Good Margins, Small Volumes
October 15, 2020 4:16 PM   Subscribe

Zachary Crockett investigates the economics of vending machines (The Hustle), including the world of vending machine entrepreneur YouTubers. posted by adrianhon (20 comments total) 14 users marked this as a favorite
 
I've had a friend for years now who was into gumball machines when I met him. Now he has pool tables and every other form of entertainment you will find in an average bar, in every bar in town.

Except video poker, which he said would involve him with less scrupulous people.

He told me a few years ago that he would soon be netting half a million a year.
posted by atchafalaya at 6:15 PM on October 15 [2 favorites]


Thanks for posting this. Very interesting article.

I don't understand the numbers they give.
>All costs considered, an operator who makes $5k per month in revenue might take home something like $2k in profit.

When they also say
>For starters, ~50% of revenue goes toward the cost of items that go in the machines.

And then 5-25% commission to the establishment, 5% for card fees, $50-100 per month for gas, etc.

I donno, but 40% profit ($2000 profit on $5000 revenue - and you'd need a dozen machines to get $5000 per month, which also leaves out the $3000 to buy a new machine) seems like the maximum possible. That said, even if you made 20% it might be worth your time.

But really an interesting article. I hardly ever buy anything from vending machines (I don't like high-sugar, high-salt junk food, which is the vending machine business) but I always wondered if they really were a way to make some side money.

On preview: that is very interesting story, atchafalaya.
posted by philfromhavelock at 6:23 PM on October 15


Why does it seem that US vending machine culture is so behind the technology as far as what’s on offer in Asia? Why do people go to convenience stores instead of the equivalent of an automat?
posted by Selena777 at 6:25 PM on October 15 [2 favorites]


Excellent article, thanks for posting this!
posted by jeremias at 7:05 PM on October 15


Kansas City has vending machine BBQ (the temperature-controlled vending machine is stocked daily):

- Chicken wings with side ($4)
- Beef sandwich with side ($7)
- Ham sandwich with side ($7)
- Turkey sandwich with side ($7)
- Rib tips sandwich with side ($7.50)
- Combo sandwich with side ($7.50)
- Burnt ends sandwich with side ($7.50)

I've never been to Jones or heard of it, and it has a gimmick vending machine which is not a good sign.
posted by geoff. at 7:49 PM on October 15 [1 favorite]


Related, on Bloomberg Citylab: how vending machines in Japan are hurting from the pandemic.
posted by hellopanda at 8:37 PM on October 15 [2 favorites]


Nice piece!

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

That sounds like we've hit peak vending machine.
posted by storybored at 9:48 PM on October 15 [3 favorites]


Selena777: amen. Wife and I have been enjoying DancingBacons on YouTube for a few months now, and it is AMAZING .
posted by davidmsc at 10:11 PM on October 15


I used to run a couple of vending machines, as a member of a student society. They were there as much for the benefit of the students as for the profit; the pop sold for 50 cents a can in the year 2000, IIRC. It was just nice to have snacks and drinks available at 2 in the morning without having to go off campus.

I can see how it could be a good small business, although there were obvious challenges; the most important is getting machines in good locations. It's something you can't take a break from, and also something that's never going to scale or make you rich. A lifestyle business if you're lucky, as the tech bros might disdain it.

I've never been to Jones or heard of it, and it has a gimmick vending machine which is not a good sign.
Jones got a makeover on one of the Kansas City episodes of Queer Eye (S3E3); it was as much a makeover of the business as the women running it. It was certainly presented as a longstanding family-run hole-in-the-wall; I assume you can't survive decades at an out of the way location in Kansas City selling shitty BBQ. (Here's an interview with one of the owners in Black Enterprise.)
posted by Superilla at 10:30 PM on October 15 [2 favorites]


"Vending Machine" cd be a trigger for
https://pubmed.ncbi.nlm.nih.gov/1602339/
"Soda pop vending machine tipping continues to be a dangerous behavior that can result in lethal or crippling injuries. This study analyzes 64 cases of injuries secondary to crushing by a soda machine. All were male victims except one. The average age was 19.8 years with a range of 5-39 years. Thirteen victims sustained multiple trauma. Fifteen victims were killed. Increased public awareness coupled with support by the government and private industry has contributed to a sharp reduction in incidence of accidents and improved public safety."
posted by BobTheScientist at 11:30 PM on October 15


The average age was 19.8 years with a range of 5-39 years.

We now know for certain the age at which one becomes a rational adult.
posted by The_Vegetables at 7:24 AM on October 16


I donno, but 40% profit ($2000 profit on $5000 revenue - and you'd need a dozen machines to get $5000 per month, which also leaves out the $3000 to buy a new machine) seems like the maximum possible. That said, even if you made 20% it might be worth your time.

