Grilling on Wall Street as giant Weber goes public

George Stephen was frustrated. Every time he tried to cook a nice piece of meat on his backyard grill, he got angry. Not only did smoke go everywhere, an inevitability in Mount Prospect, a windy suburb northwest of Chicago. The heat was distributed so unevenly that every steak was an adventure.

Stephen worked at a small sheet metal shop called Weber Brothers. That’s where he came up with a new idea. He put together two hemispheres made of sheet metal, usually used to make buoys. This gave him a closable, wind-resistant grill. A short time later, in 1952, he began selling his invention nationwide. George’s Barbecue Kettle was the world’s first kettle grill.

Almost 70 years later, the company, today called Weber-Stephen Products, is going public. With a price range of $15 to $17 per share, the barbecue legend hoped to sell nearly 47 million shares on Thursday. At the upper end of the price range, that would raise Weber around $916 million (€774 million) in fresh capital, giving it a market capitalization of $5 billion. But investors seem to be holding back. Now, just under 18 million shares will be sold for $14 apiece. 

Weber grill has gone public on the New York Stock Exchange

Seizing an opportunity

To get fresh money on the capital markets, Weber is nonetheless seizing the opportunity. Thanks to the enormous demand for products for personal home use, business developed splendidly in the wake of the coronavirus pandemic. In the first half of the year, which ended May 31, Weber sold grills, smokers and accessories worth $963 million — 62% more than the same period the previous year. Profits came in at $74 million, only 7% below the result of the entire previous year.

In the global grill market, which the market researcher Frost and Sullivan puts at $49 billion, Weber is a heavyweight. Especially in the US, where the company generates 58% percent of its sales, the brand is the undisputed industry leader. Curiously though, Weber is not as popular there as one might think. Weber only has a market share of 23% in its home country, where competition is particularly fierce, the stock market prospectus shows.

Weber in Germany

The situation in Germany is very different. There almost every second grill fan owns a Weber device. Looking back at 2020, the market research company GfK speaks of the “highest sales year so far” for grill equipment manufacturers. This was due to a shift in the market. Inexpensive coal grills from Weber, which can be had for as little as $28, were less in demand while high-priced gas ones, which can cost up to $3,800 depending on size and performance, were best-sellers.

High-end Weber grills can cost more than $3,000

Weber still focuses primarily on North America due to the huge market there. At around $9 billion, nowhere else is the market as big as in the US. Two out of three people there own their own grill or smoker, according to the Hearth, Patio Barbecue Association. From March to May alone, American barbecue enthusiasts spent more than $1.8 billion on equipment and accessories.

The massive demand could, however, soon be coming to an end for grill manufacturers, especially Weber. The market is saturated and the industry is mature, according to the market research company Ibis World. A look at the time before the pandemic does not suggest anything good for Weber’s business development. On the contrary. In 2019, revenues were down slightly to $1.3 billion for the full year. At the same time Weber had a 56% drop in earnings.

More slow grilling in the future?

The industry could be slow for years. “This phase is characterized by slowing growth rates and low technological innovation,” warned Ibis World analyst Nick Masters. By 2025, sales are only expected to increase at an annual rate of 1.4%. Another reason why there are hardly any new entrants to the market.

There is certainly a lot of competition in the US. Companies such as Coleman, Char-Broil, Middleby and Broil King have recently taken increasing market share from the company. Driven by the pandemic-induced sales, no fewer than four grill manufacturers are going public this year. Traeger, a manufacturer that specializes in wood-pellet grills, was able to raise $423 million with its stock market debut at the end of July. Since then, the shares are up 20%.

Are the years of fat growth in the grill industry over?

Yet the lack of raw materials and faltering supply chains call into question how sustainable such growth is. Because Traeger now manufactures almost exclusively in China, and Weber is at least partially dependent on products from Asia, slow deliveries are hampering business. “Furthermore, even if growth in demand continues, we may not be able to meet that demand due to production and capacity challenges,” Weber’s stock exchange prospectus says. At the same time, it is clear that when more people can go out to restaurants and enjoy other leisure activities again, the need for barbecues is likely to decrease significantly.

The price of a good name

Meanwhile, Weber at least can hope to benefit from a strong brand name in the future. Years of growth at the top of the industry have given the company a loyal and wealthy clientele. “The Weber name and premium brand image are integral to the growth of our business,” said the  prospectus. The document mentions the word “fire” 221 times.

Weber’s greatest strength, however, is also it’s greatest weakness. If its image suffers, the company is in trouble. “We have spent decades building brand affinity and awareness by teaching people how to grill the ‘Weber Way,'” wrote the management. “Any harm to our brand could result in a significant reduction in such demand which could materially adversely affect our results of operations.”

The article has been translated from German.

Article source: https://www.dw.com/en/grilling-on-wall-street-as-giant-weber-goes-public/a-58765098?maca=en-rss-en-bus-2091-xml-atom