Vending Industry Profile

Demographics

In 2016, the vending industry earned total revenues of $21.6 billion, an increase of 3.2 percent over 2015 totals and a seven-year high for the industry, according to an annual survey by Automatic Merchandiser/Vending Markwatch.com. Gains in U.S. job growth have had some impact on these increases since about 55 percent of vending machines exist in workplaces such as office buildings, hospitals and manufacturers, according to marketing analysts at BrandonGaille.com. The convenient location of these machines contributes to the fact that about 70 percent of Americans use at least one type of vending machine every day, according to the firm's report. With over 7 million vending machines in the United States, the National Automatic Merchandising Association (NAMA) estimates that the average American spends $62 on vending machine purchases annually.

According to Forbes magazine, about 40 percent of the working population will be considered millennials by 2020. As millennials age and comprise more of the workforce, the vending industry has had to make modifications to cater to the expectations and preferences of this key consumer market. With fast-paced lifestyles that demand convenience, millennials often regard workplace snacking as an important part of their everyday routine. A report by Automatic Merchandiser/Vending Markwatch.com, indicated that millennials are more likely to favor vending machines with the following characteristics:

• Products that offer value
• Individually priced products that can be personalized or paired with other purchases or products brought from home
• Coupons or loyalty programs for saving money
• Products that are considered healthy or "good for you"
• New and unusual products that reflect different types of cuisine
• Technology that allows for mobile payment options

The fact that the majority of Americans are dealing with weight concerns also has implications for the vending industry. About 70.7 percent of U.S. adults are categorized as being overweight or obese, according to statistics from the Centers for Disease Control and Prevention (CDC). The finding is consistent with a study from The Hartman Group that identified weight management as the most common health concern among U.S. consumers. The firm's analysts reported that 58 percent of consumers were involved in taking active measures related to weight reduction and management. To assist consumers in making healthier dietary choices, the U.S. Food and Drug Administration (FDA) instituted nutritional requirements for the vending industry. These regulations help ensure that calorie information for vending machine items is easily accessible so consumers can make informed decisions about their purchases.

Growth Potential

One of the most significant areas of growth potential for vending machine businesses is related to healthy eating. With obesity increasing among all U.S. age groups, public initiatives to encourage healthy eating habits have gained popularity in all areas of dining, including vending machines. In 2016, 84.7 percent of food and beverage vending machine operators were asked to offer healthier items, according to an industry report by Automatic Merchandiser/Vending Markwatch.com. Reflecting the trend toward consumer preferences for healthier snacks and beverages, the report indicated that bottled water surpassed carbonated soft drinks to rank as the top beverage by volume for the first time in 2016.

While the demand for healthy foods is increasing in all markets, one of the strongest areas for growth is in schools. About 33 percent of children between the ages of 2 and 19 years are classified as overweight or obese, according to the CDC. To help reduce childhood obesity, the U.S. Department of Agriculture (USDA) instituted requirements for vending machines in schools beginning with the 2014-2015 school year. Franchises in the vending industry that can accommodate the following USDA requirements can pursue lucrative opportunities in schools and other child-centered locations. To qualify, vending machine offerings must:

• Be a whole grain-rich product; or
• Have a first ingredient that is a vegetable, a fruit, a dairy product or a protein food; or
• Contain at least 1/4 cup of fruit and/or vegetable; and
• Fall between specific ranges with regard to calories, fat, sodium and sugar levels

In addition, beverages sold in schools are limited to bottled water, 100% fruit or vegetable juice, unflavored low fat milk, and flavored fat free milk or milk substitutes. Vending machines in high schools can offer carbonated beverages, including caffeinated sodas, in servings up to 12 ounces and less than 60 calories.

Growth opportunities for franchises in the vending industry also include accommodating the preferences of machine users. One of the most significant considerations for use is the availability of mobile payment systems. The cultural shift toward a cashless economy impacts opportunities in the vending industry because:

• In an industry survey by Field Agent, a vending machine monitoring firm, 57 percent of respondents said the primary reason they don't use vending machines is because they rarely carry cash or change.
• When asked to give owners of vending machines one suggestion for improvement, the most popular response in the Field Agent survey was, "Accept debit/credit cards."
• In a survey by Rasmussen Reports, a polling company, 49 percent of respondents said they have gone a week without spending cash.
• A survey by CreditCard.com found that 51 percent of consumers between the ages of 18 and 29 said they prefer credit/debit card to cash transactions.

