Farmer’s Fridge’s Luke Saunders wows Summit attendees

Attendees at the Self-Service Innovation Summit got psyched for a full day of seminars during a morning keynote presentation by Luke Saunders, founder and CEO of Farmer's Fridge. The entrepreneur offered an engaging account of his journey revolutionizing fresh food vending to an attentive audience at the Diplomat Beach Resort in Hollywood, Florida.

Saunders, who launched Farmer's Fridge 10 years ago, offered candid insights during a fireside chat with Lori Haggart, general manager of logistics sensing at Honeywell, which sponsored the keynote presentation.

Saunders described his company as a food business that prepares fresh food in a Chicago commissary kitchen and distributes it nationwide via its refrigerated logistics network to 600 automated, self service fridges in airports, hospitals, universities and office buildings. The company also sells its branded products to retailers such as Target, Albertsons's, Dunkin' and Hudson News.

The summit is one of several industry events organized by Networld Media Group, the parent company of Kiosk Marketplace and Vending Times. The media company's next event is the Restaurant Franchising & Innovation Summit being held March 20-23, 2023, in Coral Gables, Florida.

Following are edited excerpts from Luke Saunders' fireside chat.

Q. How did you first become aware of the need for Farmer's Fridge?

A. I got a job as a metal finishing salesman. My job was to meet with companies like Kellogg and P&G. Driving a thousand miles a week across four states, my challenge was finding a quick, healthy meal on the go.

If I'm in the middle of Michigan there are just no options. A gas station has maybe a granola bar and chips and a bottle of water. I asked, "Why does this problem exist?" I didn't know how hard this problem was to solve.

Q. Can you tell us about some of the innovations behind what you're doing?

A. Our first location was in a food court in Chicago to prove that people would actually pick this as an alternative to a real restaurant. We knew that we couldn't have the same cost structure as a restaurant.

We had to have lower food costs and we had to be able to sell the food 24 hours a day.

We were able to buy a beautiful 32-inch touchscreen for $800. And then we were able to get Internet on the fridge. We were able to have consumers be familiar with buying things through a touchscreen. All that kind of converged for us to be able to start the business.

Q. How would you describe yourself? Do you consider yourself a hardware company or a software company?

A. We are five businesses in one, but we are a food company.

We have software engineers. We have a production business. We have a distribution company. We have a traditional CPG marketing and sales organization. We know a lot about hardware because you can't run the vending business without understanding how to fix your machine.

Our primary objective is to sell great food to as many people as possible at as many places as possible.

Q. How did you find suppliers to develop your food machine?

A. I went to a vending conference very similar to this one and walked the floor and found different technologies that were out there and figured how we could integrate them and create a customer experience that wasn't just a vending machine.

Q. How does a loyalty strategy or other consumer based digital strategy feed into your role at Farmer's Fridge? Are you using any digital mediums to create awareness about the solution?

A. We don't use a lot of digital mediums to create awareness. Our marketing is the fridge itself.

The biggest hurdle is always people are scared that food from a vending machine is going to be bad. But when they try our product they are surprised by how good it is. Then they tell their friends and family to buy it. That's the primary way we get people to know who we are.

We have data at the customer level that shows how many people have tried the product versus how many people repeated (buying) the product and how often they repeated buying the product.

We really optimize for the customer experience at that item level and how the item performs.

The customer app that we have has become more and more important, and not because we're doing coupons. It's having people know the inventory in advance and then being able to buy product in advance. You show up and the items are there.

Q. How do you decide what products to introduce? We know that the consumer footprint is very different from state to state in what people might want.

A. From the beginning we were very focused on the fact that consumers as a group are making thousands of decisions a day and the details really matter. The food has to actually be fresh and taste good.

When we launched out of Chicago to New York, we had to consider a 15-hour truck ride to get the food there.

We used the customer data to measure if there was any change in customers' perception of the food based on the travel time.

Can you make this product and have it last and still be great, or is it going to be bad on day three or day four?

We make 20 versions of a dressing and we test it in the office with customer panels. And once it's out of the test kitchen, it has to get scaled up into our commercial kitchen.

Q. Can you tell us about your food testing process?

A. Our customer base is really broad. It's not one tightly clustered group of consumers. Someone in college has to like it just as much as the traveler.

We make a couple versions of the club salad, for example. Once it's done, it's probably six weeks of panels and tasting with our internal team. They grade it. There is a whole form they have to fill out.

