Automatic Vending Machines

Location services: The salesperson may say that the company employs an expert locator to find prime locations for its machines. Actually, the company's assistance usually ends once it finds an establishment willing to have a vending machine on its premises. An operator who starts with poor locations cannot hope to compete with professional vending companies to capture good locations. Poor locations are not only unprofitable for sales but also invite vandalism.

Many times the so­called expert locator has no experience with local vending conditions, and even an experienced vending operator would have difficulty finding profitable vending locations quickly in a city other than his own. Legitimate vending machine manufacturers usually do not offer to locate machines for the purchaser. Such offers from manufacturers or distributors often are a tip­off that the promotion is fraudulent or that the previous operator of the equipment has defaulted.

Training programs: Experienced industry sources say that sales work is a good 50 percent of any operator's job and that no one can be a successful vending machine operator unless he or she can solicit accounts for his or her equipment. Promised training programs are generally either superficial or nonexistent. Even though many present vending company owners started their businesses originally with just a few machines, it is impossible to be trained as a successful vending operator in one or two weeks by a salesperson from out of town.

"Good deals" on machines: The typical salespersons are usually independent agents who buy vending machines from manufacturers and then resell them to inexperienced people who hope to find an easy way to earn extra income.

A few machine manufacturers sell vending machines to promoters under private labels, taking no responsibility for the machines. When the traveling distributor who may pose as a manufacturer's representative disappears or goes out of business, the purchaser is stuck with no way even to trace the real manufacturer to purchase repair parts. Better Business Bureaus have received complaints that machines purchased under these circumstances jam, break down, or otherwise give unsatisfactory service.

Furthermore, victims often find that they have bought machines at two or three times their actual value measured by the price of comparable equipment. It is virtually impossible for such victims to retrieve more than a small fraction of what they paid for the machines - if, indeed, they are fortunate enough to dispose of them at any price.

"Discounts" on merchandise: In addition to selling equipment, many promoters offer "bargains" on the merchandise to be vended. Buyers tend to find that such merchandise cannot compete in quality or price with merchandise sold by experienced vending machine operators or in over­the­counter retailing. Overloading inexperienced investors with perishable merchandise or stock which they cannot sell at all is another common complaint.

Repurchase plans: Offers by vending promoters to buy back inventory from investors who no longer want to sell the products involved are seldom, if ever, workable. Usually the promoter is long gone on a vanished trail by the time an investor tries to exercise this option.

Restricted territories: Sometimes the salesperson promises to give an investor an exclusive territory free of competition. In other instances he or she convinces the buyer to pay a premium price for a restricted territory. In either case, purchasers later find that the promoters have allowed other buyers to invade their reserved areas. Established vending machine manufacturers usually do not assign territorial franchises or rights. In certain circumstances territorial restrictions may be a violation of the antitrust laws. And in your community there will generally be no such thing as a protected territory free from competition with other local companies.

Leaseback arrangements: Occasionally deals are made in which a purchaser leases the machines and then hires the seller to service them including collecting the money. Instances have been known where the cost of servicing has been much greater than the money turned in by the servicing company.

Guarantees: Both written and oral guarantees are a stock­in­trade of the unscrupulous vending machine promoter. Often, they are worthless because the sales agency cannot be located and the manufacturer will not honor them.

Legitimate manufacturers who produce machines under their own names take responsibility for the equipment they manufacture. However, the manufacturer who sells to promoters, or whose salespersons are completely independent of the factory, may take the position that it is not responsible for what the person who sold the equipment promises, since the latter is not an employee of the manufacturer but an independent agent who buys at wholesale and sells at retail.

Packaging limitations: Some vending machine offers are for machines which can accommodate only merchandise which is packaged in a special way. This might mean that a special insert or holder is required for the product so that it can be purchased only from the promoter. This may be misrepresented as a competitive advantage, whereas in reality it limits the purchaser from using other supplies or varying the product offering.

Promises of success: The profit from vending is in pennies or fractions of pennies per dollar in sales and volume. Out of the money that is collected from machines, the operator often pays a commission to the location owner on whose property the machine is placed.

The operator must also meet such expenses as rent, licenses, insurance, machine maintenance and parts, taxes, telephone, legal fees, electricity, truck repair, gasoline, tires, depreciation of machines and equipment and all other normal business costs. These hard business facts are glossed over by the promoter interested only in a quick profit on the sale of machines rather than building a permanent business.

Do Your Homework

In view of the persistent problems of deception and outright fraud in vending promotion schemes, the Council of Better Business Bureaus suggests you apply the following checklist to any offer of vending equipment or routes:

1. If the advertisement indicates any connection with a distributing company or manufacturer, have you seen satisfactory evidence, in writing, from the distributing company or manufacturer authorizing and backing up the advertisement?
   
   No         Yes
   
   
   
2. If the advertisement refers to specific earnings from vending machines, is there proof that these earnings are factual?
   
   No         Yes
   
   
   
3. Does the advertisement clearly state that it is an offer to sell vending machines?
   
   No         Yes
   
   
   
4. Does the contract you are asked to sign plainly state all terms or conditions?
   
   No         Yes
   
   
   
5. If reference is made to locations or routes, have you seen proof that the locations have been secured by contract and are available for inspection?
   
   No         Yes
   
   
   
6. If familiar brand names are used, have you seen proof that their manufacturers have given permission for the products to be mentioned?
   
   No         Yes
   
   
   
7. If the promoter claims or implies sponsorship of civic, charitable, religious or fraternal organizations, have you seen proof of that sponsorship?
   
   No         Yes
   
   
   

A No on even one question above is a bad signal. Do not commit yourself in any way or sign anything unless you answered Yes every time. Even if the proofs suggested seem satisfactory to you, ask someone who knows both you and the businesses in your community to evaluate your chances for success.