New Route Purchase

[Veteran Vending Services]

All,

I started a thread in the new member forum but thought I would start one here for those of you that may not check the new member forum. I'm in the final stages of purchasing an established full line vending route in the Middle TN area. I've listed some information below in regards to the route. My background in the vending business is none. I'm retiring from the Army within the next few months and will be pursuing this as my second career.

I've already received a great deal of information in the new member forum.

Any thoughts or concerns regarding this route? Any questions I should ask the seller?

1. Past 6 months gross sales average is $8500 per month

2. Route includes: 14 x Soda, 15 x Snack, 2 x Frozen, 1 x coffee, and 1 x Laundry and 1 x bill changer (all on location)

3. Six of the soda machines are bottler owned

4. Seven of the locations are paid 10% commission, one 15%, one 20% and three at 0% commission

5. Manufacturer of the owned machines is: USI

6. Model # of each machine: Working on getting this

7. Break Down of Validators and mechs: Working on getting this

8. Route includes machines, all inventory ($5,000 to $10,000 in inventory), 2 x chest freezers, dollies, totes, and misc equipment

9. Route does not include a vehicle

I would base the route out of a climate controlled mini storage and use an E250 Extended Cargo Van to service the route.

Based on what I've listed above what would you consider a fair price for this route?

I appreciate all of the feedback I have received so far.

Thank you,

[Golfdogs]

I have a few questions:

1. What is the age of the machines?

2. What types of locations?

3. Will the bottler transfer assets to a new vendor?

4. Are the sales verifiable? I.e. tax returns?

5. Not a question...thank you for your service and best of luck in your new venture!

[Veteran Vending Services]

Golfdogs,

1. Age of the machines are between 1 and 3 years old and were bought new or factory refurbished.

2. Locations range from a 24/7 Truck Driving Training Operation, Vocational School, Maintenance Shop, Nursing Home, High School, Wire Plant, Pallet Mill, and 2 x Apartment bldgs

3. The bottler will transfer assets to me.

4. Sales are not verifiable with tax returns because he has this business co-mingled with another business on his Schedule C tax form. I do have the monthly settlement sheets for everytime the machines were serviced over the past six months.

Thank you.

[Golfdogs]

Are the machines free and clear? Being relatively new means they might have a lein on them.

Look closely at the sales on the cold food machines. Despite reading about the hassles and disadvantages of cold food, I bought one...and now I regret it. I would hate to see those two machines unravel your experience with vending.

Why is the present owner selling?

[Veteran Vending Services]

I appreciate the feedback.

The machines are all free and clear. I asked why he was selling and he told me it was because he has two other businesses and he said this one would be the easiest to sell. He seemed to brag on the frozen food machines because there was no waste because everything is frozen. I will look at the sales for those two machines. What were your regrets about the frozen food machines? I will question the seller about them.

Another question I have is about method of servicing the machines. He tells me that he checks the machines for inventory on one day and writes down what needs to be re-stocked, then pulls the stock and services the machine the same day or next. Is that the best way? He said it avoids having to load a bunch of extra product that you may not need. I know that would double the amount of you gas usage.

Thanks again!

[mission vending]

The cargo van is plenty big enough to carry enough inventory and do it all in one trip.

[TKK]

Seeing that 6 machines will never belong to you, if you can guarantee you will be in those locations for a stable ammount I.e. talk to the managers etc...then offer a decent ammount. Now no experience in vending is not a good idea for a pretty big route. It's not rocket science but you need to know how and when to service learn ur machines so you know where to get parts from asap, find out from the bottler to make sure you can keep the account. Do swap those machines for your own asap! I would never ever get involved in a third party program. It's your business you should have total control. I would really not recommend a route this size with no experience. You could make the worst financial decision or the best. I'd probably offer about $40k if the equipment is in great shape and u can keep the accts and the coke machines for now. Check prices many people have stupid low pricing, and although it grosses $8400 a month is he netting $1,000? $2000? $4,000? After commissions and cogs? These are all things you need to see. Say he has low prices. Let's say doubles everything or worst is at 60% cog. 10% comission. You keep 30% minus gas, and storage, etc. You can't just go in there and raise all pricing especially in a high school or break rooms. Maybe the apartments or laundromat. Higher prices only make sence in high traffic areas. Puss off the employees with a product raise and they won't buy for 2-3 months and then they give in lol.

[AZVendor]

Vet,

Now that I know that your frozen machines are USI, you need to know if they are the FF2000 model or one of the newer 3500 series models. The FF2000 models with model number 3182 can have cooling issues I can tell you about. Additionally, you need to do searches of public documents for the seller and any business names he uses. You want to look for UCC filings that show there might be a lien on some of the machines. It is unusual for someone to pay cash or to pay off new machines in less than 3 years. I also don't like the comingled businesses. Can he show you dedicated deposits from the vending?

