Money, Marketing, and Patents: Fighting for control of Barbecue
On July 5th, 2021, the day after barbecue’s biggest day, pellet grill maker Traeger announced their filing for an initial public stock offering. Almost simultaneously, Traeger had issued a press release confirming their purchase of wireless thermometer company Meater. Six days after Traeger’s IPO filing, grill maker Weber-Stephen announced their intention to take their company public.
In less than a week, two of the outdoor cooking industries’ most powerful players decided to issue stock and forever change their business culture. Weber, considered an old guard powerhouse, and Traeger, often labeled as the tech-oriented startup, are going head-to-head for investors. Typically, it takes three to six months for IPOs to go from initial filings to printing certificates. I believe that both companies will aim for an October date so they can rely on second-quarter numbers, the best of this seasonal industry.
The Modern Weber
If you know anything about grilling, you’re likely familiar with the Weber kettle grill. You might also be familiar with the story of how George Stephen made the first kettle in the workshop of Weber Bros.Metals in Chicago. This story usually ends with the cliche ‘…and the rest is history.’
But that isn’t the end of history for Weber. George took over Weber Bros. and turned it into the Weber-Stephen Products Company. He continued inventing, wore shorts and Hawaiian shirts, and seldom if ever, gave interviews. By the 1980s, he began stepping away from the company, turning control over to a collection of his twelve children.
These children, all raised cooking on Weber grills, continued running the company until 2010. As it turns out, as successful as Weber had become, the family wasn’t getting rich running it. What Weber earned was reinvested back into the company. They weren’t struggling, but when Byron Trott’s BDT Capital Partners made an offer, they jumped at the chance to cash in on the world’s most recognized grill brand.
It is during this process that Weber changed. The family had already shifted some manufacturing to China, introduced multiple lines of products still popular today, and thoroughly modernized its manufacturing and culture. But BDT is a very modern business. Where George Weber’s children were all masters of the grill, the new Weber would be headed by executives from a wide range of industries. The current CEO of Weber, Chris Scherzinger, once spent five years heading up Johnson & Johnson’s Pain Business Unit.
The Modern Traeger
Again, if you’re familiar with modern barbecue history, you know that Joe Traeger invented the pellet grill in his garage during the mid-1980s. He did this because he hated his gas grill, though it probably wasn’t a Weber gas grill. Traeger developed a small cult-like following. For years, “pelletheads” fought with, improved, and innovated everything pellet grill-related.
Joe Traeger owned something that would seem unbelievable today. For twenty years, he held the patent on the pellet grill. He was the only one that could make them. Unfortunately, few people were familiar with pellet grills. Add to this the limited capability of these grills due to their primitive twentieth-century technology, and the demand just wasn’t here. In 2005, Joe Traeger’s patent expired.
Traeger did everything to stay competitive while facing an onslaught of competitors. They outsourced manufacturing to China. They increased marketing efforts, and they cut prices. Then in 2006, Joe Traeger sold his company to private investors for $12.6 million. Currently, Traeger has floated a valuation of the company at over $3 billion.
Traeger continued to struggle for a few years. Then, entered Jeremy Andrus in 2014. Hot off of the IPO of Skullcandy, Jeremy saw Traeger for all its potential. No one since Joe Traeger has done more for the company or pellet grilling than Jeremy Andrus. But understand, he did this not only by moving the company from its original home in Oregon to Utah; he nearly dissolved the company, eliminated almost every person who worked for it, and rebuilt it from scratch.
Weber vs Traeger
While the Traeger of today is certainly not the Traeger of old, Weber has also experienced its share of changes. As the financial press dives into the story of these two IPOs, a narrative is emerging; “Venerable Weber versus Tech upstart Traeger.” While the hype surrounding these two companies might affect stock prices, little is based on reality. It’s all marketing, and marketing exists in its own parallel dimension.
