Vending Business Tips
An interview with, Larry towner
On This week Podcast larry gives us Vending Business Tips
Tom Shivers: I’m Tom Shivers with the Vending Business Show, here with Larry Towner, who sold the majority share of his 15-year-old vending business a few years ago. He now mostly provides consulting. Today, we’re going to talk about how to start a vending business.
Tom Shivers: Larry, thanks for being here.
Larry Towner: Thanks, Tom. It’s a pleasure.
Tom Shivers: You know, sometimes, people who are in the market for something have good questions, but don’t realize there are questions they should be asking, but aren’t. Do you find that to come up? Do you find that to be true?
Larry Towner: I do find that to be true, Tom. What we have a lot of is, in the vending vending business tips is, you have people that see a person that’s in the vending business, or works for a vending operator, and they look at the business, and they say, “Boy, that’s great,” and they look and they see all this money that they get taken out of the machines, and they just say, “Man, that’s the business for me.”
Larry Towner: Then they go, and they’re reading through the paper somewhere, the newspaper, or they see an opportunity on the internet, or they see an opportunity in a business opportunity magazine, or something saying that the vending business is one of the great businesses to be in. So they inquire in that, and they go to a hotel ballroom, and they get essentially pitched to what we call a “blue sky promotion,” that just says, “Oh, it’s great, and you can make all this money, and you’re … It’s a hundred percent margin, and you’re buy it for a quarter and sell it for 50 cents. You can’t lose,” and things like that.
Larry Towner: And one of the things that I’d like to talk to people about when they’re starting a vending business, is to do really a good business plan, or at least sit down and run a few numbers through the business, a business plan type. Figure out if you were to purchase equipment, how much product do you actually have to sell at what rate, meaning how much profit do you make, before you actually go and buy equipment, because a lot of people don’t realize that, at the end of the day, if you buy something for a quarter and you sell it for 50 cents, you still only make a quarter, and it takes four quarters to make a dollar, and if you’re making $500 a week, you have to sell four items to make a dollar, times 500, or 2000 items a week, just to make what we would call your “single net profit.” Meaning, after you pay for your goods, just to make that much.
Larry Towner: Now, that doesn’t include paying for your machines, or paying for your insurance, or paying for any of the number of things that it takes to actually run a business, and … because you’re not just gonna go out there and set these machines, and all this money’s gonna come to you, and you’re gonna end up with it all. It doesn’t really work that way. And that’s one of the big mistakes that I see people make continuously, and when I draw their attention to this, they kind of go, “Well, I never really thought about that. I never really thought about this. I never really thought about that.” And that’s one of the big questions that, or things that people have to do when they start a vending business.
Larry Towner: Also, in these “blue sky promotions,” is what we call a “blue sky promotion,” they tend to sell very small combination machines, and these machines have anywhere from nine to 12, maybe 18 selections on them, and they only run six or eight or maybe ten selections deep. And the funny thing is, is that with that piece of equipment, you can never make money, because you [inaudible 00:03:22] generate enough profit out of that machine to even justify your stop. So, and when I say stop, I mean your service stop, going to the machines to refill them. The machine would have to be completely empty before you could even approach making the stop. And again, this just goes back to planning. If you understand this beforehand, you can look at it down the road and understand that what they’re selling you is really things that are not appropriate.
Larry Towner: I still get phone calls from people wanting to sell me this equipment that they bought in a hotel ballroom, and they paid $400 a machine, and I say, “Well, they’re worth about 20 bucks.” [crosstalk 00:03:57]
Tom Shivers: Wow. Well … What, what –
Larry Towner: [crosstalk 00:03:59] first thing I see.
Tom Shivers: Uh-huh. Well, what kind of person tends to do well in the vending business?
Larry Towner: Well, that’s another great question. It’s one of the first questions that I ask about, about vending. They look at it, and they say … it seems like it’s a trend in people’s minds, “Man, that looks like easy money. That just looks so easy. All you do is fill those vending machines and take the money out.” And what they don’t realize is what’s on the back end of running a vending company.