As far as the service method the seller uses, this is something that you can allow to evolve into what is easier for you. If your van is dedicated to the route, there is no reason to empty it and therefore you will always have your product with you at the location. You can go in, inventory your machines, go pull the product you need and then go back in and stock the machines. This allows you to make inventory count changes (called par levels) to any selection or change product offerings on the fly because all your products will be with you.

Another way to service is to historically predict what you have sold and take only that product with you to the location. This is called pre-kitting and allows you to just walk in with all the pre-kitted product (pre-kitted in storage and bins loaded on the van) and simply count the machine and fill it. The result can be hit and miss if sales change between service days, but this can be a very economical service method. Pre-kitting works best with data devices placed in each machine that will transmit the sales data to you so the pre-kitting will be accurate. This would be an additional expense upfront and on a monthly basis, but I wanted to throw it out there.

It kind of sounds like the seller, not having a dedicated vehicle, flies by the seat of his pants. He may be cash poor and has to inventory and collect the money before he purchases replacement product. This can be a red flag or just a very inefficient method of servicing. I would not be surprised if he does not have detailed inventory records by machine, but doesn't necessarily mean he doesn't have them. He probably never had anyone show him a better way to do the work. That's what we can do for you here.

TKK brought up a very good point about the product prices. They are one part of the profitability formula. Sales, less product cost, less fixed costs, less variable costs = net profit. The higher the sales due to prices or increased volume and the lower your expenses due to cheaper product costs or lower commissions means a better bottom line.

One caveat I forgot to mention about using bottler-owned soda machines is that you cannot put "foreign product" into those machines. Pepsi machines must have Pepsi products and Coke machines must have Coke products. You will only have complete control with machines you own. Bottler machines can be a valuable tool in building a route up by eliminating an equipment expense, but there are rules to follow. I used an extensive number of bottler machines from Coke and Pepsi over the years, but I had large accounts where I could usually place one of each so it made sense for me to use assets that I didn't have to pay for and spend my money on all the other equipment.

[Veteran Vending Services]

TKK,

I will take your advice and talk to the managers to make sure the accounts are stable. I'll dig a little deeper into the net. I have his P&L statements from the last three years. I think I will have him prepare one from Jan 1 to now and see what it looks like. Question for you, why do you dislike the bottler owned machines? Is it because you're forced to buy there product. Do you make less money on the bottler owned machines?

Thanks for the feedback.

[kiwi]

Now that I know that your frozen machines are USI, you need to know if they are the FF2000 model or one of the newer 3500 series models. The FF2000 models with model number 3182 can have cooling issues I can tell you about.

AZVendor,

Can you elaborate on the cooling issues with the FF2000 3182 model?

Most of my frozen's are USI Combi Satelitte 3530 models which I think are alot more reliable than the older FF2000 models were. I still have a couple of the older FF2000 models which I only use as trial machines for site that ask for frozen.

I do have alot more meltdowns on the older FF2000 models than I do on the "new" Combi"s but have never figured why?

[moondog]

I appreciate the feedback.

The machines are all free and clear. I asked why he was selling and he told me it was because he has two other businesses and he said this one would be the easiest to sell. He seemed to brag on the frozen food machines because there was no waste because everything is frozen. I will look at the sales for those two machines. What were your regrets about the frozen food machines? I will question the seller about them.

Another question I have is about method of servicing the machines. He tells me that he checks the machines for inventory on one day and writes down what needs to be re-stocked, then pulls the stock and services the machine the same day or next. Is that the best way? He said it avoids having to load a bunch of extra product that you may not need. I know that would double the amount of you gas usage.

Thanks again!

That's a lame way to service these accounts - with a cargo van you should easily be able to stock everything you need and make one trip. You should be able to service about ten machines a day.

[Golfdogs]

I have a fresh/frozen machine. Sandwiches are just not selling. I've tried different brands/vendors, even used a local caterer with no success. The location has NO dining options nearby. I thought this alone would encourage people to use this machine. I was wrong.

I do have more luck on the frozen side, although I had a meltdown (power outage) early on and lost everything. It was quite fun cleaning that one up, as well.

Bottom line, it has not been worth having this machine.

[mission vending]

AZVendor,

Can you elaborate on the cooling issues with the FF2000 3182 model?

Most of my frozen's are USI Combi Satelitte 3530 models which I think are alot more reliable than the older FF2000 models were. I still have a couple of the older FF2000 models which I only use as trial machines for site that ask for frozen.

