Happy Fourth of July to our listeners in the States. Decoder is only a year old, but we’ve decided a Decoder tradition is that every summer, we’re going to do an episode about the outdoor grill industry, which is gigantic and growing.
Last year, I talked to Roger Dahle, the CEO of Blackstone Products, a griddle company that blew up on TikTok and actually went public a few months after we talked.
This year, I’m talking to Jeremy Andrus, the CEO of Traeger, which makes beloved wood pellet smokers with all sorts of features — the high-end models even have cloud connectivity so you can control them from your phone. Traeger also recently went public; the company says it will book between $800–850 million in revenue this year.
The Traeger story is fascinating: the company was around for 27 years and not growing very much when Jeremy bought it with the help of a private equity firm and became the CEO. He had no background in cooking; he had previously been CEO of Skullcandy, the headphone brand. His early run as CEO of Traeger was a bit of a nightmare, culminating in an arson of a truck at one of Traeger’s warehouses. Jeremy responded by cleaning house, replacing most of the team, and moving the company from Oregon to Utah.
Since then, Traeger has grown its revenue by 10 times and hopes to close in on a billion dollars in revenue soon. But, it has all the challenges that come along with shipping big, heavy hardware products through the supply chain crisis, looming recession, and changing consumer behavior as one version of the pandemic seems to be ending and people are spending their money on travel instead of home goods. Jeremy was game to talk about all of that; we really got into it.
Okay, Jeremy Andrus, CEO of Traeger. Here we go.
Jeremy Andrus is the CEO of Traeger Grills. Welcome to Decoder.
It is great to be here.
This is our Fourth of July grill episode. Our producer and I have a joke that we are always going to do a grill episode around a summer holiday. Tell people what a Traeger grill is.
A Traeger grill is a backyard grill that uses all-natural hardwood pellets as both the fuel and the flavor. The pellets, interestingly, are a byproduct of a different manufacturing operation. We set up sawmills and take the dust that is left over, which we compress to make pellets. It really gives you all of the benefits of cooking with wood, but it makes it easy.
It’s like you can go from zero to hero, king of the cul-de-sac. You could be terrible at cooking, but when you get a Traeger, not only do you become great at creating this delicious wood-fired food, you also love the process. It is the journey of learning to love to cook and getting better. Traeger is a disruptor. We view outdoor cooking as a space that has lacked consumer innovation for decades. We brought something better and consumers are freaking out. They love it.
This is actually a phenomenon in cooking. Traeger went from being a pretty small company to now having Traeger influencers. You run an influencer marketing campaign, there are grill tips on TikTok, you have a huge suite of new competitors, and there are artisan pellet grills now. Traeger has been around for a long time, and the story is actually really complicated. You were the CEO of Skullcandy, which is a headphones company. How do you go from doing classic consumer tech like headphones to where we are with Traeger now?
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First of all, I am an entrepreneur. I love building businesses, and I love product. Before Skullcandy, I was actually developing hotels. I was not classically trained to do anything except find a business I had passion for and figure out how to build it. I was more of an early-stage startup entrepreneur.
It is interesting if you think of the history. I met Traeger as a company when it was a 27-year-old, slow-growing, $70 million brand based in the Pacific Northwest. It was definitely not a space I was looking at. I love interesting and disruptive lifestyle brands. I thought of grilling and said, “You know what? It’s commoditized, boring, and there is no money to be made here.”
Then I spent time with some Traeger owners, and I heard this undying passion that you often do not hear for a consumer product. It was mesmerizing to me. I am a passionate consumer of really great brands, and it was mind-blowing to me that I had never heard of this thing called Traeger. I had no idea what a wood pellet grill was.
I sat down with Traeger owners back in 2013, and heard them say things like, “My Traeger changed my life.” That stopped me dead in my tracks. I said, “Boy, I love food. It has been lost as a communal, shared experience amongst humankind as society becomes more divisive. There is no time for food. Food is calories, not an experience.” I found these Traeger owners and said, “I don’t know what this is, but there is something really special here.”
Joe Traeger founded this thing in the mid-1980s, and I found it in 2013. I came in late but that was how it started for me.
The company had been going on for a couple of decades there. You had been at Skullcandy, which you left after it went public. You were then doing private equity, looking for a company to buy and run. That is when you found Traeger. Beyond having a great customer base, what other elements of the business attracted you to make the deal to acquire the company and come in as CEO?
Honestly, it rested on a single criteria that I found, and it was the passion. I believed there was a business to be built and I saw all sorts of opportunities. I have realized that finding true product-market fit — like true brand energy — in consumer brands is a really hard thing to do. Just having capital and being methodical doesn’t get you there. Some of the best brands in the world, a Nike or a Coke, will spend money to launch something and have it go flat. There is great method, but there is also some synchronicity and luck to connecting with the consumer. It existed there, yet it had not been scaled.
I was almost blind to all of the issues that existed in Traeger because I heard the passion. I said, “This is not the industry I was looking for, I have no idea what the product is, I am not a griller.” If I would be honest, my wife was the griller in the family at the time. It was also bigger than I was looking for. I was looking for a business doing $10, $20, $30 million of revenue, and found this one doing $70 million. It was not the profile I was looking for, but the passion that consumers had for a rudimentary product was fascinating to me. It was like, “Cooking is all about precision. Smoke medium high.” There was no marketing department, so I said, “If this passion can be built with this product, there is a solution here that has a lot of legs.”
