Becoming a Third Party Operator

[Shauna]

We are fairly new into the vending business, and currently have several accounts we service that have combo machines.

We are trying to build up new accounts with drinks only if we can get away with it because the profit margin is higher than on snacks.

Is it worth it to contract with Coke, Pepsi, DrP/Snapple/7Up to become a third party operator? We want to grow the business quickly but have a cash flow problem at this time in purchasing additional machines.

My thought process is to utilize the third party operator system to build up the accounts, and eventually replace the leased machines with purchased machines. I have been in contact with my local Coca Cola bottler and haven't heard back from our local Pepsi bottler yet.

Any advice, potential pitfalls or praise of this process would be appreciated.

Thanks so much!

[AngryChris]

For one, I don't believe that soda profit margins are higher than snack margins. If you are comparing snacks and cans then yes, cans generally yield more profit than snacks.... but bottles can yield less profit than snacks. I don't know what other people are going to say here but my snacks give me an average yield of about 45% while my cans are closer to 55% and bottles are 38%.

As for the tips... well...

-3rd party is great for not needing to invest into the equipment but I do believe it can be harder to find locations that only want soda machines.

-3rd party bottlers generally want you to vend bottles out of their machines and mostly their products out of their machines only. Coke wants coke products in their machines, Pepsi wants Pepsi products, 7up wants as many 7up products as you will put in but may be very flexible with you allowing 2-3 foreign products (coke or pepsi).

-3rd party bottlers are going to charge you quite a bit more for 20 oz bottles and 12 oz cans than distributors/wholesale stores/grocery stores are going to charge you. Even if you buy cans off of them, your profit yield is going to drop significantly back down to that 45% maybe.

-assuming you find a location that only wants soda machines... chances are it's not going to do a whole lot of money and the bottlers don't just lend out machines for nothing... they want you to buy their products regularly meaning you need decent accounts.... so even if your accounts are somewhat decent, you need to get a snack machine in there to keep the customer happy, unless it's something like a location outside of a busy shopping area where snack machines don't really apply.

Now, I get the impression that someone like PopLady is going to give much better advice here, but I just don't think you have the right mind for the 3rd party bottling right now. In my personal opinion, 3rd party bottling works the best when you find a decent location that will accept a pepsi machine with all pepsi products (or coke machine with coke products, unless ofcourse you plan on sneaking a few competitor selections in there, which I am not going to recommend) and you can get a cheap $500 snack machine.... a location like this could yield as little as $100/week and be absolutely plenty in order to pay for your equipment quickly and maintain a good relationship with the bottler so that they may provide more equipment.

Someone correct me if I am wrong here... but the bottlers simply won't just put 10 machines off to the side just for you waiting for you to find the location and willingly put them there, they want to make money off of YOU by selling you THEIR products... you show them the money, they'll show you more equipment!

On a side note, I am in the process of starting a 3rd party bottling relationship with 7up. I really like 7up and I am willing to push their products more at the right accounts. One of my tricks is to actually put my own equipment on location and switch to a 3rd party 7up machine if they sell enough 7up products and use my independent machine elsewhere.

[Shauna]

Thanks for your response, AngryChris.

If I came across a primo location that also wanted snacks, I would have no problem putting in a snack machine to compliment the soda machine going in. I'm not going to grow my business by limiting my options.

However, in my area of the country, we have about a 55%-60% profit margin on sodas, and only 15%-20% profit margin on snacks, especially chocolate. We tend to match market price on all of our locations at this time.

I'm not sure what you mean by stating I don't have the right mind for 3rd party bottling right now. Obviously, if I am going to be paying more for the product from the bottler, then I want to have a decent locations for their machines to go into.

[Dennis23]

Hi Shauna,

Take what ever the bottlers will give you and run with it. I have found that their bark is worst than their bite when they find a competitors product in their machines. Bottlers a few years ago told me they wanted to see a minimum of two cases per week going through their equipment they loan.