I do have alot more meltdowns on the older FF2000 models than I do on the "new" Combi"s but have never figured why?

I've had several of my FF2000's die a horrible death, compressor went out and went up to about 95 degree inside before I got to them.

[kiwi]

I've had several of my FF2000's die a horrible death, compressor went out and went up to about 95 degree inside before I got to them.

Yep.. mine have turned into microwaves before too! No need for the customer to heat up their frozen meals when that happens but not too good for ice creams!

I have one that will work fine for short periods of time (1-3 months) but then it will meltdown for no apparent reason. I only use it as a trial machine now for potential customers because of this.

When it goes out I just cross my fingers.. say a few prayers & hope for the best! Its usually only on-site for under a month to show the customer the benefits of having frozen meals available to their staff 24/7 & it is also used as a carrot to get the coffee,snack & drink contracts with the site.

[kiwi]

Crossing your fingers.. saying a few prayers & hoping for the best is not the way I suggest you deal with these sorts of problems

BUT... we don't have a AZVendor here!

[Veteran Vending Services]

All.

It appears COGS for this route is around 40%. Is that good, bad, average?

I appreciate everyone's input.

[AZVendor]

AZVendor,

Can you elaborate on the cooling issues with the FF2000 3182 model?

Most of my frozen's are USI Combi Satelitte 3530 models which I think are alot more reliable than the older FF2000 models were. I still have a couple of the older FF2000 models which I only use as trial machines for site that ask for frozen.

I do have alot more meltdowns on the older FF2000 models than I do on the "new" Combi"s but have never figured why?

I have not worked on any of the new 3500 series frozen machines yet. The USI distributors here don't sell much new equipment anymore.

The main problem in the FF2000, which USI never truly addressed, is poor airflow through the condensing unit due to the worst engineering I have ever seen. The machine is only 22 inches wide and the compressor sits right in the way of the only path for the air to flow through the machine. The original units used a Tecumseh compressor which was about 10 inches wide. This was the worst version of the machine because of how physically large the compressor was. They followed this up with a POS Danfoss compressor that, though only about 8 inches wide, was made with subpar start and run components. Topping this off was the fact that they used hard-to-find shaded pole motors - 9 watt condensor fan motors in a Tecumseh unit and a 5 watt in some of the Danfoss units. When they used Tecumseh, USI built the cooling decks themselves. Now they use prebuilt Danfoss units sourced from overseas (just like Dixie Narco does now) and the start relay and capacitor fail regularly, as they do on the Dixies.

Then the front vent screen was not very airtight, allowing dirt to clog the condenser. The condenser is so far back in the cabinet that you have to lay down and blindly drag a comb down the fins to clean them. Most operators don't know to do this.

The typical symptom you will see is the machine will be out of order (can only reset by opening and closing the door) due to the health control tripping, but the product is still frozen. This is caused by hard starting of the compressor where it will click on and off over and over trying to start, all the while the temperature is rising in the machine. If the temp gets to the health control threshold before the compressor finally comes on then the machine will be out of order, but the product is usually still good. As the problem gets worse, the products will begin to melt before the compressor comes back on. You can put a "Hard start" kit on the compressor and get some additional life out of it, but the ultimate repair is a new compressor.

The Danfoss is always a special order because it is imported. Then you have to evacuate, cut the lines to the evaporator, pull the cond. unit and replace the compressor and fan on a very tight platform, reinstall and re-braze the lines to the evap then recharge it. The easiest way to replace the compressor is to order a new condensing unit from USI and install it as a complete bottom unit to the tune of around $800. This is only about $200 more than the replacement compressor but saves alot of time in disassembly and reassembly. They used to sell rebuilt units but got greedy and stopped a few years ago.

[moondog]

All.

It appears COGS for this route is around 40%. Is that good, bad, average?

I appreciate everyone's input.

My COGS is about 50% but I don't don't have the commission expense that this route does. Normally you'll find higher vend prices in locations that require high commissions.

[beejaykc aka Munch A Bunch]

I have not worked on any of the new 3500 series frozen machines yet. The USI distributors here don't sell much new equipment anymore.

The main problem in the FF2000, which USI never truly addressed, is poor airflow through the condensing unit due to the worst engineering I have ever seen. The machine is only 22 inches wide and the compressor sits right in the way of the only path for the air to flow through the machine. The original units used a Tecumseh compressor which was about 10 inches wide. This was the worst version of the machine because of how physically large the compressor was. They followed this up with a POS Danfoss compressor that, though only about 8 inches wide, was made with subpar start and run components. Topping this off was the fact that they used hard-to-find shaded pole motors - 9 watt condensor fan motors in a Tecumseh unit and a 5 watt in some of the Danfoss units. When they used Tecumseh, USI built the cooling decks themselves. Now they use prebuilt Danfoss units sourced from overseas (just like Dixie Narco does now) and the start relay and capacitor fail regularly, as they do on the Dixies.

