Who really owns that coffee machine (and is that best for you)?
I love my coffee and my cafe clients. But I also know that bad coffee (or, worse, no coffee!) could be the death of a Melbourne cafe. How you own your coffee machine could affect this. Here’s why…
Coffee machine and coffee bean suppliers commonly offer hospitality businesses free loan of high quality industrial coffee machines, including full ongoing technical support, maintenance and servicing for those machines. It sounds like a dream come true. However, in return, the hospitality business must exclusively buy a certain amount of coffee beans (often at an inflated price) from the coffee company at set intervals for a certain amount of time. Under such agreements, hospitality businesses avoid an initial expensive purchase of a coffee machine, but often end up paying much more than they should for the coffee beans, or have to carry the financial burden of purchasing an oversupply of coffee. At the end of the trading arrangement the machine is to be returned to the coffee machine supplier and the hospitality business does not ever acquire any title or true ownership rights.
The PPSA stands for the Personal Properties Securities Act 2009 (Cth) and it created a national register in which you can register an interest you have over certain types of property – such as coffee machines – that are subject to equipment lease/conditional sales agreements. The PPSA allows for ownership of a security interest rather than title, or an interest in personal property provided for by a transaction that, in substance, secures payment of a performance or obligation. It sets rules for determining priority between competing security interests. The legislation ensures that title remains with the coffee machine provider. If a café goes into liquidation, the coffee machine is the property of the coffee machine supplier, and cannot be sold to creditors (as long as it has been correctly registered on the PPS register).
Potential problems for hospitality businesses can arise in these situations due to the onerous contractual obligations, and because there is no end-point of ownership. Constantly paying too much for coffee beans can become a very costly burden that could be unsustainable for your hospitality business. If you are contractually obliged to purchase more coffee than you need, this can put your business at risk also – as you will never own the coffee machine, you will never get the chance to use all of that extra coffee you are required to purchase. Thirdly, the coffee beans you are purchasing may not be of the absolute best or most special quality which could have an impact on customer satisfaction and sales for your business as a whole. Today’s consumer is often highly educated on fair-trade, boutique coffee brands and have a developed coffee palette. People are unlikely to return to a café or restaurant if they do not love the coffee served. This means your business could miss out on profits from return custom in terms of coffee sales, and the consequential sales of snacks, cakes, drinks, lunches and dinners, and so on.
If you are late with your purchasing payments the coffee machine supplier may have the right to step into your café or restaurant during business hours and repossess their coffee machine, meaning you cannot serve coffee at all (obvious disaster).
The best thing to do economically for your business is to buy a high quality coffee machine outright. Your coffee roaster should be able to pass on a discount on new equipment if you are commercially purchasing coffee from them. At the end of the day this is the cheapest option and means you are not locked in with a certain supplier for a certain amount of coffee. For this to be an option, your business will need to be in a financial position to cover the purchase price of the machine, or to be eligible for a low-interest loan.
Another option worth considering (if you cannot get finance through a bank to buy), is to lease. Specialty equipment finance companies allow you to pick your own equipment or coffee machine and they use that as security on the loan. This will cost more in interest than a loan, but is flexible, you have control over what coffee you buy and at what price, and you can often upgrade machinery every 12 months.
Lastly, loaning a “free” coffee machine from your coffee roaster may be a viable option. Your business will not have to pay anything upfront and the coffee machine will be maintained by the owner. If there are any problems with the machine you will be supplied with a replacement until the problem is fixed and your original machine can be returned in working order. However as mentioned above, the purchase price of the coffee can be extortionate and the amount of coffee required to be purchased may be in excess of what you need. You are also locked into an inflexible arrangement and may be unable to buy your preferred coffee brand – or change brands to increase customer satisfaction.
If you do choose to loan a “free” machine under these conditions, it is important to have fair written agreements in place and it is recommended you consult a commercial solicitor for drafting fair terms of trade documentation. It is also advisable to see an accountant to ensure your business is in a strong financial position to cope with the ensuing contractual obligations.
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This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published Dec 13, 2016Go back