How to start a vending machine business?

Since the arrival of the first vending machine in 1888, the industry for grab-and-go products has expanded dramatically.

In the UK, the vending machine market has become a lucrative business opportunity for entrepreneurs looking to start a profitable small business or a rewarding side gig. 

Given the vast competition in the space, making an entrance could prove to be challenging. 

To help make this journey smoother and result-proven, we offer valuable insights and guidance on how to start a vending machine business.

Understanding the UK vending machine industry

Before you invest time, effort, and financial resources into setting up a vending business, it’s essential to understand the peculiarities of this specific market in depth. 

A brief overview of the vending machine businesses in the UK

According to a report by Reportlinker, the global vending machine operators market grew from £30 billion in 2022 to £33.50 billion in 2023. Forecasts for 2027 show that the industry is expected to reach £50.49 billion by 2027. 

For over a decade, the vending machine market in the UK has been steadily growing. With one vending machine for every 55 people in the country, there are roughly half a million vending machines in the UK that provide more than 7 billion items per year. 

Some machines can generate up to £4,200 in annual sales depending on the products sold. Considering that most vending machine businesses operate at least several units, we can confirm the significant sales potential in this niche.

A diverse range of options to choose from 

The beauty of starting a new vending machine business is that you can choose from various products to sell.

The UK has a growing demand for grab-and-go snacks, hot drinks, and candy. But there are plenty of other options you can select for your vending business. Some profitable examples include beverage machines or toy vending machines. 

Of all the available choices, there are a few vending machines that it’s key to familiarise yourself with:

• Speciality vending machines – Machines that offer unique products or services beyond the typical snacks and beverages. Some common items sold by a speciality vending machine include laundry products and portable power packs. 
• Bulk vending machines – Vending machines are designed to dispense small, low-cost items in bulk quantities. Examples include stickers, gumballs, toy capsules, and temporary tattoos.
• Food and beverage vending machines – A popular choice of vending machine that offers a range of snacks, meals, as well as hot and cold beverages. 

Later on in this article, we’ll offer tips and tricks for business owners hoping to select the right vending machine for their venture.

Advantages and disadvantages of starting a vending machine business 

The popularity of vending machines in the UK is no coincidence. Instead, it’s a result of several key advantages that the industry stands out with.

First, you can establish a successful business in this market without ever renting or purchasing office space. The commercial spaces designated for your machines are enough to build a customer base and run your business. 

If you’ve been dreaming of becoming a business owner and being your own boss or having a rewarding passive income, the vending machine space is an attractive option. With low-cost entry barriers, the market is suitable even for those who can only invest a few thousand dollars in their start-up. 

At the same time, there’s one core challenge to keep in mind – competition. Additionally, vending machines also require a time commitment for stocking, maintaining, and collecting money. 

It’s also worth mentioning that vending machines often become victims of theft and vandalism as they’re easy targets. It demands careful choice of location and extra layers of security.

How to start a successful vending machine business

Given the competitive nature of the industry, starting a vending machine business requires a bullet-proof strategy and a step-by-step approach. 

In this section, we outline the essential steps for getting started.

Step 1: Market research and business planning

Before purchasing and installing a vending machine, performing extensive market research and business planning is crucial.

Identifying target locations 

Location is one of the most significant factors influencing your vending machines’ performance. 

Choosing the right location requires strategic thinking and thorough research. 

The main objective is to identify areas with high traffic. However, this characteristic alone won’t be enough to guarantee year-round sales and profitability.

When assessing potential locations, make sure to prioritise those where customers’ spending power is suitable for the products you’ll be offering. Moreover, consider areas not affected by seasonality but provide a consistent customer flow. This will enable you to enjoy a steady income throughout the whole year.

The ideal location for a vending machine will also be reliable regarding safety and convenience. Opt for well-lit zones to ensure consumers feel secure and comfortable when purchasing items. 

Last but not least, check the accessibility of the location and make sure that you’ll be able to conveniently replenish products without delays or disruptions. 

The most popular choices of vending machine locations include:

• Schools and universities 
• Offices
• Hospitals
• Airports 
• Bus stations and train stations 
• Apartment complexes and hotels 
• Supermarkets, grocery stores, malls and shopping centres

Analysing competition, demand and profitability

Once you’ve pinpointed your desired location, think about your competitors and customer demand.

