This could be America’s smallest restaurant

It occupies just 12 square feet of space and is stocked with pasta bowls, wrap sandwiches, Greek yogurt with fruit, and salads packaged in recyclable jars. These wholesome dishes are dispensed from a vending machine called Farmer’s Fridge.

The machine itself could be the smallest “restaurant” in America.

Farmer’s Fridge, based in Chicago, prepares healthy breakfast, lunch and dinner meal options priced between $3 and $9 for people on the go. It sells them through its temperature-controlled, smart vending “fridges” that are located in airports, universities, hospitals and offices.

“It came from an idea I had to make it simple for everyone to eat well, whenever they want, wherever they are,” said Farmer’s Fresh founder Luke Saunders. Saunders started the company in 2013, bootstrapping it with $100,000 from his savings and credit card loans.

How a vending machine became a restaurant

He initially housed the operation in a rented commercial kitchen in Chicago’s West Town neighborhood. Seven years later, the business has 431 vending machines spread out across the Midwest and in New Jersey, Philadelphia and New York.

Eighty of those machines are in New York City where Saunders wants to add about 300 more by the end of 2020.

But it was in New York where Saunders’ fresh food vending concept ran into a challenge last year.

“Basically the regulations that are in place in New York are written for classic food vending machines selling highly processed packaged food,” said Saunders. “They aren’t for fresh perishable foods with short shelf life sold in public places through a vending machine.”

Because existing regulations didn’t adequately apply to his machines, Saunders said he voluntarily stopped operating them in NYC for a month “to give the [health department] time to understand our model and decide how they wanted to regulate us.”

Michael Lanza, spokesman with the NYC Department of Health, said the biggest concern for the agency was to ensure that fresh food sold through a vending machine concept didn’t pose a health risk to consumers.

Saunders explained to regulators how Farmer’s Fresh supply chain works and how the food is kept fresh and safe to eat in its machines. The agency subsequently determined it would regulate the Farmer’s Fridge vending machines like a restaurant. It inspected each machine after Saunders’ company applied for restaurant permits. All of Farmer’s Fridge machines are fully operating, Saunders said.

“Companies like Farmer’s Fridge signal new changes to the food space and we’re working to create the best enforcement structure to protect the health and safety of New Yorkers,” said Lanza.

Making fresh food an on-the-go option

The Indianapolis International Airport has three Farmer’s Fridge self-service machines and will soon add a fourth.

“We first saw this concept at a trade show last year and really liked it,” said David Shaw, Indianapolis Air Authority’s director of concessions and air services. “It’s a great way to make fresh food available at any time to passengers boarding the plane or leaving the airport, our employees and our ground crew.”

The three machines are averaging between $16,000 and $20,000 in sales a month. The airport keeps a percentage of the sales, said Shaw. He declined to disclose further details.

Shaw said the response to the vending machines has been extremely positive, mixed with some confusion.

“I’ll often pass by one of the machines and see a family standing in front of it with their heads tilted,” he said. “They can’t believe they’re buying a salad from a vending machine that looks good and fresh.”

For Saunders, the success of his business hinges on ensuring freshness of the foods in the machines at all times. “Maintaining freshness requires operating an efficient supply chain and leveraging technology,” he said.

All of the food is now prepared and packaged daily at a 50,000 square feet central kitchen in Chicago where 200 people support a 24-hour operation.

The company’s in-house chefs cut and prepare the meals beginning at 5 am ending at 8 or 9 pm. Another team then takes over to clean the facility.

Fresh produce arrives daily during the week at the kitchen. Thirty percent of the ingredients come from suppliers in a 350 mile radius, including bread for the sandwiches which sourced from a local Chicago bakery.

The Farmer’s Fridge menu has 30 items so far. The food is packaged in recyclable plastic jars. In cities that allow it, consumers put the empty jars back into the vending machine through a slot. The company collects them at the at the end of the day, cleans them and sends them for recycling. Elsewhere, people can simply toss them into any recycling bin.

The meals are transported daily in refrigerated trucks to restock the vending machines. It takes roughly 15 hours for a truck to reach New York and to fill the fridges, Saunders said.

“We also don’t sell any salad that’s been in a Fridge for over 48 hours,” he said.

How would he know? “The fridges tell us. We get real-time data about the internal temperatures in each machines so we can keep it at optimal temperatures for freshness. We also know how long an item has been sitting there,” he said. A machine won’t dispense a salad over 48 hours old.

A predictive algorithm, he said, tracks inventory and an individual Fridge’s sales patterns. The company used the data to stock each machine to optimize demand and minimize waste.

Any unsold food, which the company said averages up to 5% per machine, is donated to local food pantries.

Convincing health-conscious people to eat from a vending machine

Although Farmer’s Fridge is providing yet another way for consumers to get access to fresh food quickly, it will take some work to reach those customers, said Brenden Witcher, an expert in omnichannel retailing and vice president with Forrester Research.

“There is the perception that vending machine food is poor quality and unhealthy,” said Witcher. “We’ve all been to hospitals and schools and checked out the vending machines there. The products in it are less than appealing.”

The challenge for Farmer’s Fridge is to educate and train people over time to accept its fresh, healthy food vending concept over many other options in the marketplace.

“For Farmer’s Fridge, anyone selling food is its competition,” said Witcher. “I can go into an Amazon Go store and get a sandwich, chips and drink in 14 seconds. So it has to do some real work with marketing to win over consumers.”

The United States has 4 million vending machines, and 40 million people make a purchase from those machines every day, according to the National Automatic Merchandising Association. But vending machines are best known for unhealthy snacks.

“Consumers’ favorite indulgent snacks will always be a part of the mix in terms of what you can buy from a vending machine, particularly for the 3 o’clock office snack,” said Roni Moore, vice president with NAMA. “But what’s exciting about Farmer’s Fridge is that it’s an innovator in adapting the model to what consumers want now.”

Saunders has raised about $60 million from investors to grow Farmer’s Fridge and potentially take it nationwide. He declined to disclose the company’s sales but said annual revenue has doubled every year for the last five years and the machines are generating a profit.

“What if we change the machines to serve healthy, freshly prepared food that’s restaurant quality that is affordable?” asked Dror Berman, founding partner of Innovation Endeavors, a lead investor in Farmer’s Fridge.

Farmer’s Fridge, he said, is a step in that direction.

“The impact of this approach, while it may seem subtle, unlocks a paradigm shift in the business model of fresh food,” he said.