Read the case study Yeti in 2020; and answer each of the questions on the attached document.? Please follow these instructions when completing Case Studies:

Yeti in 2020: Can the Brand Name and Innovation Keep It Ahead of the Competition?

Read case 13, Yeti in 2020: Can Brand Name and Innovation keep it ahead of the competition?

Answer the following questions (submit your answers using typed, Single Spaced, 12pt. Font w/ 1" margins). Please clearly separate and mark each essay:

1. Based upon your analysis of the company, identify the driving forces in the cooler and equipment industry. Which of these forces appears to be the strongest? What are key factors of success? Where does the industry appear to be headed as a result of these forces? (Recommended page length: 1 + pages, short answers will earn you partial credit).

2. What are Yeti’s competitive capabilities and resource strengths and what opportunities do you identify? Are there any notable weaknesses and threats facing the company? Assess the combined impact of these forces on Yeti’s future profitability. (Recommended page length: 2 pages – You can use bullets for the SWOT and use paragraphs when writing about the combined impact of the forces.).

3. What recommendations would you make to Yeti’s CEO, Matthew Reintjes, to enhance its competitive position in the industry, drive future growth, and improve profitability? Please provide ample detail to allow Yeti management to carry out your recommendations. List and discuss three specific recommendations for Yeti. (Recommended page length: 1.5 – 2 pages, short answers will earn you partial credit).

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Yeti in 2020: Can Brand Name and Innovation Keep it Ahead of the Competition?

Copyright ©2021 by Diana R. Garza and David L. Turnipseed. All rights reserved.

Diana R. Garza

University of the Incarnate Word

David L. Turnipseed

University of South Alabama

In early 2020, Matthew Reintjes, president and CEO of Yeti, contemplated the company’s fiscal 2019 operations. Although the company had shown a 17 percent increase in revenue over fiscal 2018, with sales of $914 million, and profit of over $50 million, there were uncertainties ahead for the fast-moving company. Yeti’s coolers and other products had captured the number one position in the United States, and awareness in the domestic markets had risen from two percent in October 2015 to 10 percent in July 2018 according to the company’s own brand tracking survey. Yeti had become a cult icon for the hunting, fishing, boating and outdoors sports communities, and was rapidly expanding beyond those groups. On almost every outing, one would see people wearing Yeti T-shirts and caps, and Yeti stickers on the rear windows of pickups and SUVs.

Yet despite the meteoric rise increase in revenues, market share, and profits, there were storm clouds on the horizon. First, the recent tariff controversy between the United States and China, and the European Union had the potential to increase prices and thus reduce sales of Yeti products. Second, the COVID-19 global pandemic that began in early 2020 and its economic fallout could certainly have a negative impact on the sales of all Yeti products, both domestically and foreign, for an extended period. Third, and perhaps most concerning, was the large and increasing number of competitors across the entire product line, ranging from large well-known brands such as Otter Box, Tervis, Igloo, and Pelican to numerous small brands.

Yeti’s management was aware that although the company’s products were high quality, there were many equally high-quality competitor products available in the market: the market value of Yeti appeared to be the market value of its brand. The management team recognized that the path to continued success for Yeti was to maintain and increase the value of the brand, and to position the brand to have increased value with larger numbers of consumers. Mr. Reintjes resolved to craft a strategy that would reestablish and maintain the upward trajectory of profits for the company.

Two Brothers and a Cooler: From Dream to Icon

After graduation from college, Roy (Texas Tech University) and Ryan (Texas A & M University) Seiders began searching for business plans in the outdoor field. Their father had been a successful entrepreneur in the fishing tackle industry and the boys were determined to follow his lead. Ryan started a custom fishing-rod business and Roy began building fishing boats. Roy’s boats included three coolers, one of which was in the bow of the boat and used as a fishing platform. The coolers were the least satisfactory part of the boat, and Roy began looking for better options. Brother Ryan identified an imported Thai cooler at a trade show that impressed him with page C-174ruggedness (but not design or finish). He began importing the Thai coolers and marketing them to outdoor equipment retailers and fishing tackle shops, which was the market that he knew best.

The Thai cooler generated sales, but warranty costs and disappointment with improvements in the design motivated the search for another manufacturer. The brothers located a manufacturer in the Philippines that was capable of manufacturing the cooler that Ryan had envisioned. Roy believed the time had come to start a cooler business and a brand name. The result of a good cooler is ice retention–even after its usage for food or drink is complete. This feature, plus the input of family and friends resulted in the name Yeti–the Ice Monster, and the company was born in 2006. The company’s mission was simple: “build the cooler you’d use every day if it existed.”

Roy used the money from his Thai cooler business, and Ryan sold his fishing-rod business to fund the Yeti prototype. The cooler was designed so that anything breakable (e.g., the rope handles) could be easily replaced. The cooler was designed for durability, which came with a cost. The brothers realized that their cooler would have to be sold for about $300.00, and there was no market for a cooler in that price range. Their initial marketing and distribution plan focused on tackle shops which were offered a simple proposition: rather than compete with Wal-Mart and sell $30.00 coolers with $5.00 profit, sell $300.00 Yeti coolers with $100.00 profit.

