in this segment include travel essentials, over-the-counter medicines, office supplies, and laundry products.
3. Breaking into the market
There are three ways to start a vending business: you can start from scratch and go solo, you can purchase an existing business, or you can buy a vending machine franchise.
If you choose to run a solo business, you should be prepared to do an extensive amount of industry research. You will need to scout and secure machine locations on your own, as well as create your own suppliers. You will also need to develop robust servicing, restocking, and customer service processes.
If you have some business experience under your belt, you can skip the initial setup work by buying into a pre-existing business that already has its machines, inventory, and contracts in place. Alternatively, you may look into companies that specialize in vending machine rentals.
Working with an established vending machine company such as a franchise owner is also an easy way to get your business up and running. These companies already have established operating procedures, have a proven business model, and can provide dedicated training and support. However, keep in mind that buying a franchise can be more expensive than going solo because, in addition to the franchise fee, you may be required to pay a percentage of the profits to the franchisor.
4. How much do vending machines cost?
The cost of a vending machine will vary based on the type of equipment you buy. A lot of factors go into determining the machine price – whether it’s mechanical or requires electricity, whether it accepts only coins or enables cashless vending, whether it can track sales remotely or not, and so on.
Bulk vending machines can cost as little as $150-$500, but they also offer the least profit per item. On the other hand, more sophisticated equipment with a higher profit margin can cost between $3,000 and $5,000 for a soda machine, and around $3,000 for a snack machine.
In the specialty vending segment, new equipment can cost anywhere between $3,000 and $10,000 – depending on the machine’s size and features.
You can also consider purchasing this equipment using various financing options such as secured or unsecured personal loans, short-term business loans, and equipment financing loans. In addition, you can opt for inventory financing options if you need capital to stock the machines.
Securing financing for your business is easy if you have a good personal credit score.
5. Buying a used or refurbished vending machine
If the upfront cost of setting up a vending business seems high, you can consider buying used or refurbished equipment. This way, the average price range of equipment can be brought down to $1,000 – $3,000 per machine.
Many seasoned vendors recommend going the secondary market route, especially if you’re just starting out in the vending industry or are considering it as a side hustle.
Do remember that the maintenance and upkeep cost of these machines will depend on their condition and quality. To avoid any surprises, it’s better to buy used equipment from reputable businesses. Some online stores where you can find refurbished vending machines include UsedVending.com, Amazon, eBay, and Craiglist.
Don’t be discouraged if you don’t find the most advanced vending equipment on these platforms. There are solutions that can be retrofitted to most old-school vending machines to enable cashless vending and remote machine management, thereby modernizing them and attracting even more customers.
6. Are vending machines profitable?
In the vending retail market, money comes from volume. Industry research firm IBISWorld estimates there are some 5 million vending machines in the US, raking in $7.4 billion in annual revenue. On a per-capita basis, Americans spend about $27 per year on vending machine items, with an average transaction clocking in around $1.75.
However, profitability can vary from machine to machine. While the average revenue for a gumball machine is only $1 per machine per day, in the food and beverage segment, a vending machine can be expected to bring in at least $75 each week and well over $300 per month.
While some cashless vending machines placed at strategic locations with a great product mix may generate much larger profits, many operators like to multiply their profit stream by investing in multiple machines.
Product segments also matter. Many coffee vending machine owners, for instance, report profit margins of more than 200%. The overall margin in snack vending machines is also quite wide. A bag of nuts that costs $1 to the vendor can easily be sold to the customer for $2.
Once you’ve determined the number of machines you’ll be installing, the product mix, and their vending price, you can use this online profit calculator to see how much you can expect to bring in.
7. Finding the best location for a cashless vending business
As is the case with the real estate industry, a critical contributor to the success of a vending business is: “location, location, location.” For example, a food and beverage vending machine may not do as well in a shopping mall as it would inside a hospital complex.
Ideally, you want to set your machine up in a location that receives a lot of daily foot traffic. Automatic Merchandiser’s 2020 State of the Industry Report on vending shows that more than 24% of all US vending machines are located at manufacturing plants, followed closely by offices (22.5%), retail sites (14.5%), and hotels/motels (7.4%).
Your best-case scenario would be to secure a location that doesn’t currently host vending machines because an existing vendor might have secured an exclusive contract with the property owner.
Your local Chamber of Commerce can also help you gain information about major businesses in your area, from which potential locations can be scouted.
Nevertheless, once you’ve shortlisted the ideal locations for your vending machines, reach out to the property owner and get a better understanding of the local demand so you can finalize the product mix with your target audience in mind.
8. Determining the right product mix and suppliers
Your machine’s location will help you determine the right products for your vending business. If you think purely in terms of profitability, it’s no secret that hot coffee is a big business for vendors. But, it’s important to understand that a coffee vending machine may not perform as well at a shopping mall with lots of restaurants and dining options as it would at an office complex.
While every location has its own unique requirements, one trend that’s experiencing an uptick across the board is that of healthy vending. Growing demand for nutritious and fresh food is leading to the rise of cashless micromarkets that go one step beyond the traditional vending machine model to offer products through temperature-controlled open shelves, reach-in coolers, and glass door freezers.
Your product selection will also be governed by the customer profile at the chosen location. While millennials tend to gravitate toward energy drinks, boomers still prefer classic sodas. Similarly, if your target market is school students, you may want to stock up on healthy snacks.