If you have decent locations pit one bottler against the other. Say something like Pepsi your pop sells so well I thought I would call you first for a machine for my new account. If they say no tell Coke your product is the best selling in the world today and I thought I'd talk to you about a machine for my new location.

Pit the bottlers against each other and work the system. Good luck to you and never stop pushing forward.

[Poplady1]

For one, I don't believe that soda profit margins are higher than snack margins. If you are comparing snacks and cans then yes, cans generally yield more profit than snacks.... but bottles can yield less profit than snacks. I don't know what other people are going to say here but my snacks give me an average yield of about 45% while my cans are closer to 55% and bottles are 38%.

As for the tips... well...

-3rd party is great for not needing to invest into the equipment but I do believe it can be harder to find locations that only want soda machines.

-3rd party bottlers generally want you to vend bottles out of their machines and mostly their products out of their machines only. Coke wants coke products in their machines, Pepsi wants Pepsi products, 7up wants as many 7up products as you will put in but may be very flexible with you allowing 2-3 foreign products (coke or pepsi).

-3rd party bottlers are going to charge you quite a bit more for 20 oz bottles and 12 oz cans than distributors/wholesale stores/grocery stores are going to charge you. Even if you buy cans off of them, your profit yield is going to drop significantly back down to that 45% maybe.

-assuming you find a location that only wants soda machines... chances are it's not going to do a whole lot of money and the bottlers don't just lend out machines for nothing... they want you to buy their products regularly meaning you need decent accounts.... so even if your accounts are somewhat decent, you need to get a snack machine in there to keep the customer happy, unless it's something like a location outside of a busy shopping area where snack machines don't really apply.

Now, I get the impression that someone like PopLady is going to give much better advice here, but I just don't think you have the right mind for the 3rd party bottling right now. In my personal opinion, 3rd party bottling works the best when you find a decent location that will accept a pepsi machine with all pepsi products (or coke machine with coke products, unless ofcourse you plan on sneaking a few competitor selections in there, which I am not going to recommend) and you can get a cheap $500 snack machine.... a location like this could yield as little as $100/week and be absolutely plenty in order to pay for your equipment quickly and maintain a good relationship with the bottler so that they may provide more equipment.

Someone correct me if I am wrong here... but the bottlers simply won't just put 10 machines off to the side just for you waiting for you to find the location and willingly put them there, they want to make money off of YOU by selling you THEIR products... you show them the money, they'll show you more equipment!

On a side note, I am in the process of starting a 3rd party bottling relationship with 7up. I really like 7up and I am willing to push their products more at the right accounts. One of my tricks is to actually put my own equipment on location and switch to a 3rd party 7up machine if they sell enough 7up products and use my independent machine elsewhere.

I agree word for word with your advice. Just getting bottlers to give you equipment these days is hard to do and they want the location to be a good one. In California 7-Up will not put out 3rd party can machines anymore because they want to push bottles. But I find 7-Up easier to place because you can go into any account that has a Pepsi or Coke machine and push the 7-Up products. The intent is not to kick the other machine out but to add products that are totally different then what the other machine is selling. For whatever reason the public feels that Country Time Lemonade, Brisk Tea, Snapple and Sunkist Orange are healthier. You can slip right into pretty good size hotels like Comfort Inn's, Best Western or Super 8's. You can also use hotel pricing to cover the commission.

Also 7-Up normally will allow you to sell a competitors product if you put it as the bottom two buttons.

And another hurdle to get your products, they now want you to have a commercial dock for product delivery. They won't go into those storage centers anymore in many areas.

[antoniocinisi]

I have 1 third party 7 up machine and they only have a 10 case min order requirement and nothing else.I believe different bottlers may have different rules.I dont think mine would allow for anything but their products in the machine.

I will keep what you said in mind when I try to find new locations poplady.

[mission vending]

We are fairly new into the vending business, and currently have several accounts we service that have combo machines.

