The originator and category leader of the wood pellet grill, Traeger (COOK +10.32%) looks to take a bigger slice of the outdoor cooking market this summer. Using disruptive state-of-the-art technology to achieve unmatched ease of use, Traeger grills are in a class of their own. If Traeger can expand its share of the U.S. grill market during the summer selling season, things could really heat up.
Traeger's stock has underperformed since the company IPO'd last year, and it forecasts a difficult remainder of 2022 ahead. But with the recent launch of its new and improved, high-tech Timberline grills with touchscreen interfaces and Wi-Fi capabilities, Traeger looks to redefine the product class altogether.
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What makes Traeger different?
Ranging in price from $450 to $3,800, Traeger grills burn pill-shaped wood pellets instead of gas or charcoal. The company claims to make wood-fired grilling as easy as turning on your oven, and the grills can also smoke, bake, roast, and braise.
Traeger grills also use cloud connectivity, allowing home cooks to program cook cycles, adjust and monitor temperatures, and otherwise control their grills all from their phone or tablet using Traeger's app. This combination of advanced technology and a more user-friendly cooking experience puts Traeger in a league of its own.
With over 1 million followers on Instagram, Traeger has created its own culture and lifestyle brand surrounding its products, the #TraegerHood.
Creating a snowball effect, much of Traeger's sales come from word-of-mouth marketing among its users. CEO Jeremy Andrus states, "Seventy-five percent of Traeger owners have influenced the sale of one or more Traeger grills, and 25% have influenced the sale of three or more. My wife got a message from a follower that they love their Traeger so much they're naming their son Traeger. I cannot tell you how many Traeger tattoos I see on Instagram."
Outlook is a bit smoky
The grilling industry prospered during the COVID-19 pandemic, with 21 million grills and smokers bought in the U.S. since July of 2020. This boom led to Traeger deciding to go public in July of 2021. However, after the IPO's brief initial rally, Traeger's stock has fallen nearly 90% from its all-time high.
Traeger's first quarter of 2022 results showed a 5% year-over-year decline, citing stagnant sales because of high inflation and rising food costs. With less discretionary income to spend on luxurious grills, consumers have been reluctant to upgrade.
The cook-at-home boom during the initial lockdown put new grills in many U.S. homes, effectively shrinking the market for new grill shoppers. According to the Hearth, Patio & Barbecue Association (HPBA), about 38% of current grill owners purchased a new grill in the past two years.
Still more, the HPBA reports that an estimated 70% of U.S. homes have at least one grill or smoker. This is the highest level of saturation the organization has ever observed.
Will the new Timberline grill blaze a trail of success?
Despite the headwinds, Traeger CEO Jeremy Andrus remains bullish in the long term. Andrus joined Traeger in 2014 when he and a private equity firm acquired the business. In his previous role of CEO at Skullcandy, Andrus grew that small startup with less than $1 million in annual sales into a $300 million company. He also won the EY Entrepreneur of the Year award in 2016 for the Utah region.
Undeterred by lower-priced competitors entering the pellet grill space, Andrus is confident that Traeger's superior products will shine. During the Q1 earnings call in May, Andrus described the new Timberline grill as "Traeger's most innovative product since I've been with the company, and it's truly a game changer in outdoor cooking."
Aside from the grills themselves, Traeger sells a range of other products including wood pellets, sauces, and rubs available online and at grocery stores. They also offer high-tech MEATER meat thermometers, various BBQ tools, and an entire line of apparel for the people in the #traegerhood.
Launched late last year, Traeger Provisions sells entire meal kits designed to be prepared on its smart grills. Think HelloFresh or Blue Apron but for a backyard BBQ feast. The all-inclusive meal boxes come with a choice of premium high-quality protein like Wagyu beef and Poulet Rouge chicken, along with rubs, sauces, and side dishes.
But will Americans keep cooking at home? A study last year reported that 71% of people who cook more at home since the pandemic will continue to do so. Along with their newfound abilities in the kitchen and on the grill, Americans are also cooking at home for the simple reason of saving money.
Time will tell whether Americans will continue to embrace outdoor cooking as we attempt to return to a normal lifestyle, and if Traeger's share of the grill market will grow. Of the 1.5 million Traeger grills in use last year, Andrus commented, "Relative to the size of the opportunity, it's small, but it's passionate, and it's connected."