Larry Towner: What they see is really the … about the shortest period of time that you have in the vending business, and when we address this issue, to address your question, “What kind kind of person does well?” the first thing that we like to say is, “Do you like to work?” Because if you don’t like to work, you’re really not gonna do well in the vending business.
Larry Towner: We … We’ve done a long analysis on vending companies and things like that, and the average driver starts at, you know, and if he works for a big company, starts at four or five in the morning, and he finishes on average, about five or six at night. He works about a 12 hour day. Of that 12 hour day, he spends approximately three … two to three hours loading his truck out of the warehouse. That’s where, of course, it all starts, and at four o’clock in the morning, he’s taking all of the product that he … that the warehouse manager has brought into the warehouse, he’s putting what he needs on the truck, even with a computer-generated list, it still takes a long time. He moves that … all that product up into the truck, stacks it, puts it into his route order, and things like that. That’s the first step.
Larry Towner: The second step is, he goes out and he sits in traffic for a while. He gets to the stop. He has to then unload all the things that he needs, drags it into the place, spends 15, 20, 30, maybe an hour, filling the machine. Then he picks up the money, and then he leaves and he goes to his next stop, and what he does is he does this over, and over, and over, every single day, for … usually eight to ten hours, doing those kinds of activities, and it takes a real work ethic, and you need to be fast and efficient. So, the kind of personality it takes is, it takes a person that likes to work.
Larry Towner: When I started in the vending business, the fellow that taught me the vending business was actually a Harvard Law graduate, and he was in the vending business for most of his professional career. Coming out of Harvard Law, he chose not to practice law, he [inaudible 00:06:16] as a business thing.
Larry Towner: But he always … We always started at about ten o’clock in the morning, but we worked until midnight. So, he just kind of reversed the clock. He did it for reasons, we were working in the greater Boston area, and he … He knew the traffic patterns better than the traffic patterns new it, so we were counter-traffic all the time, which was tremendously advantageous to us for doing that.
Larry Towner: But you can figure, if you’re gonna be in the vending business, if you work … If you don’t work an eight hour day, that’s a very rare day. So the first thing is, work hard. The second thing is, you need to be very focused on efficiency and being very efficient with your time. Your motions need to be choreographed. You need to be very detail-oriented, because you’re gonna need to understand what … You have to do a forecast when you go to purchase product. You need to have a forecast when you go to get in the truck that day. You just don’t jump in the truck and go to the stop. You need to say, “I’m going to this stop, that stop, this stop, that stop,” and, “What product do I actually need for this stop and that stop?” Because each location will have a different set of selections of products that they prefer, and so, in that sense, you need to be very detail-oriented.
Tom Shivers: Mm-hmm (affirmative)-
Larry Towner: The other thing that’s very helpful when you’re starting a vending business, is to have your eye on the numbers. You don’t have to have an accounting background, but at the end of the week, you need to sit down with … in some quiet time, and really put your numbers into an accounting program that work. I personally use QuickBooks. It works … It always worked well for me. But any kind of accounting software [inaudible 00:07:47] software. It really doesn’t matter.
Larry Towner: But really understand what your costs are. Understand what your expenses are. Understand how much money are you actually making, because if you don’t do that, you’ll get yourself into financial trouble very, very rapidly, and it’s extremely hard to dig out of it once you … once you get wrapped into it. So a little basis in accounting is very, very helpful in the vending business.
Larry Towner: Another thing that’s … that people overlook, too, is that those machines just don’t walk themselves into the doors out there. They, they … You have to be … have a bit of sales ability to go out and actually sell out into these accounts. So … And you don’t have to be a salesperson, per se. You just have to have some sales ability, and you need to be able to ask the right questions, and things like that, to generate business. You will be … It helps to have some sales background, but again, it’s not necessary, but you have to understand how to sell and what your competitors do and things like that. So sales ability is important.
Larry Towner: The … One other thing that’s really important is you have to have either access to somebody that can do repairs for you, or you have to be able to do repairs yourself. One or the other, because you’re gonna have problems that come up with your equipment. It is inevitable. You will have … There’s various different degrees of problems that come up in the vending business. Some of it is easily solved. Some of it is not so easily solved.