20% profit is actually amazing. Apple makes in the neighborhood of 20% profit on their products, most large corps are in the 5% range. However, I also don't follow the numbers, and none of the ones presented in the article are at all correct. The 'unit economics' chart which determines 'profit' especially. Profit is the final number, after expenses and taxes, and none of the charts determine it even generally.
posted by The_Vegetables at 7:50 AM on October 16


also in "peak vending machine":
Barry and Lori Strickland, a married couple in San Diego, run The Vending Mentors, an educational resource that offers an online course ($297) and ongoing consulting services ($97/mo) for new vendors.
It seems universally true that for every entrepreneurial hustle, there's also a meta-hustle of hustling the hustlers; the selling-pickaxes-to-the-gold-rushers model.
posted by We had a deal, Kyle at 11:12 AM on October 16 [6 favorites]


> I donno, but 40% profit ($2000 profit on $5000 revenue - and you'd need a dozen machines to get $5000 per month, which also leaves out the $3000 to buy a new machine) seems like the maximum possible. That said, even if you made 20% it might be worth your time.

Those calculations of profit ignore the labour required to resupply and maintain the machines -- they assume an owner-operating who is willing to supply their own labour for $0/hour.

From the information in the article and a few educated guesses about which expenses are per machine and which could be shared (e.g. storage), assuming there are 17 machines bringing in $300/month revenue to give annual revenue of $61.2k, ignoring the cost of labour, that could give an annual net profit after tax of around $11.5k. That's pretty close to 20% net profit ignoring labour.

Another perspective is to figure out what hourly wage for an owner operator that would amount to -- assuming it takes 20 hours per year per machine to restock and carry out minor repairs (similar to the figure of two 10-hour days a fortnight to keep 35 machines operating) -- for 17 machines the max wage an owner-operator can pay themselves without the business operating at a loss is around $40 / hour.

As well as looking at profit as a percentage of revenue, another perspective is the rate of return on equity -- how much net profit is generated from the cash that was sunk into the business to buy & install the machines & stock them in the first place? If an owner operator values their own labour at $0 and does all the work, and also ignores depreciation of the machines, and can buy machines for an average cost of $3k each, it might cost around $56k to buy and install and stock 17 machines and deal with other setup costs, to generate a net annual profit after tax of around $11.5k, so around 20% return on equity. A 20% return on equity is pretty good, but if the owner values their time at $20/hour it ends up closer to 10% return on equity, ignoring depreciation.

If a large established business can reliably sustain an average return on equity of 20% for 10 years, this is truly exceptional and rare:

> In its 1988 Investor's Guide issue, Fortune reported that among the 500 largest industrial companies and 500 largest service companies, only six had averaged a return on equity of over 30% during the previous decade. The best performer among the 1000 was Commerce Clearing House at 40.2%.

> Only 25 of the 1,000 companies met two tests of economic excellence - an average return on equity of over 20% in the ten years, 1977 through 1986, and no year worse than 15%.

-- https://www.berkshirehathaway.com/letters/1987.html
posted by are-coral-made at 11:36 AM on October 16 [2 favorites]


At the other end of vending machines, much closer to a tiny Horn and Hardart, a rice farmer who cooks his own rice daily to package it in his vending machine. With a packet of curry he didn't make, I think, or maybe it's his curry too?
posted by clew at 1:14 PM on October 16 [2 favorites]


If you're on campus, don't forget to buy a Scantron to go with your beverage.

I think my top vending machine experience was at the U.S. Mint in Denver. The gift shop is all coin related products, and there is a vending machine that completes one simple task: the customer inserts a dollar bill, and the machine dispenses an uncirculated, freshly-minted golden dollar coin. There was a companion machine that would provide four uncirculated quarters for a dollar, as well.

If you need bigger currency, stop by this machine in NYC.
posted by JDC8 at 10:14 AM on October 17


I see that I missed the previously on MetaFilter for that last one...
posted by JDC8 at 10:21 AM on October 17


> [...] there is a vending machine that completes one simple task: the customer inserts a dollar bill, and the machine dispenses an uncirculated, freshly-minted golden dollar coin.

Alas, if it only accepts dollar bills, not dollar coins: imagine the hours of amusement that could be obtained from dropping a freshly minted golden dollar coin into the machine and waiting to receive your even-more-freshly-minted dollar coin.
posted by are-coral-made at 5:49 PM on October 17


If you're on campus, don't forget to buy a Scantron to go with your beverage.

Yep, our main campus library has a vending machine that sells blue books and #2 pencils right next to the vending machines that sell soda and candy. It threw me off the first time I saw it - at my private undergrad, they provided the blue books for us - but I guess it makes sense.

In terms of non-traditional vending, though, I think my favorite is the cupcake ATM. The one I know in real life has the best placement: next to an Apple Store in a high-foot traffic bougie outdoor shopping area.
posted by librarylis at 8:15 PM on October 17


To tie two threads together, a couple years back we had a British colleague training up in our office for a few months, and his native-Japanese wife came to visit for a vacation. We went to get deep dish pizza, and I let them choose the toppings, which initially seemed like a mistake because they went for artichokes and giardiniera, but it was quite good and I have made pizzas with that topping combo myself since.

Afterward (and this is where the tie-in is), we walked over to the nearby cupcake ATM for dessert, and she was THERE FOR IT. She took pictures, took a video of her cupcake delivery, and just generally enjoyed the experience. Perhaps it was just a pale imitation of Japanese vending machine art, but she had been living in London for a while so maybe even the imitation was a true comfort.
posted by notoriety public at 11:05 AM on October 18


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