You were an entrepreneur in residence at Solamere Capital, a private equity company. I think of the Decoder audience as every business school student in America. Entrepreneurship through acquisition is a hot topic in that set. You are either self-funded or you are in PE; you go out searching for a business, you buy it, and you become the CEO. Do you think that is generally a good model? Do you think it worked for you because you found the right company? Do you think that is a scalable model? It seems very hostile in a way.
I have to tell you, it’s funny how you look at things leading into this process. I got lucky as an entrepreneur. I connected with this guy who had founded a snowboard audio helmet brand, called Skullcandy, that was doing a few hundred thousand dollars in revenue. I said, “This is awesome. We are going to build a business.” We built a $300 million business on $800,000 of equity. That’s just what you do, right? I look back and say, “That should never have worked.” There was so much that had to go right, and it did. And we made a ton of mistakes along the way, even if we did some things right.
I went into this process looking for a business to buy, and I said, “This is what you do. You join a PE fund, you have this captive check, you find a business, you buy the business, you run it, you sell it, and that is how these things go.” I will honestly say that Traeger has exceeded my wildest expectations.
I look back at that process and realize that as an operator, it is actually really hard to buy a business. You have to find the right business — one that you appreciate, are prepared to run, want to run, that needs a CEO, that is for sale, and capital that is willing to invest. It’s like you have this funnel that gets so narrow at the bottom, and the bottom is a deal. But you know what? It went well. There was a lot to like.
I realized early on that I had a very low likelihood of setting out to buy a business in the classic search/fund model. I love to invest as a hobby, but I was not a deal guy. I joined Solamere and told them, “Look, don’t pay me.” I really respect those guys and they have become very good friends, but I said, “I actually need a platform much broader than a single fund.”
I went out and invested in a dozen other funds who were investing in the types of businesses that I wanted to buy. Suddenly, there was a platform of a dozen funds who saw hundreds of deals every year, and I barely got one done. It is a little bit of a needle in a haystack. I really do consider myself incredibly fortunate that I not only found a business that had potential, but I found a business that I love and speaks to me every single day.
That part seems like the key and the difference. Most PE deals come into a company, load it up with debt, use that leverage to slash costs, trim up the company, increase margins, pay back the debt, then flip the company at the end. That is a very financialized model of private equity.
Yes. It is very clinical.
Right, but you’re saying, “I love this company.”
I do. It was not about the profit and loss or the balance sheet, I felt compelled by the passion. I am a student of great brands; I am learning every single day. I look back and realize how little I knew then. But I felt compelled by the passion.
When I got on the inside, nine years ago this month, there were two things that really fueled me well beyond a private equity lifecycle. The first was that I fell in love with cooking and wanted other people to fall in love with it too. The second is the mission of the business to bring people together in community — in their backyards with their families, on their cul-de-sacs with their neighbors — to create a more flavorful world. Those two things I came to love far more than just building a business.
I came into it thinking we were going to build a business and sell it. I remember sitting with my private equity partner nine years ago and saying, “Hey, look. I have real PTSD, having run a public company where everything is about the quarter.” That is a really hard way to build a long-term business, and I have this belief that you can’t build one the right way within a private equity holding period of three, four, five years. You have to make investments and do the right thing every day.
I told them, “We are going to invest beyond your three to five years, and we are going to build something great that lasts forever.” My intent was to build it and sell it, but once I got into it I fell in love. I said, “I never need to have another job. The grass beneath my feet is so green. It is always a struggle, but I like our issues and where we are taking the business.”
I got to know it in ‘13, became the CEO in January ‘14, bought the rest of the business in June ‘14, then we sold two-thirds of it in ‘17 and took it public a year ago. These transactional moments just do not mean anything to me anymore. I know they mean something to my investors and my team, so that is important, but I’m here and this is the last thing I will do. I have so much passion for what we are building that I am not sure how or why I would find that passion somewhere else.
Let me ask you a hard question with that. You described the standard private equity, or entrepreneurship through acquisition, model. It’s clinical. Sometimes it pays off handsomely for everyone involved; it often crushes the company underneath it.
It obviously worked out for you and you found a higher calling, but do you think it’s generally a good model?
Honestly, I think it can be a very challenging model. We put debt on the business when we sold two-thirds of it and had some challenges the year after; our margins got hit, we had low-cost competition that we had to figure out how to position around, and we went from having a very healthy amount of leverage to a very painful amount. We learned to run the business that way.
I will say, debt is a really interesting disciplinarian. We had to manage covenants while the leverage was high. You really have to figure out how to get a return on what you invest in a business. You do see businesses run into issues.
Businesses don’t just go up and to the right, year after year. Good businesses will over time, but they tend to do it unpredictably in fits and starts. When you over-lever a business — particularly one that is intended to grow, and growth is not predictable — you can find yourself spending more time thinking about balance sheets, liquidity, and how to keep the lights on, rather than actually thinking about consumer, product, and growth. It is something we have really focused on, even when we felt like leverage was high. It’s like, “This is a financial piece that we have to navigate, but we need to make sure that we stay focused on building something great long-term.” The model oftentimes works out, and oftentimes doesn’t.