Then we test it on customers the same way.

Once it's launched, we take all the feedback we're getting. Our customer service and innovation teams are getting all that feedback.

We only carry 25 SKUs. We launch a new SKU maybe once a month.

Q. You have a national service and a central production facility in Chicago. How do you manage supply chain challenges dealing with fresh food?

A. Our biggest supply chain challenges have been getting vans. We ordered like 100 vans in 2022 and got zero.

On the food side, we have 158 ingredients in our kitchen, and we're able to iterate.

Romaine lettuce has had a lot of issues with bacteria. We had to learn the day of that recall four or five years ago how to swap out an ingredient immediately. Green leaf lettuce actually works great as a substitute to romaine. We are able to manage the disruptions on the food side really, really well.

Where we really struggle is with the equipment, getting the vending machines, getting the touchscreens, getting the hardware.

Q. Sustainability has been top of mind for a lot of consumers. How are you managing food waste?

A. Food waste for us is actually a cost. We manage it regardless of sustainability,

Our stated goal is zero waste. When we started, the waste was like 50%.

We invested a lot in the technology. We actually run demand planning algorithms that say based on everything you've sold historically, at each stop, at each fridge, "here's what we think you're going to sell in 30 days."

Today we're going to make tens of thousands of items and have no idea where they're going. At 6 or 7 o'clock tonight Chicago time the second half software runs, which is a cost function, which says based on the inventory across the network where do we think we'll maximize our profitability by sending these items, and it generates pick tickets which then create a pre-kitting program for our pick pack team to run on, and send it to the fridge. That program has taken our waste down to like 4% across the network.

The waste could be lower if we limited the variety, but this would disappoint customers. Having that marginal item in there gives us one more chance to sell.

The next phase to getting to zero waste will be by dynamic pricing. This will include doing push notifications to customers to encourage them to buy products.

As for sustainability, the biggest impact is not the plastic jar the company uses to sell its products, but the cheese content.

Q. How are you dealing with rising food costs?

A. The company has 115 ingredients which we can adjust. We've actually had our food cost come down overall in 2022, and so we haven't raised prices.

Q. During COVID your company introduced food delivery. How has this business fared?

A. It really was a huge part of saving the business. We lost 87% of our revenue in two weeks of March of 2020.

We have the flexibility to send food wherever we want, so we set up a (consumer delivery) website, started taking orders and had drivers dropping off at people's houses.

But in delivery, your customer acquisition cost just keeps going up. We made the decision we weren't going to get into the "paying more for your customers" game. We wanted to look for other ways we could fill the gap, and that was retail.

In the beginning of 2021, we launched our brand in Albertson's, Target and Dunkin'. We're adding more stores in 2023. It's more aligned for our business model. The product mix is very similar.

Now we're expanding the fridge network faster than ever, we're growing in retail.

The delivery channel is just a really hard low margin business that was great to get us through the pandemic.

Q. What are your future goals for the business?

A. It's the same as it's ever been — to make fresh, healthy delicious food as accessible as a candy bar. We're just going to saturate those markets with more fridges and get more retail stores.

Q. What advice would you give to somebody thinking of getting into the kiosk business or the food industry?

A. In any business, what is the end goal and what's the path to get there? In food, it really is a hard "grind it out" business. If you love it it's awesome. I love it, so that's been great. But you better love it.

In the kiosk business, the timing (now) is great. All these technologies have gotten cheaper over the last 10 years. It's about making sure the customer is at the center of why that exists. You must ask: How does this make the customers' lives better?

(Editor's note: Several additional questions were raised by the audience. Following are audience questions posed to Saunders.)

Q. What is the company's salad shelf life?

A. Seven to eight days. How you cut, where you put it in the jar and what ingredients you use all come into play. No chemicals are used.

Q. What are the major barriers to growth you encountered? Why can't you have 10,000 kiosks out?

A. One of the key constraints is the scaling (of the machines). There's a limit to how many people you can hire and put on a production line without having the quality of the products go down or someone get injured.

It's not capital efficient to try to grow that quickly. You end up ruining the products and ruining your distribution network. There's no way to actually do it that quickly.

Q. How did you develop the machine's aesthetic design?

A. In the beginning it was getting a lot advice. I leveraged people in my network to get good advice. The goal was to make a vending machine feel like a restaurant. We spent a lot of time on every little detail.

Photos provided by Farmer's Fridge.