He Raised ~$120 Million To Revolutionize Access To Fresh, Healthy Meals Through A Network Of 1,200+ Smart Fridges

In the bustling landscape of entrepreneurship, where dreams are forged amid the crucible of challenges, one man’s odyssey stands out—a tale of resilience, vision, and unwavering commitment to change the way we eat.

Meet Luke Saunders, the founder of Farmer’s Fridge, whose journey from humble beginnings to transforming the food industry is nothing short of inspiring. In this exclusive interview, Luke talks about scaling his company and the challenges he faced during the COVID to get the company back on track.

Listen to the full podcast episode and review the transcript here.

Humble Beginnings to University and Entrepreneurship

Luke’s story begins in New Jersey amidst the chaos of a household teeming with seven siblings. Raised in an entrepreneurial family where lemonade stands, and business ventures were the norm, he imbibed the spirit of innovation and risk-taking from an early age.

Luke’s journey took him to St. Louis for university, where he delved into Chinese studies and international affairs, only to find his true passion lying in entrepreneurship and a side gig of running a bike rental company.

His original plan was to move to China, and he spent six to nine months living there during college before returning to the US.

The Turnaround

But fate had other plans for Luke. A pivotal moment arrived when he joined his father’s struggling grease lubricant manufacturing business, only to discover that mismanagement and financial woes were pushing it to the brink of collapse. The company only had a couple of months of runway left.

His dad had been running the business for 30 years, with $0.5M in revenues and a workforce of just one full-time employee and two part-time employees.

Armed with determination and a knack for problem-solving, Luke embarked on a journey of turnaround, slashing costs, and rebuilding the business from the ground up.

Luke had always been under the impression that the business was profitable, so he set about redoing the books and taking charge of the accounts. On rebuilding the P&L statements, they realized that the company was losing 30%.

Luke’s cost-cutting measures included changing phone subscription plans from AT&T to VoIP systems and removing the fax machine and postage mailer that cost them $1K a month. Essentially, the company was a 30-year-old startup with long-term customers.

Yet another drastic approach was to move the manufacturing operations from New York to New Jersey to save money and hope that the working capital didn’t get so low that the company couldn’t buy new inventory.

His efforts were successful, and Luke was able to turn the company around, which was a valuable learning experience.

Inspiration Strikes

Luke’s entrepreneurial instincts truly awakened during his stint in sales, driving a thousand miles a week. In his opinion, it was the best experience he had that prepared him to be an entrepreneur.

Luke learned to articulate the value proposition that your business has and how not to get too comfortable with getting too many rejections.

Skills like cold outreach, building relationships, and solving problems with people would prove invaluable down the line. Luke also honed his skills at getting someone to invest in him. He also leveraged his thousand miles a week driving to listen to podcasts and take courses online.

During his travels, Luke covered Michigan, Ohio, Indiana, and Kentucky, and he noticed that most places only had a gas station and a fast food restaurant serving lunch.

Faced with the scarcity of healthy food options on the road, he envisioned a solution—a vending machine that would dispense fresh, restaurant-quality meals accessible to all. Thus, the seed of Farmer’s Fridge was planted.

At the time, Luke was already working with big CPG manufacturing companies that made granola bars, cereal, and cookies. He was visiting factories to see how the manufacturing processes worked, which was interesting.

Luke recalls watching whole grains or whole chocolate chips coming in one end and leaving the other in a box. Employees were walking out the front with the boxes of granola bars under their arms.

However, the boxes loading on the truck weren’t going to get to the gas station down the street for about two months because of the really long supply chain optimized around shelf-to-table products.

Understanding Restaurant Business Models

Returning to restaurants, the oldest businesses worldwide, they operated on the same business model that they have for over 1,000+ years. Customers walk in and talk to the sales team in the front, and then the manufacturing team makes it to order in the back.

Next, accounting shows up and takes the check. Everything the business does is under one roof at every location, which is very inefficient. Luke’s idea was to make restaurant-quality food in a CPG manufacturing setting, which could be much cheaper and more consistent.

The final challenge was getting it to people quickly. The solution presented itself in the form of vending machines that can go places restaurants can’t and are actually the number one form of food service.

Close to 100 million people buy products at vending machines. Using them, Luke could control inventory and understand customer relationships. Converging the insights and developing a business model were the next steps.

Luke started to work out the economics and how to scale the idea and finally wrote out the business plan over seven to eight pages. He also started to think about executing it, discussing ideas with his wife. They figured that they would have to work 24×7 to make the food and drop it off overnight.

To test the idea, Luke went to a popular local cafe that had some good grab-and-go options and offered the owner $15 an hour to let him work there. His basic request was to be allowed to ask a ton of questions and choose his work hours.

Navigating Challenges

The road to realizing this vision was fraught with challenges. From retrofitting vending machines in his garage to securing a foothold in the market,

Luke’s journey was a testament to perseverance and innovation. Farmer’s Fridge wasn’t just about selling food but revolutionizing an industry entrenched in fast food and convenience.

For starters, Luke had to figure out the mechanisms of vending machines since typically refrigerated machines are designed for beverages like Coke and Pepsi and wouldn’t work well for food. Then again, he wanted to create the right appeal to customers who would be paying $8, $9, or $10.

The food would have to be cheaper than going to a fast-casual restaurant where a salad might cost $15 or $20. However, Luke’s food was also going to be a lot more expensive than a dollar candy bar. The vending machine would have to look and feel more like a restaurant than a vending machine.

On connecting with an industrial designer, Luke got a quote for $0.5M to develop a prototype design. So, he instead went to a vending show in Las Vegas and retrofitted a machine in his garage. Luke got the machine up and running, but finding a good location to set it up was another challenge.