I think it usually works out for the PE investors. The question here is, does it work out for the companies, the products, and the consumers? It seems like a coin flip every time.
It is a coin flip. Of course, you have to buy a good business and need a good management team. I have learned as an operator that the quality of your private equity partner matters so much. I have sat on boards as an independent with other private equity partners. The first one I partnered with nine years ago was Trilantic. They were awesome and we worked together through it. Then we brought in a group called AEA, the world’s best partners who actually care about the business. They are unlike most private equity funds, which are all about IRR, where it’s not “getting a return,” but “how fast can you get a return?”
AEA doesn’t view the world that way. They said, “You cannot deposit IRR in the bank. You deposit the cash return.” It wasn’t, “We have to flip this thing fast,” it was, “Let’s do the right thing for this business.” That is where value is created.
I think who you partner with really matters. I have seen some tough stories and tough outcomes for the operators who came in and said, “We are going to take a big swing to generate wealth for our families.” As the financial partner you have a portfolio of risk, as an operator you have a portfolio of one.
Do you think that this was all made easier because your partners had Traeger grills and were happy with them? There is a part of me that thinks they all had it and the product was real to them.
Yes. That is actually a really interesting question. When you become an entrepreneur, you don’t realize until you have had a not-so-good financial partner that you are actually getting a boss. You don’t want to be employed and work for your W2 every other week, you want to make decisions and build something special. That is why you become an entrepreneur.
When you partner with someone who genuinely cares about your success and recognizes that you built a business, they are betting on you, not financial structure, and they respect you as an operator and believe in true partnership. That is the difference.
The funds I have partnered with are incredible, and we have actually become very good friends. They really do appreciate this business, and they also cook a lot. I remember when the lead director from AEA, James Ho, came out to visit and said, “I got to know you at a conference. The firm bought me a grill, so I started cooking and kind of fell in love with your product.” I’m sort of rolling my eyes saying, “Yeah, right, you like the PnL” but the truth is, this guy who had never cooked before really did fall in love with it. Not only does it help them appreciate and do the right things for the business, but it helps them understand where and how to be helpful, because they are actually consumers of your product. I think that is a big deal.
That is what I would call the rosy version of the story. There is a version with a lot more drama embedded in it.
Oh, there is plenty of drama at Traeger. Don’t misunderstand. That is just not where the drama is.
Right. You took the company’s CEO position from the founders. You wrote a story for Harvard Business Review about arson at one of your shipping facilities, which spurred you to reset the company and move it from Oregon to Utah. You also ended up in a lawsuit with one of the founders, whose last name was Traeger, because they had made a grill for a competitor and you had bought the rights to the name.
“These are not true stories, are they?” They are. It’s insane.
It is all very dramatic. Tell me how you managed through all that.
I’ll tell a story. We actually bought the business from an entrepreneur who bought it from the founder. This guy is phenomenal. He bought a bank when he was 18 years old, moved to Hollywood, produced The Fugitive, and founded Planet Hollywood. He is a really interesting entrepreneur.
He had bought the company from Joe Traeger, the founder, which we then bought from him. We initially made a minority investment with an eight-figure check I pulled out of my Skullcandy experience. By the way, I didn’t have two nickels to rub together when I co-founded Skullcandy. Fortunately, I married a woman who made good money and put a down payment on a house.
We took this hard-earned money from Skullcandy, parlayed it into trade with my private equity partner, and bought 48 percent of the business. I knew within weeks this was a disaster. The partner will remain nameless, but he was a hard partner, and we saw the world very differently. I got a few months into it and said, “I can’t build a great business as a minority partner with these constraints.” Things came to a head and it got very spirited very quickly. There were some conversations that knocked me off my horse a few times. We bought the business a few months later.
You bought the partner out?
We bought the partner out. My private equity fund and I bought the entrepreneur owner, who was the second owner of the business. We got on the inside and sort of said, “Holy crap, there is a lot of dysfunction here.” We then had the opportunity to rebuild the business, which was a hard, complicated, toxic place.
Just as this thing was starting to go well, the founder of the business, Joe Traeger — who had sold it 10 years before — joined another grill brand, where they started putting his name on the collateral, on the grills. I’m like, “Hold on a second, this is like Bill Marriott starting another hotel company and writing the name Marriott on the top. You can’t just take your name anywhere and compete.” We sued and won, so he can no longer do that.
Back to one of your earlier questions. I fortunately had real stability in my partnership with my financial partner, because there has been so much drama along the way. That incident of arson you described, I have never heard of anything like it. We were three months from buying the business and had decided to outsource our fulfillment distribution, because it just did not scale the way it was configured. They had a standup meeting with the warehouse team and said, “Look, this is where we are going. We will pay you severance, and you can look for a job on our dime for the next eight weeks.” We thought it was the right thing to do as good human beings, so this wasn’t their fault.
The next time we went back to the office, one of our 18-wheel rigs was up in flames. It was like halfway melted, doused in fuel. Being an entrepreneur is wacky, and no one really ever prepares you for these moments you can’t anticipate. There were moments I said, “Boy, if this doesn’t break me, then at least it is a good story. I don’t know if there’s a good outcome, but there’s a good story.”
