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Irvine Firm Has a Hot Concept: Fine Dining a la Snack Machine

Food service: New vending units dispense fast, heated fare that aims to compete with microwaveable meals.

February 26, 2001|KAREN ALEXANDER | TIMES STAFF WRITER

Ever since the first chilled bottle of soda was dispensed from a machine in the 1930s, vending machine makers have tried to duplicate that success with food. But their efforts always seemed to fall short. Cold sandwiches from machine carousels were soggy, and the heated canned ravioli tasted like, well, canned food.

Workers prefer to bring their own microwaveable meals or dash out to a fast-food restaurant or convenience store down the street.

But now, a new generation of automated food machines is emerging in the marketplace. And leading the way, experts say, is a small Irvine company that got its start in the aerospace industry.

The automats by KRh Thermal Systems Inc. look like oversized soda machines. But they offer such items as crispy chicken strips, French fries and turkey pastrami on whole wheat. Unlike most other food vending machines, the foods don't come out cold but sizzling hot--in about 90 seconds.

Some 500 of these Hot Choice Diners, as they're called, already are in office buildings, factories, airports and rest stops. United Artists Theater bought 27 of them. Hundreds more are headed for prisons, hospitals and schools.

"I keep going back in my mind to what the ATMs did for the banking industry," said KRh's chairman, Michael Rudder, a former portfolio manager turned food entrepreneur. "From a business model, it was one of the most interesting things I've ever studied," he said. "This will be the ATM of food service."

That, of course, will depend on consumers. And that hinges on price, quality and convenience--elements that the fast-food industry, never mind fast-food vendors, have struggled to master.

Vending competition also is intense.

Like KRh, Selecom Electra in Europe makes machines that cook entrees from a refrigerated state in a matter of seconds. In the United States, leading food vendors, including Canteen Vending Services in Charlotte, N.C., have teamed up with branded food companies to offer such foods as Hardee's burgers, although they come out cold from machines and need to be microwaved.

All of these vendors, analysts say, face the most serious competition from the freezer section of the grocery store, where there are literally hundreds of varieties of prepared foods that can be microwaved at the office.

"They're not just competing against traditional fast food. They're competing against the ConAgras of the world who have millions and millions of dollars a year in marketing budgets," said Gene Lawless, vice president of hospitality consultants Fessel International in Costa Mesa.

KRh's advantage is that its machines spit out food that is hot--and in about a third of the time it takes to heat up a prepared meal in a microwave oven. And unlike microwave machines, KRh's Hot Choice--which uses a combination of impinged air and microwave heat--can brown and bake foods so they come out crispy.

"No one in the U.S. is on the same path," said Elliott Maras, editor of Automatic Merchandiser, a trade magazine.

Maras said KRh also will get some help from a growing industry. Food is making up a bigger share of the overall vending market, which grew by 5% in 1999 to more than $24 billion, according to Automatic Merchandiser.

As Americans spend more time at their desks and work longer hours, Maras said, employers are eager to add amenities that will maximize the time their workers will spend on the job. In a recent survey by Datamonitor, a New York-based workplace research firm, more than 45% of workers said they bring lunches from home at least once a week, and 20% do so every day.

Rudder hopes his company can capitalize on the situation.

"We took our time and focused on perfecting the product and the business model," Rudder said. After investing $30 million and spending years on testing and pilot programs, he noted, KRh moved into a high-production mode in January. "Our next step is to flood the market."

This year, Rudder expects to sell about 2,000 Hot Choice machines. That would generate $15 million in sales and give the 8-year-old company its first year in the black. To turn a profit, the company would have to sell 1,300 units. Rudder said KRh is 20% there.

Mike Woods, marketing manager for Los Angeles vending machine operator R.J. Bradberry, has an exclusive contract with Hot Choice for the Southern California region. Bradberry bought about 50 units last year and plans to add as many as 20 this year.

Woods said the machines are not nearly as profitable as others in Bradberry's lineup. But they are a valuable tool for landing new clients who want to offer hot food on site, and, Woods said, once in place the Hot Choice machines drive additional sales at other vending machines in the same locale.

"We'd rather not have to carry this," Woods said, citing the big price tag for KRh machines. "But this is such a competitive industry and it really gives us an edge."

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