Larry Towner: But you have to have somebody that’s somewhat technical, and you have to understand how the vending business works. And one of the biggest things that happens in the repair side is, you’ll have a changer or validator, which is the parts that the money will not function properly. And you need to be able to troubleshoot those real quick, and figure out, “Is it something I can fix with it on the machine? Or do I just swap this equipment out?” And we always carried on our trucks, we always had extra validators and extra changers on the truck. If you have a problem, the worst thing you can do is leave a machine that doesn’t take money, and that’s also one of the simplest repairs, because it’s turn the machine off, just take the piece of equipment off, put a new piece of equipment on, turn it on, give it a couple of tests, and you’re ready to go. So, you have to have somebody that’s somewhat technical, that can do some repairs, either have availability to it, or have that ability yourself.
Larry Towner: And then the other thing is, is just … You have to have good business sense, and … You don’t have to have great business sense, but you just have to have good business sense. You have to understand when you’re talking to a customer, and it doesn’t matter who you’re talking to. You could be talking to the President of the company, and you’d never know it, in many cases, because they come to the vending machines, and you don’t know who they are, and I’ve seen many, many, many a route man, and many, many a business owner absolutely lose accounts because they just don’t have good manners, for lack of a better word. They’re rude to the customer, and they’re talking to the wrong person. They don’t realize who they’re talking to, and they’re out the door.
Larry Towner: So, those are some of the things that you need. You need a good, strong work ethic. You need to have a bit of sales ability. You need to have a bit of mechanical ability. You need to have good business sense, and you have to have just a little bit of accounting ability. And all of those things, you can hire out, but you really need to understand them on a kind of a base-level. You have to have a basic understanding of all of those aspects of the vending business.
Tom Shivers: Yeah. That sounds like a … a team, actually.
Larry Towner: Well, it’s a team, but all of those aspects are not impossible for one person to do. I know, in my case, I did all of that. I was … I had a background in repair, and I had a background in sales, so it was real simple for me to do the sales and the repair part. The business sense comes out of the sales for me, so treating customers properly always was real simple for me, ’cause I always figure, if you take care of your people, they’ll take care of you, and then … The accounting, it took me a while to really understand the accounting. I have to be honest. It probably took me two or three years before I fully understood what I was really looking at. That’s something you can kind of work your way into, but at the same time, you do what to have it … You want to have somebody that can help you understand it, if you accountant or whomever, can explain it to you, it’s very, very helpful, so.
Tom Shivers: Mm-hmm (affirmative)-
Tom Shivers: Yeah, it’s real good.
Tom Shivers: In addition to the Vending Business Show, right here, what are some good information resources to help people get off to a good start?
Larry Towner: Probably one of the best support places that you can go to to get good information would be your local equipment distributor, and you want to find a reputable equipment distributor. Now, we’re here … I’m here outside of Atlanta, Georgia, and I use A & M Equipment exclusively, and Joe Nichols at A & M is a wonderful guy, and he’s been involved with the vending business for … well, really, his whole life, more than 40 years, and his ability to give you the information that you need, and all of these questions that I can answer for you, he can answer just as well. He has a refurb shop, and does things like … sells machines out to people.
Larry Towner: But he sees the industry on a much broader base, and he understands what works and what doesn’t work, and he can tell you without a doubt, whether or not … even to the account sizes. If you go in and say, “I’m looking at an account that has 75 people. It’s largely a white collar account. It’s this and that.” He can give you a pretty good synopsis on what that account’s gonna do.
Larry Towner: So, that’s one source, is to have a good equipment distributor, and he … A good equipment distributor will help you in many, many, many ways. They can help you with the repair side. They can help you with the sales side, to a certain degree. They can give you an analysis ability that you will have from experience, because they see all the vendors in town. They understand.
Larry Towner: And the other people that I’ll refer to are the same way. You see … They see it at a much larger base. They look at 100 different people. They know what works. They know what doesn’t work. It’s kind of that kind of thing. So, you’ve equipment issuers.
Larry Towner: Same thing would go with a good product supplier. If you go to, not so much like a warehouse club, because they don’t really know anything about it, but you go to an actual vend distributor, somebody that distributes out to all the various different vending companies in your particular area. They know what works, and what doesn’t work.
