The Pot of Cold
How Yeti turned the lowly cooler into a hot commodity—and a white-hot IPO.
In the second decade of the twenty-first century, rocket ships land on floating platforms in the ocean, drones fight our wars, robots clean our homes, and cars are on the verge of driving themselves. Yet one of the most anticipated stock offerings of the next few months is an Austin company whose main goal is to keep your beer cold.
You’ve probably heard of Yeti, the high-end cooler company that has ignited a national trend in drink-chilling machismo. Since its founding, in 2006, Yeti has sold hundreds of thousands of premium coolers and insulated cups, generating hundreds of millions in revenue. And it’s growing at a staggering pace. Last year, the company racked up almost $470 million in sales, a huge leap from $148 million the year before. Its 2015 profit of $74 million was more than five times the $14 million it earned in 2014.
That’s a lot of coolers, but Yeti isn’t really in the volume business. Like Tesla or Burberry, it has found a niche clientele willing to pay top dollar. You can buy a plastic Igloo cooler at Walmart for $30, but you can’t touch a Yeti for less than $249, and its biggest cooler, an 83-gallon model that the company claims “can hold up to three elk,” goes for $1,299. And don’t look for them at Target or even Costco. Yetis are sold through premium outfitters such as Bass Pro Shops and other specialty retailers like Academy Sports and Outdoors. And they’re flying off the shelves so fast the company has struggled to meet production demand.
It’s not tough to see the appeal. Yeti coolers have the smooth, sturdy look of something a CSI technician might carry, and the lids fit with the snugness of a door on a luxury sports coupe. Even empty, they’re heavy—the smallest, which can hold fourteen cans of beer with the recommended two-to-one ice-to-beer ratio, weighs fifteen pounds; the biggest weighs nearly ninety pounds before you stuff it with elk. The walls and lids of each cooler are two inches thick and injected with industrial-grade polyurethane-foam insulation that “makes sure your ice stays ice.”
“It’s less about being sexy and more about the function and being durable,” says Aaron vom Eigen, a principal with the Austin design firm Pushstart, which has studied Yeti. “It’s akin to a toolbox—it’s more industrial, and that’s the association. The aesthetic is derived from the function.”
Yetis, in other words, are coolers for people who care deeply about coolers—primarily die-hard outdoorsmen but also those who simply want to be mistaken for die-hard outdoorsmen. Even in the suburban enclaves of the Gulf Coast, a Yeti cooler may be the greatest source of weekender braggadocio since the Big Green Egg smoker.
Yeti’s value stems not just from the quality of its products but from the image that its brand projects. In just a few years, Yeti has established itself as what marketing experts call an “aspirational brand,” meaning that some people will pay a premium for the name, even if they can find a similar no-name product for less. “Aspirational brands provide a signal to everyone around us,” says Kevin Williams, a senior lecturer in marketing at UT’s McCombs School of Business. “It’s not just about being better in terms of engineering metrics. It’s about ‘Hey, I’ve got a Yeti and you don’t.’ ”
Even those who don’t have a Yeti are buying into the brand. Initially, the company gave away hats, window decals, and T-shirts with cooler purchases. Now it sells that merchandise separately for those who want to be seen as part of the Yeti-rati. “People will buy Yeti stickers to put on the back of their car or truck even if they don’t buy a Yeti cooler,” Williams says. “The brand has cachet.”
While companies such as Harley-Davidson and Fender guitars built aspirational brands around inherently sexy products, Yeti’s genius was doing it with something as pedestrian as an ice chest. “They took a category in which nobody had thought about anything other than utility, and they created a brand,” Williams says. (Full disclosure: Yeti is a regular advertiser in Texas Monthly.)
That popularity, fueled largely by social-media testimonials and word of mouth, has caught the attention of potential investors. In July Yeti filed for its initial public offering and immediately drew lots of attention. “Yeti’s IPO should be a darling for Wall Street,” says Kathleen Smith, a principal with Renaissance Capital, a Connecticut fund manager that specializes in initial public offerings. “Their growth has been so strong in an economy where growth is slow.”
As of this writing, the price at which Yeti’s stock will begin trading hasn’t been set, but Smith says the company could raise as much as half a billion dollars. In September the Wall Street Journal said Yeti’s market capitalization—the price of its stock times the number of shares—could exceed $5 billion. That’s more than Papa John’s Pizza and Smith & Wesson.
Still, impressive as that is, it’s hard not to wonder: Coolers? Really?
Ryan Seiders and his younger brother, Roy, grew up in Houston, the sons of a nurse and a high school industrial arts teacher who loved the outdoors. When they were kids, their father gave up teaching to make a fishing rod sealant, Flex Coat, in his garage, and the brothers got to see entrepreneurship up close. (Forty years later, Flex Coat is still in business.) Both men followed in their father’s footsteps. Ryan graduated from Texas A&M in 1996 and formed a custom fishing rod business. Roy, who graduated from Texas Tech four years later, also went into business for himself, making customized aluminum boats that were ideal for navigating shallow coastal waters. The boat design included three spots for coolers, but Roy was unhappy with the offerings on the market. Many fishermen like to stand on their coolers while casting, and conventional plastic models would buckle under their weight.
While attending a trade show, Ryan ran across a rugged cooler from Thailand, and the brothers set up a business to distribute them. But the products were made poorly, and the Seiderses didn’t like the design. They flew to Thailand to suggest changes to the manufacturer, but they still weren’t happy with the prototype the company developed. “At the time, it was the best cooler out there, but we soon figured out that it wasn’t all it could be,” Roy told RotoWorld magazine. The brothers realized they could design and build a superior product, and they soon found a manufacturer in the Philippines who was willing to try their ideas out.