I just look back and say, “What a journey.” I haven’t loved every moment, but I appreciate how each of those moments have contributed to who I am today. By the way, I am halfway done with my journey. I am looking at the next 15 or 20 years and saying, “I am better equipped than I was when that truck was burning down, and I am better equipped than I was when I saw my first pair of Skullcandy headphones get purchased at retail.” This journey is remarkable and not for the faint of heart.
Your burning truck is the first arson story we have had on Decoder, so congratulations.
There is a first for everything, right?
The truck burning down leads you to this massive reset of Traeger’s culture and its executive team. How did you institute that? It seems like the right answer was just firing everyone and starting fresh.
That was the answer I eventually came up with. When you build your career in startups, you take for granted the fact that culture is built very organically, by the people you hire, how you behave, and how you model your cultural values. I would show up at Traeger and feel sick to my stomach when I saw how people treated me and each other. I had tried to change the culture before buying the rest of the business, and I just couldn’t do it. No one viewed me as being in charge, as CEO but minority shareholder.
After we bought the business in June of ‘14, I really set out to change the culture. I was very deliberate in determining the vision of our business through conversation and thought. What are the cultural values that help us build a team and think about the future? What are the values that I believe inspire people to show up every day and become their best selves? I think culture is important for those two reasons.
I failed miserably. I didn’t make any progress. It was a very passive-aggressive place where people were respectful to my face but really spoke negatively behind my back. It was scary. It took the truck burning down for me to say, “I’m done. I can’t do this. I can’t get anyone to think differently. There is too much inertia in this culture. They do not respect me, and they do not aspire.” Their respecting me is neither here nor there, but they had no desire to change. I realized that human beings do not change that much. We are who we are. That is when I said, “We can’t change the people, so we are going to change out the people.”
It was a unique moment of clarity when the truck was burning down. I was in a locked bathroom, washing my face with cold water and looking in the mirror, saying, “I don’t have to do this. I do it because I love it, and I hate it. I have paid off the Subaru and my mortgage, and I don’t need to put food on the table. I fear for my life right now. We are going to start over.”
It took me a few weeks to formulate the plan, and 12 months for us to execute it. I remember the moment I stood in front of the team in Oregon to say it wasn’t working. “When trucks are burning down in the parking lot and you are unhappy being here, it is not working. Here is what we are going to do.” With that, the burden was lifted. We said we were going to build a new team, and we did.
We built the new team in Utah, only because this is where I lived and I built Skullcandy here. I knew people here and I needed to build a team fast. It is a really interesting case study, I think. We all say that we believe in culture, but I think organizations fail to do it well. I had never really seen the impact of culture before. In a startup there are so many variables: product, market fit, your team, financing competition, et cetera. This is a case where it took 27 years to get to $75 million, and 8.5 years later it is 10 times that size. We still sell a wood pellet grill, granted it is a better one. What is the difference? It is people and culture, and you have to say those things in one breath.
You had an old structure, got rid of all the people, moved the company to Utah, and hired people you know. How is Traeger structured now?
The headquarter office is in Utah, we have an office in Europe that runs our European operation, and an office in Shanghai that oversees our Asia sourcing operation. We are mostly based here in Utah, where most of the headquarters functions. Let’s say 300 of our 800 people around the world are here. I am the CEO and very actively involved.
I would say my greatest motivation — which informs organization, strategy, and vision — is this belief that getting better, learning, and developing knowledge and skills is the most satisfying part of a career. When you do that, others gravitate towards that and want to do the same for themselves. Then you build this great business outcome.
One of the things that we talk about daily is how we are a disruptor. How do we make sure that we are never disrupted? That really informs how I think. You do not build a team once, you build a team every single day. You top great talent, you fill in gaps, and you part ways with people who no longer contribute or are not cultural multipliers.
We are somewhere early on this journey. We are a public company now, so that informs some of the things that we have to do. At the end of the day, being public is a financing vehicle, the way that private equity is a financing vehicle. What we really aspire to do is build something great that lasts forever.
You said you had 800 people, with 300 in Utah. Do you have 800 people working on pellet grill augers? How many software people do you have? How is that organized?
The broad answer is that we always think about where success comes from. It comes from providing an experience that your consumer values and finds important. For us, the experience is driven by two things. The first is a differentiated product experience. We have a very substantive product organization that is always pushing the envelope on innovation and building better product. That used to just be about the durable, the grill, but in 2014, we started working on the first cloud-connected grill, which then launched in 2017. It’s consumer technology.
A sister to the product team is the digital team, which makes all the digital content experiences great. You also have brand. What I really mean by brand is community, which is the purpose of our brand team. Everything else facilitates that, and supports a better product and a better community for our customer.
We have finance and supply chain operations. Service operation is run here, but our call centers are outside of Utah. All of the headquarter functions are here, then everything else around the world is either supporting these core functions or building out sales and marketing in a different market.
We have talked about a lot of things: changing the company culture, deciding to do private equity, and deciding to invest in Traeger. How do you make decisions?
Decision-making is something that has evolved for me over time. I make decisions quickly. I believe in gathering as much data as you can, as quickly as you can. It’s an 80/20 rule; 20 percent of the data drives 80 percent of the knowledge. You then make decisions based on your instinct.
