Vending Machine Location Contract Demystified
A vending machine contract is a formal agreement between a vending machine operator and a location owner (often a business or commercial property) regarding the placement and maintenance of one or more vending machines on the location owner’s premises. These contracts are essential because they set forth the terms under which the vending machine operator obtains access to the location in exchange for profit-sharing, placement fees, or a rental arrangement.
A typical vending machine contract covers a range of key components: At its core, a vending machine contract serves to protect both parties’ interests. For the vending machine operator, it provides legal coverage to maintain and service their machines and to collect the profits stated in the contract . For the location owner, it outlines how the operator will use the space, prevents unauthorized users from accessing it, and establishes any liabilities the operator will incur should any damages occur.
Both the vending machine operator and the location owner have specific, advantageous reasons to enter into a contract. Without a contract, there would be no formal agreement of who would be responsible for restocking the machines or repairing them if they were broken. The contract also protects the business against theft or vandalism. A contract should, for example, stipulate that if the machine is stolen then the operator will replace it with a new one.
Essentials of a Vending Machine Location Agreement
At a minimum, a vending machine location contract should include the following:
Duration
Vending machine placement agreements should set forth a term – the period of time the machine will remain in place and/or the period of time that the placement agreement is in effect. As with any contract, lessors and lessees have room to negotiate their own terms. It is probably not in a vending machine operator’s best interest to enter into a long-term contract for placement because establishing a new location can be expensive and relatively time-consuming.
Payment terms
The placement contract will set forth payment terms including frequency and amount of payments to the property owner. The property owner will want to set specific terms for minimum monthly fees and payment frequency (for example, once a month minimum). The vending machine operator will want to be able to pay based on number of machine transactions or net profits. The operator clearly wants to be flexible in his payment terms. The method of determining minimum monthly fees and profit sharing should be discussed in the contract. Retailers will want to set a minimum monthly fee that is tied to a percentage of their sales. For example, if a retailer sells $20,000 a month via vending machines in his stores, then he will want a minimum monthly fee based on $500 per store per month.
Location
The placement contract will set forth the exact location for the placement of the vending machine. The property owner will want to require the operator not to move the placement from the designated location without the owner’s consent.
Maintenance and repair
The contract should set forth which party is responsible for maintaining and repairing the vending machine and its contents. Typically, operators will be responsible, at their own expense, for service, maintenance, inventory and keeping the equipment clean.
The Upside of a Well-Written Vending Machine Placement Agreement
When it comes to vending machine placement, having a well-defined contract can save you from several pitfalls. The following are just a few of the advantages of a solidly written contract.
Legal Protection
A well-written vending machine location contract should provide both parties with a measure of legal protection. For example, if the location decides to end the agreement early and the machine is removed without notice, than the vending machine operator has legal protection if there is a clearly written contract. If no contract is in place, the operator may have no recourse.
Clear Expectations
For a contract to be successful, it should define the expectations of both parties. It should clearly state the procedures for the type, placement, frequency of product deliveries, compensation, sales commissions (if any), and more. If changes are needed, they should be addressed in writing and signed by both parties. This makes it easy to refer back to the original contract for compensation, if the need arises.
Conflict Resolution
Disagreements often arise at the vending machine location. The vending machine may not be working properly, it could be empty or understocked, the sales commission could be incorrect, or the location may want to end the agreement in the middle of the contract. When these type of events happen, the vending machine operator has legal protection if the contract has been clearly written.
Frequently Raised Legal Issues
While vending machine contracts can substantially benefit both the operator and location, they are not without a host of potential problems and legal issues. In order to avoid conflict, liability, and even termination, you should make sure your contract addresses as many important legal considerations as possible. One of the most common conflicts we see between vending operators and locations is when equipment breaks down, and the vending machine is put out of service until repairs are made. If a vending operator places fewer products in the machine than there are slots available, the operator runs the risk that the location will request a refund for the full amount of money put into the machine, and not just for the products sold. By agreeing on an acceptable number of products to stock the machine with at a level that can support any mechanical issues, such as a broken vending coil, you can avoid issues altogether. Another common issue is liability, and who exactly is liable for both personal injury and property damage. In the event that someone is injured while using a vending machine, who is responsible? And how much are you willing to pay for damages? And further, will your insurance cover you in case of a claim or judgement against you? Termination clauses are another area of concern. In any contract, you are at risk if either party has an easy-out. Has your termination clause is written so that it is near impossible for your vending location to terminate? Have you finalized the terms of termination, including an advance notice period, and how each party involved will be notified? When it comes to terminating a vending contract, you should make sure that everyone is on the same page, and both parties are aware of their responsibilities.
