Within a week of each other last year, the century-old Weber grill company and the 35-year-old upstart Traeger filed IPOs. Coming out of the block, Traeger shares traded at a premium of $25 to Weber’s $16 per share, and Traeger reached its peak at $29 the day after Weber filed.
But by the end of the year, Wall Street’s exuberance turned to indifference. Traeger and Weber shares were trading within a dollar of each other, Traeger at $12 and Weber at $13. Then in 2022, the bottom fell out as both companies were hit by declining demand and excess inventory at retail, but Traeger fell further faster.
In a little over a year as public companies, Weber closed trading just under $9 per share on Friday, August 19, off 45% since its IPO open, with Traeger down nearly 90% at a shade over $3. Of note, Weber has been rallying since it hit bottom on August 1 at around $6.
As the market share leader, Weber is twice as large as Traeger, generating about $2 billion in revenues last fiscal year to Traeger’s $786 million. Weber claims to hold nearly one-fourth of the U.S. grill market, and well over that share of grill sales at Home Depot, Lowe’s and Ace Hardware. By contrast, Traeger holds about 3% market share. Weber also has a robust e-commerce business and an international profile.
With that being said, investors understand what Weber is and what Weber does. It’s quite the opposite for Traeger. After listening to its latest earnings call, it’s pretty clear that the analysts don’t really get Traeger’s business and its distinctive difference.
“The questions were around bank covenants, liquidity, inventory. I understand why those are important right now,” Jeremy Andrus, Traeger CEO told me. “But no one wants to talk about what makes this a really interesting business and a very compelling investment opportunity long term. We’ve got to serve the needs of the moment, but not at the expense of the long term.”
As brands, Weber is the HP or Dell in the outdoor cooking category and Traeger is the Apple. It’s the premium luxury brand in a category where luxury isn’t understood, and investors will need time to comprehend what that means.
Taste the difference
Traeger invented wood-pellet grilling, a tasty alternative to charcoal and gas. It imparts a real-wood flavor to meats, and the company remains dedicated to the fuel source. Its grills start with the push of a button and it is a set-it-and-forget-get style of outdoor cooking with an automatic pellet feed and a fan that maintains the desired temperature.
Traegers cook by convection, so they aren’t prone to flare-ups or uneven cooking. Plus they can do everything a charcoal or gas grill can do and much more, including smoking, grilling, barbecuing, braising, roasting and even baking.
The 100% hardwood pellets Traeger sells allows cooks to select their flavor profile, from apple, cherry hickory, mesquite, pecan or its signature blends for bold or mellow wood taste. That sure beats the sometimes residual flavor of charcoal starter or the blandness of gas grilling.
And the sale of pellets and other consumables, like sauces and rubs, gives Traeger a steady revenue stream and offers shelf space for the brand in retail stores like Kroger which extends its brand awareness. Currently, the company says some 2,200 retail stores carry its rubs and sauces.
Cooking over wood goes back to the dawn of human history, but Traeger has evolved it into the 21st century with digitally-connected features in some of its more premium offerings.
With prices starting around $500, you’ve got to step up to its Pro 575 at $900 or its more premium Ironwood and Timberland line to get WIFI control features or as the company calls it, “WiFIRE.” In the current environment, the sales of its under $1,000 offerings are under more pressure than its premium $1,000+ models.
Most recently, Traeger launched its highest-priced grill, Timberland XL, at $3,800 at retail. This version comes packed with even more innovative features to elevate the outdoor cooking experience, including an induction cooktop, wireless MEATER thermometer, three cooking grates for over 1,000 square inches of cooking space and a grease and ash management system.
Andrus explains the company has made a major R&D investment to bring this level of innovation to the latest model and expects that technology will eventually flow downstream to its lower-price offerings. He also sees Timberland XL creating a luxury halo around the brand that will elevate the entire family of products.
“The average selling price of a grill in the U.S. is about $300 at retail. At $900, our average ticket is three-times that, so we are a premium brand. We believe in bringing a better cooking experience through innovation. And we believe that consumers are willing to pay more for that better experience,” he said.
Traeger also sells the MEATER wireless thermometer as a stand-alone offering, allowing cooks to monitor temperatures through a smartphone app. Traeger acquired the MEATER company in July last year before going public.
Sales of the MEATER thermometers and other accessories enabled the company to report only a 6% drop in revenue in the second fiscal quarter, while sales of grills decreased 25% from the same period last year.
Besides Traeger’s commitment to innovating outdoor cooking through innovation, its community of passionate, evangelistic customers is where its similarity to Apple is most evident.
Apple’s customers are loyal to the extreme, putting Apple on the top of MLBM’s 2022 brand intimacy study in the technology category. And it leads all brands in bonding that measures the depth of the brand-customer relationship and sharing between and among the brand and customer.
Traeger has achieved similar brand intimacy with its customers on a smaller scale and in a different category. Its tribe of loyalists are called the “Traegerhood.” The company found its users are not just loyal but true evangelists, with some 80% of owners recommending the brand to an average of six other people.
That’s why the company’s announced reduction in marketing spend directed to the top of the customer acquisition funnel is of little long-term consequence.
“When it comes to investing in bringing more customers in and investing in our community and engaging the energy there, the decision was easy,” Andrus shared. “If we’re under-serving the community, the specialness of the brand and the experience of being part of the Traegerhood would be diluted. We’d lose the X-factor that keeps our business running. As profits begin to grow, we’ll start to invest more on the top of the funnel.”
Smoking vs. grilling
As a cooking method, grilling is hot and fast; smoking is low and slow. Likewise, for the past five or six years, Traeger has been operating in grilling mode producing over 30% CAGR in the period, but in the face of current headwinds, it has dialed back to smoking mode.
It’s moved to the back-burner its Provisions meal-kit service, introduced last November and that showed early promise. And it has delayed plans to manufacture in Mexico because the time isn’t right to scale additional manufacturing capacity.
“When you are looking to cut costs in a challenging moment, the right thing to do is to focus on your core business,” Andrus explains. “But this time will pass. Then Traeger will go back to doing what we do best, which is being an innovative brand disrupting the industry and continuing to take market share.
“Frankly, I’d much prefer the boring industry that outdoor cooking was pre-pandemic because we were able to methodically make investments and take share based on building a better product and brand. But everything will normalize over time,” he concluded.