March 24, 2022

Article

Are you a dairy farm looking for an extension of your own business rather than a completely diversifiedenterprise? Are you considering direct sales? Still the sale of milk but to a completely new customerbase - the consumer. Although in many senses it is turning the clock back to supplying milk directlyfrom the farm to the local community this time it is using technology to offer fresh milk, direct to theconsumer 24/7 with the provenance many desire today.

A milk vending machine can help you connect more with your local community and create some positive PR for the dairy industry which has taken a bit of a hammering over recent years.

This article will look at how to approach such a diversification, considering research, business plan, returns and ongoing commitments. Although we are focusing on Milk Vending Machines these titles can be used when considering any type of diversification.

Research

Research is incredibly valuable - positive and negative feedback should be considered.

Your milk contract is crystal clear what your customer wants - the conditions are listed, and you are rewarded or penalised when marked against the desired criteria, whether it be on constituents, volume, temperature, contamination levels etc. However, you now need to gain an understanding of what your new potential customer wants.

wants. Just as it is important to meet the criteria of your milk contract it is important to meet the desire of your consumers from the vending machine to ensure you retain that customer.

As this is unlikely to be your main revenue stream it is important to check your contract and contact your milk buyer to ensure that such private sales are not prohibited. Your core business is likely to remain unchanged and therefore maximising your milk price here is still likely to provide you with the best returns. It is important that, despite investing in the vending machine, you do not lose focus of your main contract.

Knocking on doors, running Facebook campaigns, or asking local community groups can all be great ways of understanding the demand a little more. It is at this point that you should consider what your offering will look like. The milk, is it raw milk or pasteurised milk? Although raw milk certainly offers a unique selling point (USP) and will save the investment that pasteurising requires, you may be restricted depending upon your TB status and the potential location of your vending machine. Also, are you hoping to offer milk, milkshakes, and coffee? Are there going to be other products on sale as well? Where would be a suitable location?

Plan

Often the ideal of putting plans down on paper is dismissed by many farmers unless it is the back of an old envelope. Writing up your plans can be helpful, allowing everyone to see your vision and help it become a shared vision. It also, ensures you are focused on the goals, and it may be required if you require external funding for the capital. Similar to funding any other on farm development you will also need planning permission from your local council and support of your local Environmental Health Department.

Although plans should remain flexible, and able to evolve, when considering the critical factors such location of the machine, customer parking and your milk handling facilities, ensure you plan for future growth - always allowing more space for capacity should it be needed. The location ideally needs to be convenient for both you and the end consumer, with good access, electricity, water and potential security. For some, this is not possible, and they will be required to locate it further away from the farm creating less efficiency but this may be a good compromise if it leads to a much greater customer base resolve, such as near retail sites, commuter routes, public spaces, pubs etc.

In order to develop a good relationship, you need to do as you say you will and problems quickly. Communications need to be clear, whether this be opening times, instructions for use or communicating shortcomings. You need to be a reliable source of milk, including some cows being in milk all year round. For example, an autumn block calving, without planning, is unlikely to be able to supply milk to the machine for school summer holidays which is a fabulous time to lock in your customer base.

Finally, who is going to be responsible for it? This will help determine the business structure. Although it is an extension of the current farming business it may be sensible to have it trading as a separate entity. Again, check with your milk contact, and your insurance provider, but a separate structure ensures that the finances are clear cut and may empower the person responsible.

Return

Although such diversification may increase your connection with the local community most will be considering it to improve overall farm profitability by selling milk for £1+/litre rather than 33ppl on your milks contract.

The research should provide you with a rough ceiling price remembering that this is the freshest, high quality and provenance milk available so don’t undersell yourself. Experience should also be factored in.

To calculate your possible return, you should consider the potential upfront costs remembering the vending machine is not the only investment. Assuming you are not selling raw milk then the pasteuriser and cooling tank can be a similar investment.

Illustrative capital outlay:

The above is for illustrative purposes, ignoring the various options available for various supplies and milkshake offerings. However, milkshakes as a concept should most certainly not be ignored. 50ml of milkshake syrup costs around 20ppl compared with milkshakes (330ml to400ml) being retailed for £1.15 - £1.50.

Although we are very familiar with the honesty box approach for milkshakes it can create a better margin and experience if they are sold ready mixed as the final product. Milkshakes are a great way, in the right location, to significantly increase frequency and volume purchased.

Now to put some of these figures into action!

*VAT quirk – a bottle sold with milk in it is zero-rated for VAT but a bottle sold empty is standard rated

The above shows that you could make a return on your investment within the first 12 months. Or, you could continue to do it for 10 years and just about make it pay for itself by which point it would be scrap value. It all depends on the popularity and consistency of the sales and this also assumes that anything unsold is returned to the tank as there is no wastage included!

Closing remarks

Don’t get sucked in by the potential profits available. Done badly or in the wrong location the time outlay and capital costs remain the same but the reward is reduced – it is not a ‘money for nothing’ scheme.

Also, profits aside, do not underestimate the emotional drain in keeping the public happy every day and how personally you may take it if they are unforgiving – which some will be!

The maintenance and upkeep of the machine both technically, hygiene but also aesthetically needs to be consistent. The key is public perception and social media will be instrumental in this – you really have to have the time, know-how and desire to consistently push the messages out there.

They can be really exciting and should you wish to discuss this idea of diversification or any other ideas and how best to approach it then please do get in touch.

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