I sometimes get criticized for making decisions or jumping to conclusions too quickly, but this is the culture I want to build. Let’s not die a death of 1,000 papercuts of unwillingness to make mistakes, but let’s make decisions quickly. That is what innovative, disruptive businesses do, and that is how I move.
Let’s talk about the product side of it for a second. One thing that I have noticed when I talk to CEOs who make that software investment is that eventually it dwarfs everything else. You have ongoing support costs, you have to maintain the servers, and you have to keep that Amazon relationship going, or wherever you are hosted.
Oh, so you are on AWS. It is just on and on and on. Apple changes the App Store rules, then someone has to figure out if Eddy Cue is going to let the Traeger app on the store. I can’t imagine you have ever had any weird app store issues, but that would be amazing if you did. Is that happening to you? Is your software investment starting to dwarf the harbor investment? I will give you an example. We had the CTO of John Deere on the show and he was like, “John Deere now employs more software engineers than [mechanical design] engineers,” which to me is just staggering. Are you on the same curve?
The answer is yes.
Is it yes right now or yes in the future?
It’s yes right now. I would say we have kind of hit that inflection point. To be fair, some of it goes back to our strategy. Over time, hardware innovation slows down. You certainly see that in handheld devices. You can only take things so far. Thn it is the content and the software that really facilitate the differentiated experience.
We spend a lot of money on both sides. We still have a lot of innovation in the durable, hardware piece. The reality is that a connected product has a lot of investment in server capacity, in software development, and in content development. It is always evolving. You launch a new grill and maybe you have three or four years of useful life. You launch a version of your app, and the next month you are doing it again. You are always pushing the content piece, which is where we probably invest the most. That is ultimately what changes the experience. The model is expensive, but we think it is important.
Over time, hardware commoditizes. Apple is a great model; it is the best hardware from a design perspective and a usability perspective. Part of the reason for that is they also develop their software and curate the apps that live on their platform, so that they are good experiences. We sort of think about our platform a little bit that way. We always want to have the best cooking devices and accessories, but we want to make sure that we are driving innovation in the content experience.
It costs money to keep the servers going, develop new versions of the app, and make new content, right? Even if I buy the expensive Traeger grill, that might be the end of my revenue relationship with you. How do you make sure that all balances out?
The more grills we sell, the more grills we sell. That is because we have a highly evangelical community. We always heard that, so we did a quantitative study. One of the things we learned is that 80 percent of Traeger owners have recommended the brand to an average of six other consumers. It is highly evangelical. The lifetime value of our consumer is more than that person.
We also improve the cooking experience through accessories and consumables, which create new modalities to make cooking from inside the kitchen out to the grill better. Then we sell the wood pellets, the fuel. On average, a Traeger owner is burning about 110 to 120 pounds of pellets a year. We are vertically integrated around the pellets.
Wait, hold on. You’re not really though. You can go buy pellets from anywhere. There is a thriving pellet supply community of different flavors. You are not going to like, DRM the pellets, are you?
No, no, no.
I need a harder no. Say you are not going to DRM the pellets.
No. It’s like other consumables. When you walk down a grocery aisle, you can either buy Captain Crunch or whatever the generic is, which I don’t know the name of because you typically just buy the real thing. There is value in a quality consumable product, and not all pellets are created equal. That is why we vertically integrated it, because if we want to get into humidity, smoke to heat ratio, and so on, we actually build a better pellet.
That is what this show is all about. We did the first half on entrepreneurship, now we do smoke to heat ratio.
There is real science in the quality of the pellet, and it really is an input to that cooking experience. Also, people trust brands. North of 90 percent of Traeger owners buy Traeger pellets, even when they have options to buy others. Why do they do it? Because they trust it when they are cooking food. When everyone gives them a high five, saying “Dad/mom/bro that was amazing,” we find that they want to spend more time and money on what they are cooking.
When you put a $150 brisket on your grill, you are not going to use cheap pellets and suboptimize the result. The consumable is an important part of it, but we have to innovate on the consumable too. It has to be high quality, well packaged, and well branded. It is the same idea that you can buy a great car and put cheap gas in it.
I just want you to promise me one more time you are not going to DRM the pellets.
I don’t have any plans to do that.
Okay, thank you.
You know what, if we were going to do that it would have been a great idea in 1987.
They’re not going to be a weird shape that no one else can make? No, now I have just given you an idea. This is bad. Jeremy is smiling.
No. We have had that conversation a thousand times over.
So what leads you to not do it?
It is two things. Number one, when you have a very large installed base, it is not easy to completely cut over. The other is that we also believe that it would be a lot more expensive to do that, rather than build the best pellet and create the most loyalty.
How many pellet engineers do you have? Is it in the hundreds?
No, no, no, no, no, no, no.
Is there a lab where like four people are compressing sawdust?
We do have a lab and we are always testing. I would say we spend more time innovating the quality of the pellet, independent of shape or cartridge model. We believe that we bring innovation through something that burns better, creates better heat, and creates better flavor. We launch new flavors, and frequently limited edition flavors. That is where we spend our time from a pellet innovation perspective.
Everyone is affected by the supply chain differently. The pellets are obviously made of sawdust, and there was a huge run on lumber in the middle of this pandemic. Did that affect pellet prices? Did it affect your wholesale prices? How did you handle it?