Weber, like any large corporation, continues to evolve. But some things haven’t changed. As mentioned earlier, George Stephen gave few interviews, particularly during the last 15 years of his leadership. That tradition carried on with his children, who were less reticent to talk to the press. Weber remained mysterious, right up until the day they filed Form S-1 with the securities and exchange commission.
At trade shows, industry insiders discussing business over drinks guessed at the actual size of Weber. I have heard wide-ranging estimates of their market share and predicted gross revenues over the years. Now the guessing is over. According to Weber’s filings and the surveys they quote, Weber enjoys a 24% global share of the outdoor cooking industry. Reported Gross Revenue exceeded $960 million for the six months ending March 30th, 2021.
Traeger, on the other hand, is forthcoming with their numbers. Jeremy Andrus has frequently made claims about gross revenues and didn’t hide that they were approaching a magic number that would trigger a sale or IPO for the company. That number was $500 million. According to Traeger’s filing, 2020 saw revenues of $545 million. (See Will Success Ruin Traeger for more.)
The Covid Bump
Both companies have reported impressive revenue growth and downright impressive numbers. Weber has stated a 62% growth rate for the six-month period ending March 31st, 2021. Traeger reports a 107% growth for the three months ending on the same date. When you consider that they are already major players in the industry, achieving these growth rates is impressive.
But then, there was this little thing called a global pandemic. The fortunate workers stayed home and explored new hobbies. They explored sourdough starters, made tie-dye clothing, and took up barbecue and grilling. Every segment of the outdoor cooking industry rose during the second half of 2020 and the first half of 2021. There were shortages of grills, smokers, charcoal, wood pellets, meat, and accessories.
It only makes sense that companies, long seeking to cash in on their success, would jump at the chance that this growth blip provided. Timing is, after all, everything. The big question, the question that could be worth well over a billion dollars, is, can these growth rates be sustained, or are they headed for a Covid bust?
There is reason to be optimistic about the outdoor cooking industry. People, isolated in their homes, purchased grills. They bought a lot of grills, and many of those grills were pellet powered. Now that they have those grills, they will use them. Maybe not with the same frequency, but they won’t go idle. Weber, Traeger, and every other barbecue & grilling company are ready to monopolize the need for accessories, and in the case of the pellet world, wood pellets. But what about grill sales? Both companies report that the vast majority of their revenue comes from the grills. With more households already possessing a grill, is the bust around the corner?
Both Weber and Traeger have prepared for this day for some time. They are both held by private equity companies ready to cash in on their investments. And both companies have worked diligently to put their best foot forward. To excite investors, both companies started billing themselves as technology companies, not grill companies. Technology is cool. Grills, not so much.
They have made the investments. Weber purchased the smart toaster oven manufacturer June along with more patents than I care to count. The June technology includes an optical system for identifying foods and then adjusting cooking times and temperatures to cook them to perfection. Perfection might be a strong word. Those patents also include a host of references to monitoring and controlling cooking devices via wireless technology.
This brings us to Traeger’s big play. Perhaps it was an oversight or something so obvious that no one else thought of it. In 2016, Traeger filed for a pair of patents covering the monitoring and control of outdoor cooking equipment via wireless cloud connectivity. A loose interpretation of these patents suggested that though they hadn’t invented it, Traeger was laying claim to the very idea of the connected grill. You can read more about this topic in my article discussing the Traeger Lawsuit.
Traeger announced their acquisition of Meater (Apption Labs Limited). Meater is a wireless meat thermometer. It looks like a large nail and sends both the food temperature and the cooking temperature to a smart device app. This isn’t something Traeger needs. They have the technology, and they have temperature probes. Meater, however, has patents. Patents for their wireless temperature probe.
Cold or Hot Warfare?
That two industry leaders would both announce their IPOs in such a short period seems too coincidental. And yet, neither of them truly wants comparisons that will only escalate during the process of filing paperwork, gathering investors, and dressing their presentations. These companies have to differentiate themselves to a group of people who only see the numbers on a page. They each have to fight to stand out.