For someone new to the business, wholesale suppliers that can provide packaged vending machine snacks in bulk quantities can be a good start. But in the long run, your goal should be to seek out suppliers that can provide the desired inventory, be it fresh or packaged, consistently and with a quality guarantee. Some suppliers also offer loyalty programs, discounts, and generous payment terms – parameters you should look out for in long-term partnerships.
9. Understanding legalities and contract clauses
Like every business, the vending industry also comes with its own bundle of regulations and compliances. It’s likely you will need to apply for a business permit or license at your city or council office to operate a vending machine.
The laws vary by state and different rules apply to different types of vending machines. So, look these up online and contact your local Chamber of Commerce to understand how vendors are governed in your state.
You may also want to keep accessibility in mind, especially if a vending machine is installed in a public place. In the US, for example, compliance with rule 309 of the Americans with Disabilities Act (ADA) is necessary for vending machines in public places.
In the meantime, you will also need to draw up a contract with the property owner, clearly stating your agreed rate of commission (which typically ranges from 10% to 25% of the revenue), contract length, and other terms you have with the proprietor (such as an obligation to provide electricity). It’s always a good idea to have a lawyer look over the contract before you sign it.
10. Protection against theft and vandalism
Since vending machines can be easy targets for theft and vandalism, you want to place them in safe and secure areas where these risks are minimized. It’s a good idea to research crime statistics while scouting locations (more on location selection below) and find those that are under regular patrolling and CCTV coverage.
Furthermore, you can invest in vending machine alarm systems. Or, at the least, put up a bright sticker announcing you have an alarm installed on the machine to deter potential thieves and vandals.
It’s also a good idea to offer cashless payment options to customers because if there’s less or no cash in the machine, the risk of theft is automatically minimized.
You can also have a provision for protection/insurance against theft and vandalism in your contract with the proprietor. And lastly, to minimize loss of profits, you may want to consider getting your machine insured.
Another pro tip for those investing in used equipment is to get the lock and keys changed as soon as the machine is yours. The same should also be done in the case of termination of a service employee.
11. Restocking and servicing vending machines
To grow your vending sales and attract more customers, follow best practices such as keeping the machines clean and well-maintained. Dirty machines are a turnoff for customers. And, if you don’t keep your machines stocked or if people see multiple sections sitting empty regularly, it may also dissuade them from coming back.
Restocking becomes easier and faster when you know the exact amount and types of products missing from each machine. Picklists derived from telemetry data allow operators to pre-kit or prepare in advance the products needed, saving on both labor and fuel costs.
The optimization of your product mix, which includes removing slow-selling products on a regular basis, is equally important. You can also experiment with new items, once you’ve ensured that your most in-demand products have been replenished.
Also, keep in mind that no customer likes a machine that takes their money and doesn’t give them a product in return or is frequently out of order. This is why routine maintenance is a must, and repairs should always be prioritized. Many successful operators rely on vending telemetry solutions that monitor machines in real-time and offer continuously updated information regarding all aspects of their operation, including machine health.
The importance of customer service cannot be discounted, even if you’re operating only one or two machines. Once your business is more established, you can also consider providing a toll-free number or an email for service requests where customers can send their feedback and requests.
12. Simplifying payment options for customers
There used to be a time when vending machines accepted only coins, but with the progression of technology and growing demand for convenience in all aspects of consumer life, cashless vending has become imperative to grow a successful business.
Retrofitting an old-school vending machine with a cashless payment solution will allow you to appeal to the payment preferences of even more customers. And let’s be honest, not everyone likes to carry cash these days. This has been especially true for millennials and Gen-Z, and after the COVID-19 global health crisis, a cultural shift has been noticed in older, cash-loving generations as well.
Cashless vending allows customers to buy a product using most credit or debit cards, mobile wallet apps, or QR codes. In addition to speed and convenience, a cashless payment solution is more secure. Ultimately, all these factors help increase your revenue.
And in the rare case of an issue arising that may affect product vending while using a cashless solution, automated refunds can be issued to the consumer remotely.
13. Scaling up the business with a vending management solution
It’s easy to handle operational issues or track inventory manually when you have only a couple of machines in your vending business. However, once you have several units set up at multiple locations, your business’ growth will depend on how efficiently you manage them. This is where an advanced vending management solution comes in.
Think of a plug-and-play device that can be fitted on any new or existing machine in seconds. Your ideal solution would be an all-in-one gadget – capable of handling everything from telemetry, cashless payments, machine monitoring, and management, as well as nurturing loyalty through marketing campaigns.
There’s no doubt that having real-time machine and inventory information available at your fingertips can help you minimize downtime and stay on top of your cashless vending machines. However, a modern vending management solution will also give you detailed insights into what products your customers enjoy the most and which products aren’t moving. That way, you can optimize the product mix accordingly and increase your sales in the process.
Accessing all these different kinds of data points and alerts becomes even easier when you have a mobile management app installed on your smartphone.
The bottom line
In the end, it’s important to remember that there’s no single route to success in the vending machine business. Depending on your goals, you can decide the type and scale of the business, and break into the market with less than $1,000. You will need to put in some time and hard work to determine the best locations and merchandising options for your business. But once that’s done, you only need to provide top-notch customer service and conveniences such as cashless vending to generate a steady, passive income stream. Gradually, you can scale up the business to more locations and manage them all remotely with the help of a vending management solution.
To learn how Nayax can help you on this journey, contact us here.