Research other vending machines in proximity to your selected locations. Identify the types of products being sold and find gaps in the market. Perhaps few competitors are offering a certain type of snack that is in high demand in the area.

Another vital component of your analysis should be profitability. 

Are vending machines profitable in general? Ultimately, this depends on the profit margins.

On average, vending machines have a gross profit margin between 20% and 50%. At the same time, net profit margins are usually around 2% to 10%. 

Keep in mind that these figures vary based on factors such as products sold, operating efficiency, and machine location.

Creating a business plan

We strongly recommend creating a detailed business plan to build a stable vending machine business. 

Establish your budgeting, pricing strategies, target audience, and revenue projections from the start. It will help guide you as the business expands and empower you to make the right decisions in situations of uncertainty.

A reliable business plan includes detailed information on the business structure, the ideal customers, and business finances. It also presents data on the costs involved in running the venture, business objectives, and more. 

Note that this document can be used to secure financing from investors for your vending machine business in the UK.

Step 2: Selecting the right vending machines

The second phase of the business creation process focuses on machine selection.

Earlier, we mentioned the wide variety of options available in the vending machine industry.

In this section, we offer guidance for making the right choice.

Evaluating vending machine options 

Selecting the ideal vending machine for your small business starts with a proper evaluation of all the available options.

First, decide on the type of products you’d like to sell. This choice should reflect your market research findings, such as profit margins and profitability, competition, and target locations.

Second, consider whether you’re willing to invest in new machines or purchase refurbished ones. While new machines require a larger financial investment, they’re also associated with lower maintenance costs and advanced technological features. 

For instance, purchasing a new smart vending machine means delivering preferred capabilities to shoppers. Some of the most recent solutions on the market accept various forms of payments, offer real-time inventory updates, and gather customer behaviour data. 

AI-powered vending machines can improve inventory management and make demand predictions. Features like facial recognition for personalised payments and targeted advertising are also on the rise. 

Many vending machine operators choose new options as they promise convenience and savings in the long run. However, you can also take advantage of quality refurbished machines if you’re penetrating the market with fewer financial resources.

Considering additional factors

Before you make your choice, explore the vending machine offering in detail. Collect data on the vending machine options on the market, considering size, capacity, features, and prices. 

The size of the machine must be suitable for the available area at the chosen installation location. Your machine’s capacity, on the other hand, will determine how often you’ll need to restock inventory. 

While the average vending machine features include item stocking and money collection, smart vending machines provide internet connectivity, sales tracking, advertisement segments, digital payments, and even phone card top-up services. 

When it comes to vending machine prices, the rates vary depending on the type of machine, its capacity, size, and features. 

For example, most soda vending machines can be purchased for £2,500 or more. Simple hot drink vending machines with 100 cups and 10 drink varieties can cost between £1,000 and up to £2,000. However, the same machine can cost up to £6,500 if it supports 1,000 cups. 

Once you’ve established how much your desired vending machine costs, don’t forget that additional expenses exist. 

These include:

• Insurance – Usually around £400 for over £80,000 in annual sales
• Location-based commissions – Spanning from 5% to 25% depending on the location and the property owner 
• Credit card fees – Ranging from 5% to 6% in most cases 
• Taxes – Normally from 10% to 37% of adjusted gross income
• Maintenance – It varies based on the machine type and the use intensity. However, on average, the yearly maintenance costs per machine are between £80 and  £350. 

Overall, securing £4,000 from a vending machine monthly would result in around £1,600 in profit.

Importance of compatibility with payment solutions

When exploring different machine options, it’s key to explore the available payment solution options. 

In today’s digital age, customers increasingly prefer cashless payment methods like credit or debit cards, mobile payments, and contactless transactions. Vending machines with a diverse range of payment options offer unmatched convenience and flexibility, making them preferable to others. 

By supporting cashless payments, vending machines can capture a broader customer base, resulting in increased sales. This not only expands the potential customer pool but also encourages impulse purchases.

Step 3: Securing locations and obtaining permits 

You’re now ready to start reaching property owners and receiving permits for your vending machines.

Approaching potential locations and negotiating agreements

Considering your business objectives and market research, make a list of potential machine locations for your vending business. 

