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

By KAREN ALEXANDER

Feb. 26, 2001 12 AM PT

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.”

KRh has exclusive arrangements with vending firms in other regions, and the Irvine firm also sells directly to businesses such as United Artists Theater Circuit Inc.

The movie-house operator has installed more than two dozen of the Hot Choice machines behind its concession counters. Now, when customers purchase a grilled cheese sandwich, fries and a medium soda for $7, they come right out of these machines and into customers’ hands.

Wall Helton, UA’s vice president of concession operations, said a typical moviegoer at his theaters spends $2.25 for refreshments. But customers where there are Hot Choice machines, he said, spend on average 7 cents more.

“This just looked like magic to us,” Helton said. “We don’t need to have a room full of deep-fat fryers, and we don’t need cooking times of three to six minutes.”

The core heating technology belongs to Enersyst Development Center in Dallas, which also licensed it to NASA. KRh has the exclusive license for its commercial use in the Hot Choice machine and in two commercial ovens that are currently in development.

Impingement cooking is the same technology that helped revolutionize the pizza industry, speeding up the cooking time to just a few minutes and launching pizza into the realm of fast food. But in this case, individually packaged foods in polycoated cardboard trays are stored frozen in a carousel. The machine holds 150 items and can offer as many as five different menu choices. When a customer makes a selection, the chosen dish slides out of its protective cardboard sleeve, is swept with bursts of 430-degree air blown at 40 mph and microwaved through. It then slides back into the cardboard cover and comes out the delivery slot at about 160 degrees.

KRh, which was formed through a partnership between Kaiser Aerospace and Electronics Group and a group of private investors that included Rudder, developed and owns all of the automation technology that goes into the Hot Choice machine, about 40 patents in all.

The technology is not without limits, though. For example, don’t expect a big, fluffy bun on your cheeseburger. The 6-inch-long containers are only a little more than an inch deep, so for now it’s sourdough bread for that cheeseburger.

Rudder, 52, who as the CEO of EDI Associates managed a portfolio of $500 million before he turned to philanthropy and vending machines, envisions a Jetsons-like future of fast food: His conference room is filled with drawings of retro-style diners and gas-station convenience stores, fully automated and centered on the Hot Choice machines.

For now, he and about two dozen others, including engineers who have doubled as salespeople, assemble the Hot Choice machines, one at a time, in a 45,000-square-foot facility near the former Tustin Marine base.

David Goodroe, chief operating officer of KRh and a self-avowed “foodie,” says he combs such stores as Costco and Trader Joe’s for new menu items that would lend themselves well to the machine. One of his recent discoveries--chicken rolled tacos--will be added to the automat menu.

Nearby, at the lunch area of Parker Aerospace’s Air and Fuel Division in Irvine, technician Tao Pham recently grabbed a pocketful of quarters and fed them--six in all--into the company’s new Hot Choice machine for a packet of chicken strips. At the company’s previous location, workers enjoyed a cafeteria on site. But now the choices include a catering truck that pulls up three times a day and the vending machines.

“This food is very good, and it’s less expensive than the catering truck,” Pham said.

Dan Vidaurri, a quality inspector, eyed the chicken strips longingly as his Healthy Choice frozen entree spun in the lunchroom microwave. The vending machine fare is against the rules of his low-fat, low-cholesterol diet, although he said that you can’t beat the speed and price of the Hot Choice machines.

“I wish there was more healthy stuff in there,” he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Return of the Automat

Irvine-based KRh Thernal Systems is marketing a freezer-to-oven-to-customer vending machine that prepares hot fast food in 90 seconds.

How It Works

1. Insert money, choose menu item

2. Frozen food drops from spinning carousel

3. Plunger pushes food tray out of sleeve, into oven

4. Microwaves heat inside of food, hot air blast cooks outside

5. Plunger pushes tray back into sleeve, hot food drops into chute

Source: KRh Thermal Systems

Graphics reporting by BRADY MacDONALD / Los Angeles Times