Due diligence on route that has leased/loaner machines

[snick198]

I'm looking at a purchasing a route that has about 40 leased machines, most from Pepsi, but some from Coke.  I've seen one of the Pepsi contracts and it states very clearly that the vendor is required to purchase 4 cases per week per machine.  And that the contract is non-transferable without Pepsi's consent.  I haven't seen a Coke contract yet. 

I've crunched through the numbers and there is no way the current owner is moving 4 cases per week through these machines.  As condition of the sale I have stated that we have to meet with Pepsi and Coke to make sure I can get the same deal as the current owner.  After doing the math, I don't want the same deal, I need a better one or the number don't work.  Regardless, somehow the current owner is keeping Pepsi and Coke happy (I'm not sure how and that makes me nervous), but he is adamant that we will not meet with Pepsi or Coke until after the deal is signed. 

Based on this and if we can't unravel this mystery, I'm planning to walk away.  Am I missing something?  Is this how the deals with Pepsi and Coke work, that is, you sign a contract requiring 4 cases per week, but they don't hold you to it?  The current owner is strongly pushing the "let sleeping dogs lie" approach to this, but I don't want to be the owner when/if the dog wakes up. 

Any thoughts about the situation?

Thanks,

Riley

[mxer518]

its pretty simple in most cases, they put these case requirements on the vendors but they only affect you if they take the time to check and see if you are making your minimum requirements. A lot of the bottle groups will admit that they only check on them once every few years and until that time comes you will get away with ordering much less product than required. But be warned when they do check and most likely it will be when you make the transaction they can give you in many cases no more than a 30 day notice to pull all the machines.

[mission vending]

I agree with mxer.

They might never get around to checking an existing vendor that has had the machines for several years. If you go back and look at previous threads about third party vending you will find that the trend over the last couple of years is for the bottlers to be more selective about who they let into third party program as well as more emphasis on enforcement of contracts all over the country, especially Coke.

Given the situation you are looking at I'd be very careful. If you have the capital you might want to consider waiting until they start wanting stuff back and then go buy your own machines, do this until your orders meet the minimum order requirements. You'll pay a slightly higher product cost for stuff you put into machines that you own but it will enable you to keep the rest of the lease stuff.

Letting sleeping dogs lay until you are the owner is not a good idea.

[Sparta_Automation]

No way...No how....

Would I EVER agree to complete the deal and then meet with coke/pepsi.  What happens if they simply say that the contract is not transferrable?  Do you have an outclause?

Travis

[Poplady1]

Buying or selling any type of a route with 3rd party machines involved can be very very tricky.  Even bringing everyone to the table, discussing the change over, getting handshakes, having lawyers involved and personal assurances from all will not prevent a change in management or some other odd event from happening in the future.

Even writing everything clearly in your contract will not cover everyone.  I am speaking from personal experience here so believe me when I say, be careful on this point.  You can be accused of fraud if you sell something you don't own including a route with bottlers equipment.  EVEN IF YOU STATE CLEARLY YOU DO NOT OWN THE EQUIPMENT.  

If the route you are looking at is a combination of bottlers equipment and vendors equipment it gets really sticky.  

Just my two cents.

Poplady

[andyinchville]

HI,

I don't know if this is a possibility for you but I recently purchased a route (recently being about a year now) , where the previous owner was  receiving commission checks from Pepsi and it was a breeze to have it transferred to me as the new owner

Absolutely no problem with our local bottler....Could you maybe get a similar situation going?

I think this is a little different than third party vending in that Pepsi does everything (stocks and fixes the machines if problems arise....I think in third party vending you have to buy the product  and stock machines)....All I do is locate the machines for them (I think they require me to have my snack machine there before they go in tho) and sit back and get checks

(they supposedly have minimums but even my smallest locations gets me $15 commissions every month....My best Pepsi Placement gets me about $150 per month and best of all it is totally hands off for me)...

Hope this helps.

Andrew