Next, establish who manages or owns the location. Using channels like social media, word of mouth, or other outreach techniques, collect contact information on owners and get in touch with them. 

Set up a professional meeting and present your business idea. Point out the benefits of placing a vending machine in the desired location and be prepared to answer any questions. 

Remember, placing vending machines at another owner’s location requires additional payments, usually ranging from 5% to 25% of gross sales.

Obtaining necessary permits and licences

Entrepreneurs must have a permit to own and operate vending machines in the UK.

The application procedure, however, varies across local councils. 

In some areas, you’ll need to obtain a peddler’s certificate, which allows you to trade on foot (applicable only to some products). Depending on your location, you may also need a street trading licence. 

If you’re selling food and beverages, you’ll be classified as a food retailer. In this case, you must register with the local authority at least 28 days before opening for business. To be approved, you’ll need to pass specific standards related to safety and hygiene. 

Apart from the mentioned permits, you’ll also require a business licence to create and run a business venture.

Step 4: Procuring inventory and managing suppliers

The fourth phase of creating a vending machine business is dedicated to inventory and suppliers. 

Sourcing products and negotiating with suppliers

The priority throughout this step is to identify quality products with satisfying margins and establish strong relationships with reliable suppliers who can provide them for you. 

When selecting products, it’s essential to consider the preferences of your target market. Consider the options that are in high demand and negotiate with potential suppliers to obtain competitive pricing. 

Most business owners in the vending industry shop for products from the nearest supermarket. However, this approach has limitations as it doesn’t offer possibilities for a margin increase. 

Working with wholesale suppliers instead could potentially lead to much more fruitful returns. 

When evaluating suppliers, prioritise those with a proven track record of quality items, quick deliveries, and 24/7 customer service.

Implementing inventory management systems

Once you’ve created your product list, it’s essential to implement robust inventory management systems. This will enable you to manage inventory levels efficiently and minimise waste. 

You can choose between software solutions or manual tracking methods to monitor inventory levels, track sales data, and identify trends. 

We strongly recommend opting for digital solutions over manual alternatives due to the industry’s dynamic nature. Software management can eliminate risks of manual error and can deliver time-related benefits. 

Don’t forget to establish reorder points and replenishment schedules to guarantee that your vending machines are always well-stocked. 

Step 5: Providing payment solutions 

Earlier, we mentioned that compatibility with payment solutions is crucial when purchasing vending machines.

Here’s all you need to know about payment solutions and vending machines.

How does a credit card reader for a vending machine work?

Credit card readers for vending machines are unattended payment solutions that operate similarly to those found in traditional point-of-sale systems. At the same time, there are some adaptations to accommodate the unique requirements of vending machines.

Usually, customers can swipe their credit or debit card or tap it if the machine’s reader supports contactless payments. Next, the credit card reader encrypts the payment data for security purposes. The ciphered payment data is then transmitted to the payment processor or bank for verification.

The processor authorises the card details and sends back a response to the vending machine’s credit card reader indicating whether the transaction is approved or denied. In cases of approval, the vending machine dispenses the selected item while the credit card reader confirms the process for the payment processor. 

Transaction details are recorded by the processor, and the funds are transferred from the buyer’s account to the vending machine operator’s account.

Top 6 reasons to get a credit card reader for your vending machine

Implementing a credit card reader for your vending machine offers many advantages. 

The key benefits are:

• Security – Cash payments are considered an insecure payment form due to risks of fraud, theft, and other scenarios. Cashless transactions minimise the risk of theft and vandalism associated with cash-handling vending machines. 
• Efficiency – Credit card payment solutions reduce wait times and eliminate errors associated with handling cash. 
• Customer convenience – Credit card readers help create a sanitary vending experience where customers no longer have to carry cash.
• Hygiene improvements – Cash payments are popular for hygiene-related risks due to the bacteria and germs they harbour. By eliminating the need for physical currency, credit card payments reduce contamination risks.
• Tracking – Credit card readers enable vending machine owners to store and monitor essential data and insights related to sales, inventory, and customer behaviour. 

Key features of credit card readers for vending machines

When it comes to getting a credit card reader for your vending machine, there are several features to look for. 

Most modern-day credit card readers for vending machines provide contactless payments like tap-to-pay or mobile wallets. This feature enables shoppers to enjoy quick and secure transactions without swiping or inserting their cards. 