Supply chain is the bane of my existence. It has been a hard couple of years. On the pellet side specifically, we do not really fluctuate with the cost of wood. We are just taking the sawdust that comes out of the operation, so it did not affect the product cost much. The cost of transportation did. If a 20-pound bag of pellets costs $20 and suddenly transportation costs go up very meaningfully, it really impacts margins. We felt it there.
The more painful part of the supply chain has been anything that we import from Asia. It has been about transportation cost, fuel surcharges, lead times. We used to be able to move things across the water in 25 to 30 days, but now it’s like 70, 80, 90 days. Supply chain has become very unpredictable and very expensive. Fortunately, because we are vertically integrated on the pellet side, it has been relatively uninterrupted. We have just been hit by transportation cost increases.
Do you do most of your manufacturing in Asia?
All of our consumables — the rubs, sauces, pellets — are produced in the US, but all of our durables are produced between Vietnam and China. I should add the caveat that we have just started to produce in North America, in Mexico, which we have been working on for a couple of years. We are building more of a diversified portfolio of sourcing geographies. China was just a panacea for 20 years, with low-cost labor, low-cost transportation, and a fairly stable geopolitical position. That has all changed, so we have been diversifying outside of China for a few years now.
There is a lot of tech in a Traeger grill. You have the Bluetooth components and temperature control. Were you affected by the chip shortage as well?
Big time. It has been hard. The chip manufacturing industry is highly consolidated and the pandemic just accelerated digital adoption so rapidly. We all compete for the same capacity, from the biggest auto manufacturers to the device manufacturers. So yes, that has been painful. They are not only difficult to get, but we are paying significant premiums, many multiples to buy inventory on the spot market where we cannot get it otherwise. That is something we continue to feel. I think that is going to continue for the next couple of years.
You’re not on the bleeding-edge TSMC nodes at five nanometers, right? Are you competing for older process nodes?
We are not pioneering new technology, and we are certainly not designing custom chips. We are integrating product around technology that exists. We are somewhere in between.
When you say you are not pioneering any new technology, you must have a tech stack roadmap that says, “Here are the capabilities that are going to come from these chips.”
One hundred percent, we do. We are building product capability, product features, and benefits based on technology that is being produced at scale by much larger manufacturers.
Do you have a standard chip supplier? Is there like a Qualcomm wood pellet platform, or do you integrate your own?
No. We mostly buy from two of the largest global chip manufacturers, and they are names that you would recognize. We are very close to them in understanding their product roadmap, so that two, three, four years in the future, we will understand not only what they are building, but how capacity comes online. How do we start to collaborate around when we could be customers for that? We are market takers in the chip world.
I have heard you describe the Traeger grill as an Internet of Things product, which is a very fun way to think about a grill. One of the things we talk about on Decoder all the time is that once you turn something into a computer, you just inherit the whole stack of computer problems. You were the CEO of Skullcandy, so I am sure you know as well as anyone that things crash, you have ongoing support, people can’t use the apps. Is that tradeoff worth it?
It is expensive, but it is going to be worth it over time. I do believe it will be. We hotly debated early on when no one else was doing this, since we have this static device sitting on someone’s back deck. As long as it is tested before it leaves the manufacturer, it is going to work.
When you have issues starting with, “I can’t connect my grill,” oftentimes it is not our fault, but it becomes our problem. Someone needs an extender, they have put it too far from the house, they do not have Wi-Fi in the backyard, or whatever it may be. They call us, not whoever it is that supplies their internet connectivity. It starts there.
We are evolving the product, pushing firmware, creating performance features and pushing them to the grills. That does not work perfectly every time; there is no perfect code. These things are iterative and we are always refining.
We knew that it would create cost. I don’t know that we anticipated how much it would create. With that said, I think we are getting better at managing it. The device has to be great. We really aspire to build something that uses technology that is complicated behind the scenes yet very simple and elegant to the consumer, so that it inspires them to cook more and enjoy cooking at a higher level.
Is that an escalating cost?
No question. It is.
Right, it has skyrocketing costs for all that support. Is recurring revenue on pellets going to sustain it? Are you going to have subscription software features like everyone else is doing?
The pellets are an important part of this, but we step back and think about the lifetime value of the customer. In theory, if you are selling an experience — regardless of how you monetize that experience — you should be able to monetize it somehow as a brand. We get a premium when we sell the grill, relative to our competition, and we make margin on the pellets. If we are creating the right sort of cooking journey, the content and how we deliver it should motivate us to cook more. When we cook more, what do we do? We buy more pellets and evangelize more.
Then there is a content piece of it, which has been an internal debate. Is there a content subscription model? Is there premium content? Is there à la carte content that you pay for, with the base model free? I don’t know that we have aligned on that. We simply say that if we build the best product experience, it preserves optionality to monetize in different ways.
We are far from building the experience I think we can build; we have a long way to go on the technology and the content side. Our consumers love it, but we think we can build something that is much better. Until then, buy a Traeger grill and get the content, or buy any grill and get the Traeger content. We are going to do the digital experience better than anyone else.
This sounds like you are pitching the Traeger Plus streaming service. Is that where you’re thinking? Do you have something like that for Provisions, the meal kit service?
