Vending machines have been with us since the 1890s and are still visible in every railway station, every shopping centre, and every town across the UK. Are they still a relevant part of British life? It certainly seems that way. But are they a good business proposition for the entrepreneur or potential franchisee?
In this article, we will look at whether starting a vending machine business is a viable financial alternative to opening a shop or other small business models. We’ll examine the importance of choosing the right kind of vending machine, location, and maintenance. We’ll also check out the rules and regulations for starting a vending machine operation and the bottom line on how much it’ll cost you.
At Park Insurance, we specialise in helping small and medium-sized businesses not just insure and protect their assets, but grow too. So, if you’re serious about learning how to start a vending machine company, pop a coin in the slot, grab a coffee, and let’s begin by taking a look at the current situation in the UK today.
Is there still demand for vending machines?
The simple answer is yes. The Automatic Vending Association report released in 2021 noted that in the UK, there is one vending machine for every 55 people and that at the time, there were half a million vending machines across the UK vending more than seven billion items every year. The UK’s love of coffee is well served by vending machines, with more than eight million cups of coffee and two million cups of tea served daily. In 2021, the vending machine industry had a net worth of £25 billion. This is still a thriving and commercially successful sector.
Based on these statistics, starting a vending machine business seems like a viable business model. And even though our shopping habits have changed notably over the last few years, vending machines still seem to hold their own.
Purchases from vending machines are mostly impulse buys and relatively low-value, such as snacks and drinks. But different vending machines can give passing customers access to more high-value items, depending on demand. In general, though, the vast majority of vending machines will serve a rail traveller a coffee or a sandwich or a worker a break-time cup of tea. And that demand has not diminished, even though the high street and real-world shopping locations have significantly declined in recent years.
Getting started – Doing your research
Starting a vending machine business isn’t just a matter of buying the rights to a machine, plonking it down in the middle of your local shopping centre, and emptying the takings box every day. You need to do your research first. Although start-up costs are relatively low, the returns are also limited, so you need to weigh up the mitigating factors that will affect the level of revenue a machine can generate. There are several key factors to consider:
Location, location, location
It cannot be over-emphasised as to just how important your location is when starting a vending machine business. A vending machine tucked away from regular passing footfall will gather dust, not revenue. With so many vending machines in operation, you can be sure that all the current high-revenue locations are already occupied. However, with new developments come new opportunities, so the trick is to find a single location to get started from and then progress and expand once your business is established.
If you have the opportunity to take on a vending machine franchise with an already-agreed position, visit the location and check it out before you sign up. Watch the amount of footfall during different times of the day.
Who are your customers?
Footfall past the proposed location may be high, but is it the right type of footfall? Take a look at the people who are regularly passing by. Are they the type of people who would stop and use a vending machine? You have to determine that the vending machine you’re thinking of taking on is relevant to the type of customers in your location and relevant to the business hosting your machine. They will expect any vending machine installed on their property to bring something to the table – and we’re not just talking about revenue.
You have to understand how people interact with vending machines in the 21st century. Cash is no longer king; today, more people use debit or credit cards to make low-value purchases. If your machine only takes coins, you could lose a considerable percentage of your potential customers.
Who is your supplier?
Plenty of companies are willing to supply you with the hardware you need to start a vending machine business. But what kind of machines do they supply? And most importantly for your customers and your revenue, are they reliable? Nothing will kill a vending machine business faster than an ‘OUT OF ORDER’ sign regularly sellotaped to the front of the machine. Take a good look at the type of machines your potential supplier offers, and find out just how dependable they are before you choose your machine.
The paperwork you need to start a vending machine business
While the initial investment costs are relatively low, the red tape surrounding starting and operating a vending machine business is considerable. You will need to register the business with HMRC as either a sole trader or a limited company and register for VAT (if you expect your turnover to exceed £85,000).
Insurance is also hugely important. You need to find the right business insurance that protects you, your business, and your customers. At the top of the list is public liability insurance, which will protect you financially if a claim for personal injury or property damage is made against you.
You’ll also need to insure the actual vending machine itself. Part of learning how to start a vending machine business is knowing how to protect your biggest asset – your machine. Vending machine insurance is a very specialist niche, so you may need to talk to an experienced advisor to find out what kind of business insurance would cover you sufficiently.
Other insurance to consider includes interruption to earnings cover, commercial car or van insurance, and legal expenses insurance.
Licencing – time to talk to the council
You can’t just set up a vending machine anywhere. You will need to approach your local council to get a business licence to install a vending machine. Each council will have different stipulations when it comes to issuing business licences for vending machine operators, so the specifics will depend on your location and the guidelines as followed by your local council, as well as the proposed position of the machine itself.
In most cases, you will need a peddler’s certificate and a street trading licence. You will need to pay a fee for the licence both initially and then annually, so make sure you factor these costs into your business plan.
If you plan to install a vending machine inside a store, business centre, office block or shopping centre, you must also approach the landlord. You may also have to add ground rent or a percentage of the profits to your costs. It’s highly unlikely that they’ll let you install a machine for free!
Do you need any qualifications?
Not specifically, but if you are offering food and beverages, you may also need food safety and health certification and demonstrate that you have the qualifications to handle food safely.
How much will all this cost?
Part of learning how to start a vending machine business is working out your initial outlay and operating costs. As we’ve previously mentioned, you’ll need to include things like licence fees, ground rent, a comprehensive insurance package, and fees for essential paperwork such as food safety certificates and peddler’s licences.