Ultimately, Luke found a spot in a food court in Chicago. The initial six months were spent preparing the menu, food, and machine. He rented a shared kitchen since he was able to afford to rent only one table for an hour. By October 2013, Luke had opened the first Farmer’s Fridge.

The Farmer’s Fridge Business Model

Luke and his team make the food in a centralized kitchen in Chicago and then execute the last-mile delivery to individual locations. They put the food in the fridge, and customers purchase food from the machine. That’s how the company makes money.

The core model is an integrated manufacturing, distribution, and retail setup. Since it’s essentially three businesses in one, it is very expensive upfront. The fixed costs are high, but the variable costs are very low.

As Luke explains, when he started to research, he found that healthy fruits and vegetables were the cheapest foods in grocery stores. It didn’t make sense that there weren’t many nutritious food choices in restaurants.

Luke’s objective is to centralize the production to keep it safe and consistent, and scaling is the key to making money in the business. The company has a good unit economic model at the fridge level, and it has great traction with customers. However, to make money, 2000 locations were needed.

Capital Raises and Partnerships

Building the infrastructure was challenging since they had to add overheads and support future growth, and vending machines were not exactly available online. As a Farmers Fridge board member commented, they had a blessing and a curse.

The unit economics of the machines were great, but they needed thousands of them to make it work. This meant that the business was capital-intensive, and they would have to capitalize on every lifecycle of the business. So, Luke successfully raised $121M for the company.

Storytelling is everything, which is something that Luke Saunders was able to master. Being able to capture the essence of what you are doing in 15 to 20 slides is the key. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend Peter Thiel (see it here), where the most critical slides are highlighted.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

As Luke advises aspiring founders, one of the biggest learning curves for him as an entrepreneur over the last ten years has been to think through key milestones. He suggests sitting down, focusing on what the exit will look like, and working backward from there.

Luke also advises them to plan their capital needs, dilution, and returns. Having money in the bank and being profitable is crucial, as is having an adequate positive runway. Luke warns against letting the runway become negative because it can influence fundraising efforts.

At the onset, Luke remembers thinking he could set up the first location and roll back the profits to set up a second, considering that vending machines cost just $10K. However, he quickly realized that the infrastructure needed to support the business was more than setting up a restaurant.

Luke had to raise money and first learn how to go about it. He had to estimate the capital he needed to reach the next significant milestone. He had to find partners and went from venture to strategic over time as the company scaled.

Luke’s Vision for Farmer’s Fridge

Each funding round was a step towards realizing his vision of making fresh, healthy food as accessible as a candy bar. Essentially, Farmer’s Fridge operates on a scale equivalent to that of the biggest CPG products or GSR restaurants.

Luke envisions catering to 40 to 50 million people in the US, buying food at a McDonald’s restaurant, and offering them wholesome food. Currently, the company employs more than 500 contractors and full-time employees.

Another lesson Luke quickly learned was that he would need a team of people to make the food. Although they do leverage automation to prep ingredients, Farmer’s Fridge is primarily run by people working on an hourly basis and has a unique company culture.

As Luke explains, the company has engineering, salespeople, and hourly employees who are now salaried supervisors making more than $100K per year.

He recognizes that the business relies on high-quality, committed people who come in daily to make and deliver the food. And that’s what makes the business work.

Getting volunteers to get down into operations to help when the facility is short-staffed is a cultural element that keeps the company functional. Luke also believes in maintaining a balance and avoiding micromanagement, giving the team room to grow and learn from their mistakes.

Facing Adversity: COVID-19

Then came the ultimate test—COVID-19. Like a storm on the horizon, the pandemic threatened to derail Farmer’s Fridge, causing an 85% loss in revenue virtually overnight. Yet, Luke and his team refused to yield.

They pivoted swiftly, launching a home delivery program and catering to the needs of hospitals and essential workers. As Luke recalls, the sales team recommended buying 100 mini-fridges, which is something he accepted.

In the face of adversity, Farmer’s Fridge emerged stronger, more resilient, and more adaptable than ever. Their attitude of decisiveness and creativity got them there.

Continued Growth and Vision

Today, as Farmer’s Fridge celebrates its decade-long journey, it stands as a beacon of hope in a world grappling with health crises and dietary woes. Luke’s advice to aspiring entrepreneurs echoes wisdom forged in the crucible of experience—plan meticulously, understand your capital needs, and never lose sight of your vision.

Listen to the full podcast episode to know more, including:

• Luke Saunders’ journey with Farmer’s Fridge underscores the importance of resilience in navigating challenges and setbacks.
• From retrofitting vending machines to launching home delivery during COVID-19, Farmer’s Fridge epitomizes the power of innovation in revolutionizing the food industry.
• Luke’s leadership shines through as he transforms a simple idea into a thriving business, driven by a vision of making healthy food as accessible as a candy bar.
• Farmer’s Fridge’s success hinges on strategic capital raises and partnerships, emphasizing the importance of financial planning and resource allocation in entrepreneurship.
• The COVID-19 pandemic posed unprecedented challenges, yet Farmer’s Fridge’s swift pivot to home delivery and catering showcased the importance of adaptability in times of crisis.
• Building a strong organizational culture grounded in shared values and behaviors is pivotal for Farmer’s Fridge’s success, fostering unity and dedication among employees.
• Luke Saunders’ entrepreneurial journey serves as an enduring source of inspiration, highlighting the transformative power of perseverance, innovation, and unwavering commitment to a vision.

 

SUBSCRIBE ON:

For a winning deck, see the commentary on a pitch deck from an Uber competitor that has raised over $400M (see it here). 

Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.