I would say it is not one of those things, it is all of those things. Willingness to pay is a function of how much a consumer values the experience. Provisions is an opportunity to bring people into cooking in a way that is less intimidating — to bring them into cooking complicated cuts of meat like brisket that are not easy to source and not easy to cook, and sides that take a lot of effort. We always step back and say, “Before we talk about monetization, are we building a better cooking journey? Is it something that a consumer values and will pay for somehow?”
You recently acquired Meater, which is a connected thermometer. I have one, which I bought way before your acquisition. I always wondered if this company was going to last. The only business model I see here is selling ever more thermometers, or betting that like me, you will lose one meat thermometer a year. Is that the same business that you have there?
Meater is interesting. We initially reached out to them as one of many options for integrating technology into a product that we literally just launched a few months ago. We fell in love with the product. Look at the space they play in the US, for example. There are 22 million meat probes sold every year. It’s insane.
Well, most of them are bad. I have so many because most of them are bad.
They are consumables. Most of them are sub-$20. The bet that we made on Meater is similar to the one we make on Traeger every day. If you find a consumer who loves cooking at home, or that can learn to love cooking at home, and you can deliver a better experience, are they willing to pay a premium for innovation? We believe the answer in Meater is yes. It is very closely tied to what we are building at Traeger.
Interestingly, a very small percentage of the installed base of Meater owners actually own a Traeger. We already know they pay a premium and value home cooking. To speak to the 95 percent of Traeger owners who do not own a Meater is a very similar experience. We think integrating them into the same product is compelling. How big is the market today for $100 meat probes? Not that big. How big do we think it could be? It depends how well we lead.
So Meater has the same sort of software cost problem, right? There is a Bluetooth stack, there is an app they have to update, and they have to get past Eddy Cue. I love the idea of a meat thermometer app getting caught up in the App Store, but that is a topic for a different day. They have a Wi-Fi model, they have a cloud service, all the same costs. How are you going to defray those costs beyond just selling more meat thermometers at a premium?
There is scale to the platform. One of the things that we loved about Meater was their capability in IoT. If I were to be honest, they had a deeper capability in creating product and managing the ongoing costs more efficiently. We are learning from them. It is interesting to buy a business much smaller but to know they have capabilities that you can learn from. I think over time there is a virtuous cycle to the Traeger, the Meater, the ongoing consumption of the consumables, the trade-up when new innovation comes out, and the evangelism.
When you acquired Meater, you made the classic promise, “We are going to leave this company alone. We know you love it, and we are going to leave them independent.” Are you just going to leave them independent? Are you integrating over time?
That is a very interesting and a very timely question. I have done this before. At Skullcandy, we bought a business called Astro Gaming. At the time it was a $9 million brand business, a great product, and a great brand. We had to figure out how to integrate while respecting the culture, the people, and what they had built. How do you bring to bear some of your platform synergies that actually have real value? The first rule of thumb that I learned is do no harm, which means don’t do much of anything up front. Just listen and develop trust.
We are still very much in that phase with Meater a year later. There were some bumps along the way. Again, they are entrepreneurs and used to making their own decisions. Get acquired by a company that is about to go public, and suddenly you not only have the process and discipline of a bigger company, but the whole process of being public. That created some challenges.
We really like them, not just from a product company perspective, but they have become our friends. When you are willing to take the time to not integrate and listen more than you scheme and plan, what happens is that you collaborate around the integration as opposed to making it a unilateral conversation.
Now, have we done it perfectly? No, there were some bumps along the way, even with that philosophy in mind. I am not the guy that owns all of the conversations. People talk at mid levels of the business and everyone is well-intentioned, but not everyone has the same sensibility in regards to how personal and emotional these things are when you are a startup business. We are integrating where it makes sense and where it is not a core capability.
So where do we start? Finance and accounting, which is not their passion. Their passion is product and brand. We are integrating where we can be helpful; we are trying to bring our retail channels to bear. They are predominantly direct-to-consumer with third-party e-commerce accounts, and we are predominantly a brick-and-mortar retail business with less than 10 percent of our business sold online. We are bringing some capabilities to them, and they are bringing some to us.
Early on we tiptoed around sensitive issues and stepped on toes, but we are at a point now where I think we like and trust each other enough that we can actually speak very openly about sensitive topics, without offending, and get to better answers than assuming.
You said it was timely. What makes that question timely?
We are a year in and we talk about this every day. The first six months were hard. We had a business about to go public, and they could not really travel here since they are based in the UK. It was hard to go back and forth. It is timely because it feels like over the last 90 days or so, we are hitting our stride. The trust has allowed us to do more. Everyone looks at these things cynically early on, so it was hard for both of us.
So the pandemic made it difficult. We have talked about that a little bit. One of the stories lately is that retailers dramatically overstocked on home goods when there was that surge of demand, now they have all arrived due to the supply chain concerns, and the demand is not there. So Target, Walmart, et cetera, are all saying, “We are overstocked on outdoor furniture and grills.” Has that hit you?
How badly has that hit you?
There have only been two times in my career where I have seen consumers turn on a dime. The first time was the spring of 2020, and that was driven by a pandemic. The second time was the spring of ‘22, and that was driven by consumers coming out of a pandemic and the behaviors they had leaned into during it.