Common Business Models for Franchises in the Vending Industry

Franchises in the vending industry can provide virtually any product or service. Packaged food and beverages remain the most common offerings, though specialized vending machines can be used to deliver products and services such as fresh pizzas, massages and even nail art. Offerings are only limited by the capabilities of the technology available in the machines.

Some of the most common business models for franchises in the vending industry include:

• Traditional Snacks/Beverages: Sales of snacks and beverages in the vending industry represents the bulk of annual revenue. Cold beverages alone represent 43.5 percent of all vending machine sales combined, according to Automatic Merchandiser/Vending Markwatch.com. In 2016, despite the growing popularity of healthy alternatives, vending machine revenue from candy, chocolate, gum and mints jumped 8.4 percent over 2015. Bagged snacks, including cookies, chips and crackers, had similar gains, with revenue totaling 9 percent higher than 2015 totals. While freshly brewed coffee, canned beverages, and sweet and salty snacks are long-time vending machine staples, novel offerings include freshly made foods, such as pizzas or burritos.
• Healthy Snacks/Beverages: Franchises such as Healthier4U, HealthyYOU and KarmaBox offer beverage, snack and meal products that meet the demand for healthy vending machine choices. According to a report by the Center for Science in the Public Interest, sales of healthy snacks outpace traditional snacks by a ratio of four to one. Franchises that offer healthy snacks and beverages may have additional opportunities if their products meet the food requirements for vending machines in schools and other institutions.
• Drinking Water: Franchises such as PHSI Pure Water Technology, a bottleless water cooler vending machine, support America's demand for filtered drinking water. In 2016, water surpassed carbonated drinks as the beverage of choice, according to a report by Bravo TV. That year, the average American was likely to drink 27.4 gallons of bottled water, a total that was 1.2 gallons higher than the average amount of soda consumed, according to data from Euromonitor. Innovations such as bottleless vending machines also take advantage of the demand for "green" options that minimize waste.
• Specialized Products: The vending industry includes a wide range of products and services that include offerings targeted to specific locations. These options can be profitable when properly placed to attract the right target market. Vending machines that offer personal products in bathrooms, massages in shopping malls, cleaning products in laundromats and electronics accessories in airports, all succeed by meeting the immediate needs of the likely foot traffic at their locations.

You can find a vending franchise that may work for you by searching Franchise Opportunities' Vending Franchises category.

Financial Matters of Franchises in the Vending Industry

You can own a franchise in the vending industry at a variety of investment levels. First-time franchisees can start out conservatively with the minimum number of machines. You also may have the option of taking over an existing franchise from an owner who is selling their license and equipment. Since franchises in the vending industry are easily scalable by adding more machines, you can continue to grow your business at your own pace if you choose. Whatever your financial needs, being a franchisee with a proven business plan can help reassure wary lenders when you need financing for setup, equipment or expansion.

Since franchises in the vending industry can be operated from a home office, you'll save on the cost of renting a commercial building or office space as well as the utilities, insurance and other costs associated with maintaining a professional location. However, you'll have to give consideration to storing your vending products, and allowing for specific temperature considerations especially if your franchise deals with food or beverages. Your expenses also will include maintaining a van or truck that can accommodate the inventory you'll need to restock your machines.

Vending machine businesses are subject to the same introductory franchise fees and lifetime payments for revenue royalties that are typical of all types of franchises. However, owners of vending franchises can reduce their taxes by deducting franchise fees as an ongoing business expense if the payments are made on a regular basis according to a fixed formula, subject to current tax codes. Typically, vending industry franchisees also reimburse owners of the establishments that house their machines. Most agreements involve paying site owners between 5 and 20 percent of gross sales.

While franchises in the vending industry have low overhead costs, you'll likely be responsible for the following expenses as a franchisee:

• Initial expenses related to purchasing machines and inventory
• Transaction fees associated with credit or debit card services
• Ongoing machine repair and maintenance fees
• Losses or damage due to theft or vandalism
• Fees associated with appropriate license requirements in your state

Benefits of Franchises in the Vending Industry

As a franchise owner in the vending industry, your investment will be based on a proven business plan that will position you for success. With access to your franchisor's experience in planning, location, setup and marketing, you won't waste time and money with decisions based on trial and error. You'll also benefit from the name recognition of a national franchise, with machines that ensure customers they are purchasing quality products.