The average vending machine can cost between £20,000 to £40,000, so if you want to start a vending machine business using your own equipment, there will be a considerable financial layout initially.
A more affordable alternative is to take on a vending machine franchise, which reduces the financial overheads but also means that you don’t effectively own the business outright.
You also have to factor in running costs, including electricity costs, servicing and – of course – filling the machine regularly.
What equipment do you need?
You will, of course, need a vending machine to make this business opportunity work. The easiest way to find one is to approach suppliers and find out what type of machines they offer. However, when looking at how to invest in a vending machine, you will need to consider the type and size of machine to get. Things to think about include not just the size but the capacity and connectivity to utilities such as water and its power consumption, as well as the property owner’s location and requirements (and confines).
A small business may only want a table-top-size coffee vending machine to fit in the corner of a break room. A shopping centre may have more space for a much larger machine offering a greater variety of products. Before you choose your machine, make sure it fits the parameters of the location and the requirements of the landlord or business operator.
If you’re fortunate enough to have bagged that high-footfall location, your vending machine will require regular checking, topping up, and sometimes multiple daily visits. So, a commercial vehicle will be an additional expense so you can carry supplies and equipment to service and maintain the machine. Don’t forget that a commercial vehicle will also require specialist insurance. As you are using your vehicle for business purposes, regular car insurance will not cover you.
Restocking your vending machine is part of running a vending machine business, so you will need a wholesale supplier for everything from tea and coffee to stirring sticks, cups and sugar sachets if you’re operating a beverage machine. Your vending machine supplier will also provide a full range of stock to suit your needs.
Alternatively, you can access a wholesaler to keep the costs down. But this may depend on the contract you sign with your vending machine supplier, as they could stipulate that only stock provided by them can be used in their machines.
Analysing competition in an area – market opportunities and areas where vending machines work well
If you plan on starting a vending machine business, a little market research is essential. Find out what vending machines are doing well in your area and what kind of products the most popular machines are offering. It’s worth talking to potential site owners to determine what they think would work best for their clientele, depending on their age and interests.
For example, a vending machine in a health centre may be more successful and in keeping with the environment and clientele if it’s stocked with healthier options rather than high-sugar, high-calorie chocolate bars.
Finding the right contracts – approaching businesses with your vending machine proposition
We’ve already ascertained that vending machines are still relevant and, indeed, incredibly popular in the UK. That means all the ‘choice’ locations are probably already occupied by existing vending machines, and established vendors have snapped up high-footfall spots.
However, the UK is undergoing a period of renewal and redevelopment, particularly in our towns and cities. New civic projects are bringing greater opportunities for vending machine businesses to utilise new locations such as health and wellness centres, out-of-town shopping developments, and entertainment centres. All of these offer fresh chances to establish a profitable vending machine business. The increase in multi-occupancy business centres is also an avenue that vending machine operators can explore.
The only disadvantage is that, as these developments are new, there will be little or no solid evidence to say how much potential traffic there will be past a location. Consequently, projecting the success of a vending machine can be more difficult to predict. However, talking to developers may allow you to get in early and grab a potentially lucrative spot for your vending machine.
Health and safety regulations and considerations
As with all aspects of everyday life, vending machines are covered by health and safety legislation. As the operator, it is your responsibility to ensure that a machine is located in such a way that it will not cause harm to users or anyone passing by. That means ensuring the machine is correctly installed, stable and maintained to keep it operating safely and effectively.
Your machine may be subject to a health and safety inspection if there are any doubts about its safety or if someone has been injured while using it. Bear in mind that it may also be a condition of your operator’s licence that certain H&S criteria are met.
Getting started
So, once you’ve considered all the points raised, it’s time to get started. It’s best to begin by creating a business plan detailing the initial investment you need and how you intend to develop the business over five years.
You could include:
- Initial costings and financial outlays – including how you plan to invest in a vending machine, the estimated running and operating costs (including utilities, maintenance and resupplying), and additional expenses such as licencing fees, insurance packages, and commercial vehicles to support your venture.
- Registration – with HMRC and to register the business as a sole trader or limited company
- Licencing – with local councils to obtain and pay for a peddler’s licence and street trader licence
- Marketing and research – including predictions on the potential customer base
- Location, including predicted footfall
- Niche markets – Whether your vending machine business fulfils a specific need (such as healthy snacks and beverages at a leisure centre, coffee and tea in a workplace, or more specialist products in keeping with the location)
- Sustainability of the business – whether the vending machine may see any drop off in use after the initial installation period, or if it is located in a popular location, whether a second machine may be installed at a later date.
The complexity of starting a vending machine business is that you need to do a considerable amount of ‘plate spinning’ at the start. One part of your plan may depend on another. So, for example, you may not be able to get your peddler’s licence and trading permission from the council until you have secured a location.
The one relatively straightforward thing to sort out is your insurance package. At Park Insurance, we have the skill, know-how, and experience in dealing with niche markets to advise you on the best vending machine insurance package for your business. With our help, you’ll have one less plate to spin and can focus on getting the groundwork done on other aspects of the business.
Once you are up and running, our team can help you refine and fine-tune your insurance needs if necessary.
Vending machines may have been around for over 130 years, but their popularity hasn’t waned. They’re just as much a part of our lives today as they ever were, and with new technology giving vending machine manufacturers the capability to offer more complex machines, who knows what you might be buying out of a machine in five years?
Running a vending machine business may not make you a fortune initially, but it provides plenty of scope for development, can be scaled up, and is a multi-billion pound industry. There are plenty of opportunities for an entrepreneur with an eye for business and the ambition to succeed.