The economics of vending machines • Hacker News Board

Re: The economics of vending machines

#31

Post by skelseys » Mon, Oct 05, 2020, 1:04 PM UTC

zxcmx wrote: post #9

ZephyrBlu wrote: post #4

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 unl…

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 peop…

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.

Re: The economics of vending machines

#32

Post by AQXt » Mon, Oct 05, 2020, 1:05 PM UTC

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.

Re: The economics of vending machines

#33

Post by callamdelaney » Mon, Oct 05, 2020, 1:11 PM UTC

crispyporkbites wrote: post #15

prophet_ wrote: post #7

Earlier quoted context omitted.

> 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.

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.

> you then lose 15-25% on stocking the machines

What? How've you come to that conclusion?

Re: The economics of vending machines

#34

Post by skelseys » Mon, Oct 05, 2020, 1:12 PM UTC

kilroy123 wrote: post #3

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.…

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.

Re: The economics of vending machines

#35

Post by throwaway0a5e » Mon, Oct 05, 2020, 1:16 PM UTC

ZephyrBlu wrote: post #4

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 unl…

>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.

Re: The economics of vending machines

#36

Post by altacc » Mon, Oct 05, 2020, 1:25 PM UTC

ZephyrBlu wrote: post #4

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 unl…

> 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.

Re: The economics of vending machines

#37

Post by martin_a » Mon, Oct 05, 2020, 1:26 PM UTC

sokoloff wrote: post #23

imtringued wrote: post #8

Earlier quoted context omitted.

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 o…

"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 a…

Do you need to put aside money for insurance, ongoing repairs/maintenance, restocking physical goods, vandalism/loss of the machine for apps?

I think vending machines are not really a realiable income when looking at the costs that might occur.

So, I'd take any 4-figure app over any amount of vending machines.

Re: The economics of vending machines

#38

Post by dmurray » Mon, Oct 05, 2020, 1:31 PM UTC

imtringued wrote: post #8

ZephyrBlu wrote: post #4

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 unl…

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 o…

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.

Re: The economics of vending machines

#39

Post by kzrdude » Mon, Oct 05, 2020, 1:33 PM UTC

skelseys wrote: post #34

kilroy123 wrote: post #3

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.…

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…

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

Re: The economics of vending machines

#40

Post by namdnay » Mon, Oct 05, 2020, 1:38 PM UTC

em500 wrote: post #19

howlgarnish wrote: post #17

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 &…

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

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