I think it is twofold. Retailers and brands loaded up on inventory because inventory was unpredictable. Then you get into the spring and see this about-face, remarkable shift from consumers buying things to consumers buying experiences. You mentioned Target and their inventory issue. They announced on their last earnings call, “12 months ago we could not keep bikes in stock, and now we can’t sell them. Luggage,” which is like this boring, Steady Eddie category, “is up 50 percent.”
That means consumers said, “We are done buying things, we are going on vacation and buying experiences.” We felt that. Fortunately, we are in a reasonable inventory position. I would say we, and our retailers, are slightly heavy but not egregiously so. What you compete with is everything else they have in inventory.
We were actually talking to a large retailer a week ago saying, “Hey, we are looking at this model. It is selling well, and your inventory levels are getting low. Can we get some inventory moving?” They said, “We are heavy on everything, we just do not have space for it.” You are battling absolute warehouse capacity. I think this year, across the world of consumer, is going to be the year of the promotion.
The bullwhip effect is so interesting. It’s from, “We can’t get inventory” to, “We have too much.” Mark my words, 12 months from now, retailers are going to underplan their inventory because they are not going to do this again. I don’t say that with any criticism; Target and Walmart are very good at planning inventory. It is just very hard to plan, by definition, when your lead times are completely unpredictable and consumers are shifting behaviors so quickly. It is a hard moment in time to sell things.
A friend of mine is a founder of Qualtrics, and I was lamenting to him over dinner a few weeks ago that, “Gosh, inventory is so hard. Oh, to run a software business.” He kind of gave me an earful on all of the challenges they have that we do not. You don’t make the big bucks because doing business is easy.
Do you think that is going to affect how you roll out new models? I think the idea of a new grill coming out on the same cycle as new iPhones is very silly. I get the press releases from you and Weber every season. “We have upgraded some features. Here are the new ones.” Would you slow that down and say, “We are just going to sell what we have”?
Let me just be really clear and say that when Weber launches something new, it has a new knob or a new color. No disrespect.
No, this time they got Bluetooth. I look at the press releases.
We believe in innovation that actually changes the user experience. We launched something that had the first-ever outdoor induction cooktop, and it had a completely new thermal system that manages ash and grease. It also has wireless meat probes. I will stop there. I just thought if I could sell a grill, I would.
By all means.
It does make us think more cautiously on inventory when we launch. On a positive, we are not launching things that obsolete themselves. When you are in this quarterly apparel fashion business, you overbuild and you are discounting. For us it is a function of how we tie up cash in inventory. At launch, you have the ability to hold inventory longer if it does not move as fast as expected. There is no question that we are thinking a lot more about efficiency of inventory than ever, because we sit on a lot.
This world over the last couple of decades has been built for just-in-time inventory. That model is a hard one right now. As long as lead times — from when you cut a purchase order to when inventory arrives to the customer — remain unpredictable, I think we are living in a world that is going to have to hold onto more inventory than it has the last 10 or 20 years.
Do you think that is going to slow your rate of innovation?
No, but I think it will force us to be more efficient in how we deploy working capital. At the end of the day, you have a finite amount of working capital and you cannot deploy it everywhere. Innovation is not where I would slow as inventory consumes working capital. There are other places where we are going to have to slow spend, because the pie is the pie.
You have mentioned running the public company several times now. You ran Traeger as a private company for seven years with private equity partners that were bought into a long timeline, and now you have been public for a year. What is the difference?
This is an interesting question. I loved running a private company, I really did. You have a financial partner, you have a consumer, you have a team, and you go to work. You don’t screw around with nuances of storytelling, and you don’t sit with investors telling the same rudimentary story. I really loved doing it.
When we took Traeger on the road — on the road meaning Zoom, on the IPO roadshow — I would say half of the investors brought to my memory a quote from the Harvard Business Review article, which said I would never run a public company again. That did not age well. As it started coming out of their mouth I was like, “I get it. I get it. Let me answer before you ask the question.”
Running a public company, especially in this environment, is really hard. Demand patterns are unpredictable and public markets value predictability. Costs are through the roof, so margins are squeezed doubly hard. Then the public markets have just been cratering for the last six months. This is a hard moment to run a public company.
It is kind of cool when you do something for the second time 10 years later, and you are less intimidated, do it better, and you feel more confident because you have more perspective and pattern recognition. Do I wish we were navigating some of these challenges with a single investor? Absolutely, it would be a lot easier. Do I begrudge the adversity that we are going through and what I am learning from it? No, because it is going to make us better. Running public companies is hard; it is a lot more fun when everything is going up and to the right.
You started that by bringing up an old quote, so I want to end on an old quote. In 2017, you said to Forbes, “We’re going to be a billion-dollar brand in five years in terms of revenue.” It is 2022, five years later. You said you were 10X when you started, which was a $70 million company. Are you a billion-dollar brand?
What I can tell you is what we have guided Wall Street towards this year.
There is the public company CEO.
That is the world I live in. I will also say, five years meant starting January 1, 2018.
All right, so you have one year to go.
Ask me that question 12 months from now.
Are you going to hit $1 billion in 2023?
I sure hope so.
Jeremy, this was a great conversation. Thank you so much for being on Decoder.
I enjoyed it. It was a ton of fun. Thanks.