Larry Towner: They can also give you help on doing your marketing in the account, meaning … Each machine needs to be set up in a certain way, and so you … they will tell you what products really sell and what products don’t sell. They can usually give you an idea of what products sell to what particular demographic, and when we say that, we say … If you have an office full of women, for example, that’s a totally different set of products than if you have a … concrete facility where you’ve got 25 truck drivers. It’s just that it’s night and day. What sells in that concrete plant won’t sell in that office. So, a good product distributor that can help you with some of those information is a great place to find. And these guys are all local.
Larry Towner: There’s also the national organizations, and usually, there’s a state organization. There’s the National Automatic Merchandiser’s Association, or NAMA, and they can give you the numbers and the concepts on the whole industry as a whole in the United States. They have a tremendous resource base. They can tell you what works, what doesn’t work. They give you … They actually have formulas for what a proper numbers should look like in your vending business, as far as from your accounting standpoint. They have all kinds of information on equipment, and things like that. They do tend to promote who advertises with them, so you kind of have to be somewhat careful with that, but that’s gonna be typical of all of them.
Larry Towner: In an association, there’s also like state associations. In Georgia, there’s the Georgia Automatic Merchandiser’s Association, which is a local state organization, with the same basic concepts of the National Automatic Merchandiser’s Association, but it’s a little more specific to the state. If you have any kind of legal issues within the state, and things like that, they can help you out with that. And not that there’s a lot of legal issues, but mostly it has to do with paying your taxes, and this and that, and that kind of thing. They can help you out with that.
Larry Towner: So, you’ve got national organizations, state organizations, good local distributors for both product and/or for equipment, and then the other resource is actually go find some of your competitors, and now … Don’t go for your direct competitors. Don’t pick the guy whose town you’re trying to work in, or somebody whose accounts you’re calling on, but in general, if you go out and you find …
Larry Towner: My opinion was, I looked at somebody that was across town from me, and in Atlanta, that’s about an hour away. So, an hour away, we have very little cross. It was very, very rare that we would run into each other, and I would get tremendous information on what’s selling, what’s not selling, who’s looking for accounts, this and that. They would send me leads, because they would get a call on an account that was way out of their operational area, and they knew I was in that area, and they would say, “Hey, this guy’s looking for an account. Give him a call.” And so … and then also, tips on working a particular area, even down to things like traffic.
Larry Towner: I mean, you can get all kinds of things from what we … what I call a “friendly competitor,” and you kind of have to have a code with the friendly competitor. Basically, if you’ve got somebody that’s doing a good job … My whole philosophy is, if you’ve got somebody that’s doing a really good job on a vending account, leave them along, ’cause there’s plenty of people that don’t do a good job, so you can take accounts from them. You don’t need to take accounts from good vendors that are doing a good job, and offering things out at the right price and things like that.
Larry Towner: So, that gives you a pretty good resource base to work with, just at a cursory start, and that would be, go to a good equipment distributor, a good product distributor, go to the national organizations, the state organizations, and see if you can rustle up a friendly competitor, or maybe a couple of friendly competitors. I personally have about four or five people up in strategic points all around the greater Atlanta area that I talk to on a fairly regular basis. So, that’s a place to start.
Tom Shivers: Alright, great. Well, thanks for sharing, Larry. Tell us about your business and what you do.
Larry Towner: Well, what we do is we still … We’re still have a few vending accounts out there. We work mostly on the very, very far north side of Atlanta, but what I also do is, I do spend a good portion of my time consulting with people that want to get into the business. I’m extremely reasonably priced. I really don’t even charge for an initial consultation. If somebody wants to get in and really go into a deep analysis, and really wants to make a thing, we charge very modest rates for that kind of thing, and we can also steer them the proper way on equipment and all kinds of information like that. Give them the kind of the thing that makes them a good deal.
Larry Towner: Basically, my goals are, if I don’t make someone money, then I’m not gonna charge them anything for it, anyway. So, that’s basically what we do.
Tom Shivers: Well, you’ve been listening to the Vending Business Show, a publication of A & M Equipment Sales.