STEWART STREET One of the largest energy drink makers whose slogan promises to give its consumers “wings” is being called upon to refund millions of dollars for a failed vending machine venture that allegedly left hundreds out in the cold.
Red Bull America, which is headquartered in Santa Monica, is the subject of criticism for its involvement in a now-defunct business deal that offered franchising opportunities for trademarked vending machines that were sold through a third party.
Those who bought into the program, which was operated in partnership with Red Bull and Creative Concepts of America (CCA), claim the business model failed because they didn’t receive services that were promised in the agreement. Creative Concepts, which was based in Fort Lauderdale, Fla., has since gone bankrupt.
The Florida Attorney General’s Office began investigating claims that CCA offered fraudulent business opportunities in July 2006. The probe has since been suspended and is now being handled by the U.S. Department of Justice, which has opened a criminal case against Creative Concepts. Officials with the department could not comment on the investigation.
The two companies entered into an agreement in 2005 that allowed Creative Concepts under limited circumstances to purchase vending machines bearing the Red Bull trademark from a third party and then re-sell them to customers who were interested in business opportunities. Red Bull terminated the relationship after seven months.
“Red Bull was not a party to any contracts between CCA and CCA’s customers,” Patrice Radden, spokeswoman for Red Bull America, said.
But those who say they were scammed into the business agreement argue otherwise, demanding Red Bull return the money that was invested into the machines, which in some cases cost more than $4,000 a piece. The energy drink maker did offer purchasing options on two different occasions.
While CCA was the agency that directly sold the machines to clients, Mallory Dillon, who lives in Vacaville, said she believes that Red Bull is responsible for refunding the hundreds of people who lost their money because of the previous partnership between the two companies.
Dillon, who purchased three machines in February 2006 just months before CCA went bankrupt, said she has yet to file a lawsuit but is in the process of contacting all of the individuals who bought machines.
Some of the buyers said they contacted Red Bull prior to purchasing franchising rights and were assured by a representative that the CCA deal was legitimate.
The grievances run the gamut, some complaining they received refurbished machines when they paid for new ones, others claiming Creative Concepts misled them into thinking the machines would earn its investors thousands of dollars a month. A number of people who bought into the deal said they were supposed to receive assistance in placing the machines in high-traffic areas, arguing services were never provided.
Michele Wallace, a Carlsbad resident who spent more than $12,000 on three machines, said there are approximately 900 people who spent a combined total of $20 million on the business venture.
The couple participated in the program with the hopes of building their daughters’ college fund, ensured by CCA that the machines would be placed in safe, reputable and profitable locations. Wallace said the machines were placed in areas she felt were very questionable.
“After six months, the machines were making nothing,” she said. “They were selling about two cans per week.
“We realized that we had made a bad decision.”
The couple received a call from a CCA representative notifying of a buy-back program because Red Bull was upgrading their machines and wanted to pull the old ones from the market. Instead of upgrading, the couple agreed to sell their machines for $2,800 a piece.
CCA went bankrupt soon after and the couple contacted Red Bull, learning that they were not aware of such a program.
“They said there was nothing they could do,” Wallace said. “In the end, we lost $15,000.
“It was basically stolen from us.”
Some buyers claim they were given a location for their vending machines and later found out that another vendor already had a legal claim to the site.
Such was the case for the Bernhard family of Baton Rouge, La. who claim they lost money due to difficulty in placing the machines at high-profile locations.
Nic Bernhard purchased 10 machines for $37,000 through a loan from his parents, receiving them after three months instead of the three week shipping date that was promised.
“We got out and started placing them ourselves and we soon realized that Coca Cola and Pepsi had contracts with all these places of businesses where CCA was telling us we could place them,” Nic Bernhard’s mother, Sheryle, said. “We were not allowed to put Red Bull there.”
Some buyers are still operating the machines they purchased.
Of the three machines Dillon bought, only one is in use, which is filled with Red Bull cans she purchased from Costco.
While she was promised the machine would earn her about $6,000 a month, she estimates the profits to be pennies per can.
Dillon added that she purchased insurance to cover theft and vandalism for the machines. One was stolen but never replaced by the company.
“The reason we’re so angry is Red Bull backed it,” Dillon said. “Red Bull said it was a legitimate business and Red Bull turned their backs on everyone.”