EMV (Europay, Mastercard, and Visa) chip card compatibility is another preferable capability as it boosts security by encrypting payment data. Make sure that advanced encryption algorithms and security protocols are present to secure sensitive payments, preventing unauthorised access.

Where possible, look for multi-channel connectivity which supports Ethernet, Wi-Fi, and cellular networks. This guarantees stable and undisturbed communication with payment processors, facilitating transactions in different locations. 

Another feature to look for is integration with vending management software. Some credit card readers allow operators to monitor sales, track inventory levels, and assess customer preferences in real-time. In addition, remote management features permit owners to monitor credit card reader status remotely, perform software updates, and troubleshoot problems without physically accessing the machines. 

On some occasions, the user interface can also be personalised to match the branding of your vending machine business. 

Most importantly, ensure the selected credit card reader complies with industry standards and regulatory requirements. 

Factors to consider when you choose a card reader for vending machines

To select the best card reader for your vending machines, you should consider specific factors.

They are the following:

• Compatibility – Check if the reader is suitable for your vending machine model and evaluate the integration process.
• Supported payment methods – Some of the most popular options include magnetic stripe cards, EMV chip cards, contactless payments, mobile wallets, and alternative payment options. Select the reader that provides flexibility and supports a wide range of customer preferences.
• Safety capabilities – Prioritise options with encryption of sensitive information, compliance with standards and regulations, tamper detection mechanisms, and secure authentication protocols.
• User-friendliness – Assess whether the interface is easy to use and convenient for customers. Features like intuitive menu navigation, clear instructions for initiating transactions, and responsive touchscreens or buttons are preferable.
• Connectivity – Examine the available connectivity options such as Ethernet, Wi-Fi, Bluetooth, or cellular networks. Select the option that guarantees reliable and secure connectivity in various vending locations, including indoor and outdoor.
• Costs – Compare upfront costs and associated fees or charges, such as transaction fees, processing fees, and ongoing maintenance costs.

Step 6: Maintaining your vending machines

Establishing reliable machine maintenance practices and procedures is the final phase of starting your vending business. 

As noted above, vending machines are often subject to vandalism and theft. But you’re also likely to experience occasional machine failure as a result of frequent use or malfunctions. 

To avoid having to replace machines frequently, we advise regular maintenance and care. In most cases, it’s recommended to perform machine checks and troubleshooting every 60-90 days. This will allow you to identify potential challenges in advance and reduce maintenance costs. 

The following best practices will enable you to keep your vending machines healthy and operating for longer:

• Make sure the external parts of the vending machines are kept clean.
• Regularly inspect the cash-accepting mechanism of the vending machine if it accepts cash payments.
• If you’ve noticed malfunctions, ensure that the machine is repaired instantly to prevent additional damage.

Conclusion

Overall, vending machines offer a lucrative opportunity to create a side business and become a successful entrepreneur. 
Like any other industry, this market goes hand in hand with multiple peculiarities and specifics that it’s essential to be aware of. With adequate preparation and informed decision-making, you can establish an attractive vending machine business with the potential to grow and thrive in the years to come.

Frequently Asked Questions

Is the vending machine business profitable?

Yes, running a successful vending machine business is considered a profitable venture. However, the profitability levels of your business will ultimately depend on your strategy, selected items for sale, and investment costs.

Generally, gross profit margins in the vending industry range from 20% to 50%, while net profit margins are usually around 2% to 10%

What are the challenges of the vending machine business?

Some of the core challenges of starting a vending machine business are related to aggressive competition and risks of theft and vandalism.

An inadequate strategy or poor selection of management systems could also create issues with inventory management and machine failures.

What are the benefits of credit card readers for vending machine businesses?

Credit card readers offer more convenience for shoppers, eliminating the need to carry around specific amounts of cash to complete a purchase. This payment method caters to a wider customer base, expanding sales and encouraging higher transaction values. Most systems also provide remote monitoring and management, enabling operators to track key data in real-time from a centralised location.

How to choose the right card reader for your vending machine?

It’s important to analyse key features and capabilities in advance. Some of the core components to check include installation and integration compatibility, connectivity, payment methods, safety systems, and user-friendliness.

Don’t forget to consider all costs associated with your vending machine, including upfront purchase costs, fees, charges, transaction fees, and more.