We are trying to build up new accounts with drinks only if we can get away with it because the profit margin is higher than on snacks.

Is it worth it to contract with Coke, Pepsi, DrP/Snapple/7Up to become a third party operator? We want to grow the business quickly but have a cash flow problem at this time in purchasing additional machines.

My thought process is to utilize the third party operator system to build up the accounts, and eventually replace the leased machines with purchased machines. I have been in contact with my local Coca Cola bottler and haven't heard back from our local Pepsi bottler yet.

Any advice, potential pitfalls or praise of this process would be appreciated.

Thanks so much!

As with anything there are pluses and minuses to the situation. As mentioned, different bottlers have different requirements, especially Pepsi and 7UP/Big Red. Speaking about Coke specifically, over the last ten years or so CCE has nearly become the exclusive bottler for Coke products in the US by buying up most of the other bottlers. The overall trend over the last few years is that the third party agreement have become stricter and stricter, especially Coke products in a CCE controlled area. Whoever you do business with if you get into third party vending be sure to take the time to read and fully understand the terms and conditions of the agreement BEFORE accepting any equipment.

From my perspective third party vending is great for accelerating your growth curve when capital is limited. The downside is that in doing so you will give up one of your biggest competitive advantages over the bottlers and the large vending operators. That advantage is your ability to provide what your customers want, not what your bottlers agreement ties you into.

[Shauna]

Thanks everyone for your honest feedback.

I'll definitely be going over any contracts with a fine tooth comb to make sure I fully understand what I'm sinking myself into.

Mission Vending, you are right, I am losing some competitive edge in going with the bottlers, but right now, it is the quickest way I see to expand my business. I'm weighing the pros and cons here to determine if this is the right step for our business.

Thanks again everyone!

[jpbutler]

For one, I don't believe that soda profit margins are higher than snack margins. If you are comparing snacks and cans then yes, cans generally yield more profit than snacks.... but bottles can yield less profit than snacks. I don't know what other people are going to say here but my snacks give me an average yield of about 45% while my cans are closer to 55% and bottles are 38%.

Pretty close to my numbers, too.

Sent from my GT-P7310 using Tapatalk

[AngryChris]

Thanks for your response, AngryChris.

If I came across a primo location that also wanted snacks, I would have no problem putting in a snack machine to compliment the soda machine going in. I'm not going to grow my business by limiting my options.

However, in my area of the country, we have about a 55%-60% profit margin on sodas, and only 15%-20% profit margin on snacks, especially chocolate. We tend to match market price on all of our locations at this time.

I'm not sure what you mean by stating I don't have the right mind for 3rd party bottling right now. Obviously, if I am going to be paying more for the product from the bottler, then I want to have a decent locations for their machines to go into.

Sorry, I didn't choose the best tone when writing that sentence about not having the right mind. I was referring to your statement on the 2nd line of your original post saying:

We are trying to build up new accounts with drinks only if we can get away with it because the profit margin is higher than on snacks.

What I am trying to say is that I don't think your thought process here of utilizing 3rd party bottlers to expand your business faster is the right mindset to have. I believe your focus should be on getting prime locations that require drinks AND snacks rather than "drinks only" because I really don't see how your locality would have such a difference in margin between snacks and soda.

We all want to grow and expand our businesses here but hoping that the bottlers are going to give you equipment without really showing that you are going to purchase plenty of product DIRECTLY from them (You can't go to the grocery store or wholesale club or some other distributor but DIRECTLY from the bottler) and you are going to land some large enough accounts to do so with "drinks only"

To sum it up, I am just saying that, while I do believe it is a good idea, I don't believe it is a reliable idea (for anybody, not just you).

As for the profit margins... I am perplexed that anyone would say their margins for their locality is 55-60% on soda and 15-20% on snacks... I only make about 25-30% on candy bars myself... but I make 55-65% on most other items in the machine..... and in contrast to your soda margins, I make 55% on cans but only 38% on 20 oz. bottles.... in order for me to make anything above 50% on bottles, I would have to charge between $1.50 and $1.75 per bottle!!! My competitors are still between $1.25 and $1.50 right now.