Industry experts agree that one of the most important elements of success in the vending industry is machine location. If your machine's location doesn't have enough foot traffic from your target market, it will be impossible to generate adequate sales. As a franchisee, you'll benefit from access to your franchise's expertise in demographics and target location to ensure that your machines are in the best positions to generate profits. In addition, you'll also be able to take advantage of franchise-wide negotiated agreements with national businesses, such as hotels or fitness centers, that provide ready-made business opportunities for you.

With access to a corporate franchise team, you'll be ensured of receiving industry education and preparation that will position you for success. Typically, the professionals who staff a franchise team can provide support and direction in:

• Securing financing from franchise-friendly lenders
• Selecting and establishing the best physical space for your machines
• Negotiating placement agreements
• Obtaining business permits, licenses and insurance
• Providing training in technology, equipment and industry standards
• Earning savings from group discounts for equipment and inventory purchases
• Reaching franchisees in your franchise network for mutual support

Important Considerations

According to a report by First Research on success in the vending industry, profitable vending businesses must have prime locations, effective merchandising, and reliable service and maintenance. While you'll have the backing of a franchise to help secure the right locations and implement productive marketing, you'll be responsible for providing the type of customer service that will entice consumers to use your machines. Demonstrating that you can meet and exceed customer expectations will help you establish long-term and lucrative machine placements.

Key components of customer satisfaction in the vending industry include keeping your machines well stocked and in good working order. To do this, you'll have to ensure that you establish a system of restocking and machine maintenance that aligns with the needs of each location. While owning a franchise in the vending industry will allow you a flexible schedule, you'll have to utilize strict time management to establish a system of servicing your machines so that they are stocked and ready to go when your customers need them. Machine-tracking software, often available from your franchisor, can help monitor daily use and demand. Machines that are regularly out of stock or out of order may jeopardize your placements. Without reliable customer service, you'll frustrate your customers, as well as your site owners who likely will hear complaints.

Owning a franchise in the vending industry also can require that you address challenges such as:

• Meeting product demand by identifying and stocking the specific selections that customers want most
• Establishing realistic route schedules to ensure that machines are well-stocked and operational
• Storing food and beverage inventory in locations that maintain freshness
• Protecting vulnerable machines from vandalism and theft

Characteristics for Success: Who Should Consider a Vending Franchise?

If working a flexible schedule with minimal on-site hours sounds optimal to you, then owning a franchise in the vending industry may be worth further investigation. With so many options, you're likely to find a vending franchise that meets your personal interests and investment goals. While you don't need prior experience to qualify to own most vending franchises, it's helpful to have a background in business management and a customer service mindset. In addition, having some of these characteristics may position you for success in this industry:

• You can set and keep a regular schedule for stocking and maintaining your vending machines. If customers find your machines are frequently empty or out of service, they will begin looking elsewhere to meet their needs. It's important to establish a reliable service that customers can count on to keep them coming back.
• You have some mechanical ability. With many different people using your vending machines on a daily basis, it's likely that your machines will require regular maintenance. If you're able to identify and correct minor problems, you can minimize downtime, reduce maintenance costs and keep your customers satisfied.
• You can make customer service a priority. Keeping your machines well-stocked and in good working order will help you maintain good relationships with machine site owners, as well as with your customers. You'll enjoy more long-term relationships if site owners and customers know that they can depend on you to provide the types of products or services they want.
• You have an education or experience in marketing, sales or business. While a franchise team can offer support, it's up to you to determine if your business plan is generating profits. If you're experiencing problems, you'll need to assess where you can make corrections to support business growth and success.
• You can recognize when you need help. Stocking and servicing vending machines can require a lot of physical labor, while maintaining machines in multiple locations can jeopardize your ability to provide reliable and timely service. Having one or two employees assist in maintaining your machines can help you create a better experience for customers and increase the odds of their continued business.

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Industry Snapshot*:

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Average Cash Required: $ 45,833

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