Ryan sold his fishing rod business, and the brothers pooled their money to fund a prototype, which they designed themselves based on what they wanted in a cooler: strength, durability, and the ability to keep things cold in the Texas heat for long periods of time. Rather than the typical extruded plastic used for most coolers, Yetis are made with a process similar to the one used for kayaks and highway barriers. Known as rotational molding, the process takes polyethylene resin, places it in a mold, and spins it at high speed, which eliminates seams and joints. The seamlessness of the design, combined with the thickness and tight tolerances, helps keep contents chilled longer because the cold has fewer places to escape. Once the outer plastic shell is molded, foam insulation is sprayed into the walls and lid. Finally, the lid is sealed with the sort of gasket found on high-end refrigerators.
In 2006, after they completed the prototype, the brothers realized they would have to sell their product for $300 apiece to cover their costs. Even with economies of scale, it would never be able to compete with Walmart’s $30 coolers. So they targeted specialty sporting goods stores and showed up at trade shows, where they got the coolers in front of fishing and hunting guides to build Yeti’s reputation.
For its manufacturing, the company decided to use an “asset light” strategy, which means it outsourced the making and distribution of its products to others, keeping overhead low even as sales soared. By 2011, Yeti was selling more coolers than its suppliers could make. To meet the growing demand, they sold a majority stake in the company to Cortec Group, a tiny Manhattan private equity firm, for a reported $67 million. Cortec helped improve operating efficiency and recommended a second manufacturer, in the Midwest, to increase delivery speeds and give Yeti greater control over its manufacturing process.
Cortec’s investment may be part of the reason for Yeti’s public offering. Private equity firms typically invest on a five-year basis, and given Yeti’s rapid growth, Cortec may have decided it’s time to cash out. Yeti took out a loan in May, the bulk of which, $312 million, went to pay Cortec a special dividend. Proceeds from the public offering will go toward repaying at least part of the loan.
In late October, the Journal reported that Yeti had been approached by private investors to buy Cortec’s stake before the IPO. If that deal goes through, it could delay Yeti’s stock offering until well into next year. (Yeti declined to comment for this story, citing the traditional “quiet period” before a stock begins trading.)
Last year, in another nod to Yeti’s rapid growth, the Seiderses brought in professional management, hiring outdoor-retailing executive Matt Reintjes to replace Roy as chief executive officer (although Roy remains chairman). Having an outsider run the company may go against the grain of Yeti’s reputation as a family business, but it’s likely to reassure future investors that Yeti is ready for life as a publicly traded company.
Though Yeti is wildly popular with customers, it must convince investors that it will have the same staying power in the stock market that it does in the cooler market. It doesn’t want to suffer the fate of other trendy companies that went public only to founder, like the strap-on-camera company GoPro, which went public in 2014 at about $24 a share, shot up to almost $100 within a few months, and then plunged to under $20, where it has stayed ever since. Surely a few people looking over Yeti’s prospectus are asking themselves: How much more growth is there in a cooler company, especially if its products are built to last so long that customers don’t have to replace them for years? “That will be their challenge,” vom Eigen says. “When you get investors, you have to show growth.”
Already, copycats are trying to cash in on Yeti’s success: Igloo launched its Yukon rotation-molded cooler in 2011, Coleman rolled out its Esky series in 2014, and Cabela’s has a knockoff that it sells at a considerably lower price next to the Yetis in its stores. So far, they have done little to slow Yeti’s growth, but Yeti has become more aggressive in pursuing imitators. Beginning in late 2014, it filed a series of federal lawsuits accusing more than two dozen companies, including Walmart, of infringing on its “trade dress,” the legal term for how a product looks.
In the suits, most of which are still pending, Yeti claims that other companies have imitated its designs in a way that “has been intentional, willful, and malicious,” and it wants to recover a portion of the imitators’ profits. Houston-based RTIC, which has been a target of Yeti’s litigation, has filed a countersuit against the company, claiming Yeti is trying to suppress competition. Yet RTIC is clearly cashing in on Yeti’s popularity: its coolers, which bear a stunning resemblance to Yeti’s, are marketed on its website as “half the price of a Yeti.” (RTIC officials didn’t respond to requests for comment.)
One significant area of growth for Yeti has been drinkware, stainless-steel travel mugs and bottles that the company introduced in 2014. After all, not everyone needs to chill a couple of elk, but pretty much everybody wants to keep a drink cold in the car during the summer. “Drinkware was an important diversification for them,” Smith says. “Consumers love it.” Sales of travel mugs and accessories—including lids, which are sold separately—accounted for 48 percent of Yeti’s total sales last year, and the company’s profit margin on each mug is higher than it is for coolers. Its stainless-steel Rambler models range in price from $20, for a 10-ounce cup, all the way up to $70, for a 64-ounce bottle. The company’s drinkware sales rose by more than $100 million in the first quarter of this year, to $118 million. But here, too, Yeti faces competition: Walmart now makes a knockoff version of the 20-ounce Rambler, which sells for about $7, and a Houston TV station conducted a test that found it kept ice water cooler than Yeti’s version over a 21-hour period. (Many of the trade-dress suits Yeti has filed focus on drinkware.)
The company is exploring other options for expansion, including international sales—right now you can buy a Yeti only in the U.S.—and it’s expanding its design team in Austin. To grow, Yeti will likely have to find the next outdoor commodity that needs an upgrade and get to it before anyone else does. And it will have to pull that off without straying too far from its core mission and alienating the loyal customers who were drawn to the outdoor cred that made the company famous. The last thing Yeti can afford to lose now is its sense of cool.