With this conversation... I am curious if you could be providing the info on how you get those kinds of numbers... I think I can make a much more valid point if you told us how you get those margins.

[AngryChris]

P.S. I have a decent location that has drinks only and I am going to contact 7up shortly to try to place a machine there. I support the idea of getting 3rd party machines here, but these locations don't really make me much money.

Now if you can land some public accounts where you can provide a couple of 3rd party machines from 1 or 2 different bottlers... I think that's a great idea. I just think most of these locations are on lock-down. I think poplady owns them all.

[Shauna]

Sorry, I didn't choose the best tone when writing that sentence about not having the right mind. I was referring to your statement on the 2nd line of your original post saying:

What I am trying to say is that I don't think your thought process here of utilizing 3rd party bottlers to expand your business faster is the right mindset to have. I believe your focus should be on getting prime locations that require drinks AND snacks rather than "drinks only" because I really don't see how your locality would have such a difference in margin between snacks and soda.

We all want to grow and expand our businesses here but hoping that the bottlers are going to give you equipment without really showing that you are going to purchase plenty of product DIRECTLY from them (You can't go to the grocery store or wholesale club or some other distributor but DIRECTLY from the bottler) and you are going to land some large enough accounts to do so with "drinks only"

To sum it up, I am just saying that, while I do believe it is a good idea, I don't believe it is a reliable idea (for anybody, not just you).

As for the profit margins... I am perplexed that anyone would say their margins for their locality is 55-60% on soda and 15-20% on snacks... I only make about 25-30% on candy bars myself... but I make 55-65% on most other items in the machine..... and in contrast to your soda margins, I make 55% on cans but only 38% on 20 oz. bottles.... in order for me to make anything above 50% on bottles, I would have to charge between $1.50 and $1.75 per bottle!!! My competitors are still between $1.25 and $1.50 right now.

With this conversation... I am curious if you could be providing the info on how you get those kinds of numbers... I think I can make a much more valid point if you told us how you get those margins.

Thanks, Chris, for the clarification. Using our wholesaler, we currently purchase canned drinks at anywhere from $0.27 to $0.31 per can. Since we haven't gotten into bottles yet, I'm sure you are correct on the difference in the profit margin. Selling cans from $0.65 to $0.75 each, our profit margin on sales is within the range I stated earlier.

I know that the bottlers will have additional costs associated with purchasing through them, but I appreciate the honest feedback.

[Phil]

I just got off the phone with my 7UP rep today. I am now an official 3rd party vendor with 7UP! Get my first machine delivered next week or so. The rep tells me usually 7-10 days.

[mission vending]

I just got off the phone with my 7UP rep today. I am now an official 3rd party vendor with 7UP! Get my first machine delivered next week or so. The rep tells me usually 7-10 days.

Good for you, IMO 7UP is the most flexible of the bottlers to work with.

[AngryChris]

Thanks, Chris, for the clarification. Using our wholesaler, we currently purchase canned drinks at anywhere from $0.27 to $0.31 per can. Since we haven't gotten into bottles yet, I'm sure you are correct on the difference in the profit margin. Selling cans from $0.65 to $0.75 each, our profit margin on sales is within the range I stated earlier.

I know that the bottlers will have additional costs associated with purchasing through them, but I appreciate the honest feedback.

Those margins make sense in regards to the cans. The reason why I asked is because, as a few of us have emphasized, the 3rd party bottler is going to want you to buy bottles from them (and your margin may be below 38% even, buying directly from them).

In regards to the can margins, you won't make that kind of a margin if you buy your cans directly from them and use a 3rd party can machine. They charge way more than the wholesaler does. If they'll let you use a machine set up for cans though, i would jump on it!