But getting to the IPO is only the first battle. Once both companies are trading publicly, they have to compete for investors. Yes, there is space for both, but you don’t win the game by playing nice. Weber, armed with years of patent collecting, including those brought by June versus Traeger armed and fighting for their patent rights, puts these two on a collision course. It is a battle of intellectual property.
Of course, they can fight this battle in several ways. Traeger is currently suing Green Mountain Grills for patent infringement. An outright victory could give them near-monopoly power. A complete defeat wouldn’t change anything. How that case (which is currently scheduled for trial later this year) turns out will determine their next move. But either way, Traeger is in it to win. Weber, however, might just be fighting for survival in a marketplace that has changed faster than they can steer.
They can dance around each other, taking out smaller competitors as they go. They can ignore each other and seek to focus on their differences, not their similarities. After all, they are very different companies. Traeger is a pellet grill company. Weber builds it all. Traeger is moving into the global market. Weber is currently sold in nearly 80 countries. If they go to war, they could both suffer damage from the conflict.
How Big Can They Get?
“The Salt Lake City, UT-based company plans to raise $400 million by offering 23.5 million shares (63% secondary) at a price range of $16 to $18. At the midpoint of the proposed range, Traeger would command a fully diluted market value of $2.2 billion.” – NASDAQ.com
The question to ask is, how much are these companies worth. When I started floating the idea that they were both headed for sale, I suggested numbers that most people didn’t seem to believe. Earlier this year, two of Traeger’s private equity owners announced they were looking for a banker to handle its sale. The price suggested then was just over $3 billion.
Weber has suggested that they are looking to raise between $4 and $6 billion with their IPO. I don’t personally see anything unusual with these numbers. Traeger valuing itself around half of Weber’s price is impressive. It shows how far this company has come since its rebirth in 2014.
When financial analysts look at an impending IPO, they look for comparisons. Since there are currently no public companies in outdoor cooking, many have looked to Yeti for guidance. Yeti is a fall street darling. They are presently valued at over $8 billion. Could Weber or Traeger reach these heights? Stock analysts generally suffer from optimistic exuberance.
The answer might be who is sexier. For those looking in from the outside, Traeger seems pretty sexy. Smoky barbecue, wood pellets, high-tech controllers, apps, and loads of accessories. Yes, Weber has a much bigger product portfolio, but it doesn’t seem to have the same appeal. Traeger has a cleaner, clearer messaging. It is possible that once the dust settles, that Traeger could be worth more than Weber, even if Weber commands more of the market space and earns more money.
Don’t Believe the Hype
Lastly, I would like to set aside some of the hype that has already popped up. Financial magazines, industry news, and even cryptocurrency blogs have begun weighing on the subject. I’ve seen all manner of headlines, many of them coming from a place of ignorance. One item that keeps repeating suggests that these two companies are luxury grill makers. They cite Traeger’s $2000 pellet grill and Weber’s $3000 gas grill.
While these companies include high price point products, Traeger’s biggest seller is their $800 pellet grill. In fact, that is pretty close to the average selling price for all Traeger grills. And Weber’s $3000 Summit Gas Grill is not a huge seller. When you factor in their portable and charcoal grills, their average unit price is probably lower than Traeger’s. Neither of these companies is what I would call luxury grill makers in any category.
As for the IPO cookoff? It seems like a good headline. But the real battle isn’t going to be won on opening day. These two are going to be dancing together for a while. Traeger may seem sexier now, but they have one issue that might be their make-or-break point down the road. What role does current CEO Jeremy Andrus play in the future?
Jeremy isn’t just a CEO; he’s an investor. When Traeger goes public, he stands to find himself with a serious upgrade to his net worth. Mr. Andrus has a passion for startups, particularly high-tech and sexy startups. Will he remain with Traeger? Will he use his newfound fortune to follow in the footsteps of friends and mentors and turn to private equity and venture capital? What would Traeger look like without the one person who reinvented the company and increased its worth from $13 million to more than $3 billion in seven years? Investors will want to know.