The Small Chill

Can a start-up marketer sell proprietary appliances to college dorms and budget motels?

In September 1989 the Associated Press sent out a story about a novel kitchen device that had begun shipping the month before. "The next thing I knew," relates the contrivance's inventor, Robert P. Bennett, "my brother phones from Alaska -- he just saw my picture in the local paper. Then ABC News calls up, and Paul Harvey describes it on radio, and Cable News Network airs a TV item; we're in USA Today, the Chicago Tribune, The New York Times. I personally was interviewed live at least a dozen times." The most-asked question: are students really going crazy over the thing?

So crazy, Bennett predicts, that they will pay for some $90 million worth of them over the next five years. On top of that, Bennett is looking to collect $55 million from motels, another $5 million or $6 million from housing projects, and lesser six-figure amounts from the army and navy, business offices, and trailer camps. Indeed, in this, his first full selling year, Bennett anticipates revenues of more than $15 million, with net profits after taxes close to $1 million.

If everything goes as planned, every cent will have come by way of one rather unimposing item barely the size of a two-drawer filing cabinet -- the refrigerator-freezer-microwave oven that his new company, MicroFridge Inc., makes and markets. But couldn't any of us go to the corner discount store, purchase a compact fridge and a midget microwave, and spend less than the $429 that Bennett's tripartite unit sells for? Sure, but we'd likely end up with less capacity than his collective three and a half cubic feet -- nor would the components be spliced into the energy-saving circuit that is the MicroFridge product's sine qua non.

It's this now-patented circuit, initially devised with the help of some engineering friends, that positions MicroFridge for the customer niche Bennett spotted back in '86 -- anyone occupying cramped living quarters that are served by marginal electrical wiring. The current-limiting switch rules over the power draw of each component, so that when the 500-watt microwave is in use, the refrigeration system is automatically shut down. Even under multiple use, demand never exceeds a modest 10 amperes, and the appliance therefore can be plugged into an ordinary household outlet without blowing fuses.

The largest markets Bennett felt couldn't help but respond to a sales appeal centered on size and safety were hotel/motels and college residences.

(1) Motels: About halfway down the old road between Boston and Providence is MicroFridge's original hospitality-industry research lab: the lobby of a Super 8 Motel. There, Bennett polled guests. Would they be willing to pay an extra $3 to have a MicroFridge unit in their room? Yes, a startling 79% replied -- particularly since this place is in the middle of nowhere.

"Our segment of the lodging market is the economy and limited-service part, not executive suites," concluded Bennett. In budget facilities, restaurants (if any) close early, and late checkers-in can get little to eat beyond a bag of nacho chips. Put a MicroFridge in, charge a few dollars extra, and the unit's paid for in three months. Ninety nights @ $3 = $270, and the hundred dollars or so more comes from the front desk, which vends popcorn and other microwave foods at high margin to captive guests. Given a room's full occupancy, a motel can make more than $1,000 in its first year per installed unit. That's 300% ROI -- and the useful life of the humble appliance is presumed to be a good seven years.

In 1989 there were some 1 million rooms in establishments with limited or no restaurant service, and, trade sources estimated, that sector was growing at close to 10% per year. Bennett expects to put a MicroFridge in 2% of those rooms in 1990, yielding sales of nearly $7 million. By 1993, he predicts, he'll sell his units into 5% of the expanding market, for revenues of about $21 million.

(2) College residences. Fire statistics make for scary stories -- and easy selling. The National Fire Protection Association reports that an average 1,600 fires per year broke out in school, college, and university dormitories from 1983 to 1987; a MicroFridge-commissioned poll claims that some 90% of students use hot plates, although most universities forbid them. "They're going to cook anyway," Bennett reminds purchasing agents, "and our unit has no exposed heating element."

Besides, don't administrators want to attract paying customers? Parents don't have big families anymore, Bennett argues, so there's money behind the fewer children they do have. "Our push is for the school to put one in every room, which makes sense for the school. With their buying power, they can own the units inexpensively and rent them out." The school controls heavy-wattage appliance usage and reduces its liability exposure, and savvy administrators can enhance income in the process, stocking cookables in school-owned convenience stores and vending machines.

Based on its own market survey (substantiated by a test mailing to students at California's Whittier College, which resulted in a combined purchase and rental response rate of 12%), MicroFridge projects these campus revenues: $6.3 million in 1990, based on supplying 4% of the students at the 250 schools the company expects to reach, and almost $40 million in 1993, the result of supplying 7% of the students at 960 schools.

Those aspirations may seem giddy, but Bennett reminds doubters that "MicroFridges already are spreading across the country. If your school doesn't have them, your students won't be enjoying the quality of life they can get somewhere else." And, it's implied, they may choose to go somewhere else.

Microfridge Inc. was incorporated in August 1987, capitalized with $35,000 from Bennett, then age 31 and regional sales manager for a $44-million computer company. An additional $25,000 came cumulatively from two soon-to-be-active partners: Procopio Soriano, then 45, vice-president of sales at the computer company that employed Bennett; and Edward J. Ward, then 35, an M.B.A. who was manager of the engineering staff of a research firm. Bennett became MicroFridge's president and CEO, Soriano its VP of sales, and Ward VP of operations. None of the first-round capital was spent on management salaries: even with the alluring projections their studies endorsed, no principal rushed to quit his full-time job. First they had to make sure they could deliver the little device at an appropriately little price.