Negotiating a Vending Machine Placement Contract
As with any contract, the key is to know what you need and then have the fortitude to negotiate for it. The importance of covering key points is often overlooked by those who feel being light-hearted and jocular will garner favor or that allowing the other party to be unreasonable will prove beneficial because of the karma involved. Karma has nothing to do with business.
The key points for vending machine location owners are:
- Location exclusivity
- Location obligations
- Vending machine traffic and sales
- Vandalism and theft coverage
- Liability coverage
The key points for vending machine operators are:
- Early termination provisions
- Removal of machines (either party)
- Return of products (either party)
- Payment of commissions and frequency of payment
- Taxes
- Indemnity provisions
- Liability coverage
Once you have drafted your contract with these key points in mind , you will be ready to negotiate. It is at this point that your negotiating skills will be tested. There are two important things to remember from this section: First, don’t immediately show your hand. Set the terms you see as critical aside and be willing to compromise on everything else. Second, don’t deviate from your prepared contract. It is easy to be sidetracked in a negotiation, but you need to maintain your position and show why it is in the other party’s best interest to agree with you.
The Art of Contract Management
Effective contract management extends beyond the negotiation and execution of the vending machine location contract. To gain the most from this valuable marketing channel, operators should make contract enforcement, renewals, and amendments an ongoing process. Running and managing a vending route is akin to running a small business. A smart vending operator needs to stay on top of the day-to-day operations in order to get the most out of each location.
Help secure the best placement possible for your vending machines by retaining full responsibility and control over each one by not giving away any terms that have not been agreed to or renegotiated. Contracts, once signed and effective, should be reviewed at regular intervals by the operator to ensure the vendor is complying with all of the provisions. If not, the operator should treat the matter seriously and seek compliance with the contract terms in order to prevent further breaches, including taking or initiating legal action if warranted. It is advisable that vending operators have breach procedures in place as part of their operations manual.
In addition, operators will have to reconcile their break-open boxes and put their cash together every day at a minimum. The best vending operators are diligent about reporting their activities regularly so that adjustments can be made promptly, payment can be received without delay, and they can better track their performance.
In most cases vending machine placements and locations are done on a month-to-month basis. But from time to time an operator may want to consider an amendment to the original contract. A good business operator will routinely evaluate whether or not existing contracts have become stale or need updating. This may be due to a number of factors, such as the length of time that has passed since the contract was initially struck, or when a new competitor has gotten far too comfortable with the existing terms. In these cases you may want to go through the process of renegotiating the contract in order to protect your business.
Illustrative Examples
To understand the complexities that vending location contracts might present, it’s helpful to consider real world examples. Take, for instance, the case of a college campus vending business that signed a contract through a vending brokers’ services for three, five-year slots to provide drink and snack services on these two-year cyclical campuses. Knowing those contracts would end, this company did not renegotiate the renewal terms. The brokers’ contract did not discuss or include the details of what happens in year three and so when the contract ran out, this company was displaced from its vending routes in order to avail that opportunity to a different provider. Over time, this same company lost all of its campus contracts, despite making dozens of attempts to meet with the college to explore what might be negotiated or to determine what the process would be to reapply for the competitive bid in future years, on what basis. In the end, this business chose to opt-out from the school districts as a contractual vending location of any kind . Alternatively, one national vending company saw a competitive bid come up in a state with an extremely low population, including an elementary school and a high school. Those two tiny contracts were worth $50,000. A competitive bid process had included the requirement for the vendor to submit a response by mail through registered, priority mail, which added extra expense. After submitting the proposal, the company never heard back; the terms weren’t renegotiated, and even though the vendor’s offer included replacing some ice cream machines, they heard to the contrary that some of those were replaced by another vendor. Rather than auto-shifting to the next school year’s bid process, the company got no response. Today, these schools are serviced by other vendors as well; while every company should have a plan for unfulfilled contractual vending location, most vending companies tend to establish only the simplest of back-up plans.
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