VENDORAMA: Irvine’s KRh Eyes U.S. for Japanese-Style Vending Machines
By CHRIS CZIBORR
The blueprints look like something out of a sci-fi movie: barstools and a counter in front of nothing but vending machines,not a server or cashier in sight.
KRh Thermal Systems Inc., an Irvine maker of vending machines and food for them is betting that the retailing style depicted in the blueprints will be a hit with U.S. consumers.
The company sees the impersonal but easy way of selling hot food taking hold at hospitals, movie theaters and, eventually, fast food outlets, where vending machines would dispense pizza, french fries, apple pie and other items in 60 to 90 seconds.
KRh Chief Executive Michael Rudder says he expects revenue this year to triple to $15 million on sales of 2,000 machines. The company counts a $4 million backlog, or about 500 machines, he said. In five years, Rudder envisions $200 million in yearly sales, a majority in the U.S.
“We’ve achieved about a quarter of our sales target so far this year,” Rudder said. “We’ve been limited mainly by production capacity.”
In the next year, KRh plans to bulk up its Orange County workforce, growing to 170 workers from 33 today at its 50,000-square-foot facility.
KRh came about in a 1999 management buyout from San Jose-based Kaiser Aerospace and Electronics, a unit of Cedar Rapids, Iowa-based Rockwell Collins Inc. Kaiser had been testing KRh’s Hot Choice vending machine for seven years before the buyout.
“Over the past year we’ve shifted from a supply-driven company like Kaiser to more of a market-driven company,” Rudder said. “We started with Kaiser because the engineering ability at an aerospace firm matched the engineering required for the vending machines and the cooking processes.”
While KRh’s machines might seem a little George Jetson-ish,they,initially were built for NASA,vending machines are popular in other parts of the world. In Japan, they’re a national institution.
Japan’s vending machines dispense a mind-boggling list of products including batteries, tobacco, beer, instant noodles, sandwiches as well as risqu & #233; magazines that are shaded during the daytime
As such, Japan is a natural target for KRh and its hot food machines. But Japan sales aren’t forecast to bring in anywhere near the revenue the company expects domestically.
KRh’s strategy in Japan is based on working with contract manufacturers, similar to pacts it has in China and Taiwan.
Last month KRh inked a licensing deal with Osaka-based Wada Metal Industrial Co., which plans to make, market and distribute KRh’s Hot Choice vending machine in Japan.
KRh officials expect 5,000 vending machines in Japan in the next two years and nearly $40 million in revenue in the next five years.
In the U.S., KRh has made inroads into hospitals, corporations and theaters.
“We’re seeing major food brands looking for the vending option instead of bricks and mortar and labor,” Rudder said.
The company counts Kraft Foods Inc. as a customer. Kraft and KRH just finished testing the Hot Choice machine for Kraft’s products, including its Macaroni & Cheese Dinner. Other customers include Regal Entertainment Group’s United Artists movie theaters in New York, Atlanta and Dallas, and foodservice company Sodexho Inc.
About 25% of KRh’s sales come from selling packaged food, while the rest comes from vending machine sales.
KRh’s revenue mix is set to change in the next few years as the number of installed vending machines grows, Rudder said. Food sales stand to dominate, he said.
KRh’s pitch: vending machines cut labor and spoilage costs
“From a labor reduction point of view, look at hospitals and the requirements to replace third-shift feeding programs,” he said. “That alone could be a $100 million opportunity.”
KRh’s patented process uses microwaves to thaw frozen food inside the vending machine. The food then is moved to a separate area within the machine where it is cooked by a process called “impingement.”
Impingement cooks as thoroughly as hot oil, Rudder touts.
“It can finish a product as though the product were over an open flame, even for one as delicate as a croissant,” he said.
The process can be tweaked to cook a wide range of foods, Rudder said.