Then the front vent screen was not very airtight, allowing dirt to clog the condenser. The condenser is so far back in the cabinet that you have to lay down and blindly drag a comb down the fins to clean them. Most operators don't know to do this.

The typical symptom you will see is the machine will be out of order (can only reset by opening and closing the door) due to the health control tripping, but the product is still frozen. This is caused by hard starting of the compressor where it will click on and off over and over trying to start, all the while the temperature is rising in the machine. If the temp gets to the health control threshold before the compressor finally comes on then the machine will be out of order, but the product is usually still good. As the problem gets worse, the products will begin to melt before the compressor comes back on. You can put a "Hard start" kit on the compressor and get some additional life out of it, but the ultimate repair is a new compressor.

The Danfoss is always a special order because it is imported. Then you have to evacuate, cut the lines to the evaporator, pull the cond. unit and replace the compressor and fan on a very tight platform, reinstall and re-braze the lines to the evap then recharge it. The easiest way to replace the compressor is to order a new condensing unit from USI and install it as a complete bottom unit to the tune of around $800. This is only about $200 more than the replacement compressor but saves alot of time in disassembly and reassembly. They used to sell rebuilt units but got greedy and stopped a few years ago.

AZ - can you put a battery backup on these freeze/chill combo's? I have one and did lose the ice cream a few weeks back when the location had a power outtage just a few hours before I serviced. The frozen "food" was still cold, but the ice cream melted. A crappy $100 problem, not to mention the time and energy involved in the cleanup.

[mission vending]

I doubt it. The energy requirements for that compressor are so high that you would need a bank of batteries to make it work.

[AZVendor]

Like mission says, battery backups are for logic level devices that don't draw any current. You would need a generator to keep power to a refrigerated machine, but losing power to the snack or tower that controls it would prevent the FF2000 from cooling as well. If you have any location with unstable power it is not a candidate for frozen food unless there's no ice cream in it.

[Veteran Vending Services]

All,

A question regarding sales tax.

The seller of this route is telling me he goes ahead and pays sales tax on the product he buys in order to not have to deal with the hassle of paperwork at the end of the year if he didn't pay sales tax up front. He deducts the sales tax from the monthly sales from each account before he pays the commission. In other words he doesn't pay commission on the sales tax. Is this the best way or does it matter? Thanks for the help.

[AZVendor]

It's the lazy way to do it, but I don't know how difficult your sales tax reporting might be. You need to find out the proper procedure and what deductions might be available to your business. In Arizona, there is a "Food for home consumption" deduction that is for grocery stores, but is also used in vending. Read up on your state and municipal retail tax regulations and find out how it really needs to be done.

With your sales tax license, you should be able to avoid tax when purchasing because it will be collected at the point of sale from the customer. Well, in vending it comes out of the sale, not added to it. That's why your pricing needs to take all expenses into account including the sales tax you may be responsible for.

You can calculate your commission any way you wish, that is part of the problem with commission. You can't count on any competitor being honest with his accounts about what the commission is paid on. Some vendors pay commission on the "net profit", some on the "gross profit" and others on the "gross sales". Some are somewhere in-between depending on how honest they wish to be. This dishonesty is known as the "R" factor or "reduction factor" in vending route accountability. This is the willingness of vendors to cheat and generally be deceptive with their accounts. The reason this can happen, as you probably realize, is that the account has no access to the records so they don't truly know what they may be due. It's up to you to be honest with your accounts. After you learn about your local competitors and hear rumors, etc., you will begin to know which ones may be honest and those that probably aren't. It is a real shame when you lose an account to a known deceiver that promises your account a commission you know he can't possibly pay.

Edit to Moderators: I'm not sure if it's okay to speak of commissions in this forum. Hopefully by only explaining the workings of commission this post fits within the site guidlines.

[Golfdogs]

The state wants you to pay sales tax on YOUR sales, period.

[Veteran Vending Services]

Golfdog,

I think you're right, unless you pay sales tax when you purchase the product from the wholesaler. If you pay sales tax when you purchase the product and again when you sell it then you are paying the sales tax twice on the same goods. In TN I think you have an option to NOT pay sales tax when you purchase goods that are intended for resale by showing them your sales tax exempt certificate OR go ahead and pay the sales tax when you purchase the goods and your done with it. If you do not pay the sales tax at the time you purchase the goods then you would have to pay it later in some form.

Does that make sense? I will check with the local revenue office to clarify for me.

Thank you for your feedback.