The brothers sold majority owner in Yeti to Cortec Group Management Services, LLC, a private equity firm, in 2012. Cortec provided management services for a fee of 1 percent of sales (not to exceed $750,000 annually). With the advice of an ad agency, Yeti created a tagline ‘Wildly Stronger, Keep Ice Longer’ and concentrated marketing on fishermen and hunters. The young company hired influential fishermen and hunting guides as ambassadors for the brand. Brand awareness was also stoked by the inclusion of a Yeti hat or t-shirt with each cooler sold.

Over the three-year period of 2015 to 2018, Yeti’s customer base progressed from nine percent to 34 percent female, and from 64 percent to 70 percent under 45 years of age. Yeti brand awareness in the U.S. cooler and drinkware markets grew from seven percent in 2015 to 24 percent in 2017. Although Yeti continued to invest in their hunting and fishing communities, their customer base dropped from 69 to 38 percent hunters during 2015–2018, as the company’s appeal broadened beyond their original customer communities.

Yeti’s IPO and Stock

In 2016, Yeti filed an IPO to reduce debt and cash out its private equity owners, however, a downturn in business caused the company to withdraw its filing. The young company had considerable success in the early years and grew too rapidly, with the result of pushing excess product to its retailers and overbuilding inventory in 2016. Also, a major retailer, Sports Authority, filed for bankruptcy in 2016 and a large amount of inventory was liquidated at greatly discounted prices, depressing Yeti’s sales. The excessive inventory buildup resulted in the company’s margins and revenue suffering a downturn. Revenue declined by 23 percent in 2017 and after-tax operating profit declined from 18 percent to seven percent. The business downturn, plus a general market selloff resulted in Yeti withdrawing its IPO plans in March 2018.

Seven months later, on October 24, 2018, Yeti went public: the company priced its public offering at $18.00, a bit less than the $19.00 to $21.00 per share price that it originally intended, and sold 16 million shares (versus the 20 million projected): the IPO brought in approximately $288 million. Yeti received only about $42.4 million of the IPO proceeds: the balance of the proceeds went to the Cortex Group, which retained its majority ownership. In November 2018, Yeti used the proceeds from the IPO, plus cash on hand to reduce its debt. The management agreement with Cortex was terminated with the 2018 IPO.

Yeti’s stock had a generally upward trajectory, reaching $34.92 in April of 2019, which was its high. The stock seesawed from that point through the beginning of the COVID-19 market sell-off, during which it fell to $16.42 on March 20, 2020. The stock rode the market recovery back up and closed on May 15, 2020 at $26.93—see Exhibit 1.

EXHIBIT 1 Yeti Holdings, Inc. Stock Price, October 2018–May 2020

Source: nasdaq.com.

Yeti’s Strategy

Yeti product strategy was to expand existing product groups and enter new product categories by designing new offerings based on its consumers’ visions and product knowledge. The company followed a temporal progression in expanding their product line: first was introduction of an anchor product and, second, product expansions such as new colors and sizes and then page C-175offering accessories. To ensure continued success in bringing products to market, Yeti’s product development and marketing teams collaborated to identify consumer needs and wants, and then employed its research and development center to design prototypes and evaluate performance. Yeti’s development process was designed to provide reliable quality control while enhancing product speed-to-market. This strategy appeared to work—a May 2018 Yeti owner study, indicated that 95 percent said they had proactively recommended Yeti products to their friends, family, and others through social media or by word-of-mouth.

Yeti collaborated with its ‘YETI Ambassadors,’ which was a diverse group of men and women throughout the United States and select international markets, comprised of world-class anglers, surfers, hunters, rodeo cowboys, barbecue pitmasters, and various outdoor adventurers who embodied its brand. Yeti worked hard to cultivate relationships with experts, serious enthusiasts, and everyday consumers, including a combination of traditional, digital, social media, and grass-roots initiatives to support the premium-priced brand, in addition to original short films and high-quality content for YETI.com.

Yeti learned from the 2016–17 inventory disaster and began increasing its concentration on direct-to-consumer sales through the company’s direct-to-consumer strategy including its websites and Amazon Marketplace. This strategy immediately showed positive results: the direct-to-consumer channel grew from eight percent of revenue in 2015 to 30 percent in 2017, 26 percent in 2018, and 42 percent in 2019. As comparison, Dick’s Sporting Goods, Yeti’s largest retail partner, accounted for 14 percent of revenue in 2017 and 15 percent in 2019. The move from brick and mortar retail outlets to increasingly direct-to-consumer sales provided Yeti with benefits beyond improved revenue. Customers dealt directly with the company rather than a retail intermediary, brand loyalty increased, the company had better ability to manage inventory, there was no retail middleman taking part of the profit, and thus gross margins were higher. In February 2020, Market Watch ranked Yeti number one in insulated coolers

Yeti’s Product Line

Yeti’s product portfolio comprised three categories: Coolers & Equipment; Drinkware; and Other. The company had a history of consistently broadening its premium-priced product line to meet its expanding customer base and was quite efficient at identifying customer needs and wants to drive its product line. As is shown in Exhibit 2, net sales of Coolers & Equipment, Drinkware, and Other represented 40 and 58 percent of net sales, respectively, in 2019.

EXHIBIT 2 Yeti Holdings, Inc.’s Net Sales by Category, 2017–2019 (dollars in thousands)

  2019 2018 2017

Coolers & Equipment $368,874 $331,224 $312,237

Drinkware 526,241 424,164 310,287

Other  18,619  23,445  16,715

Total net sales $913,734 $778,833 $639,239

Source: Yeti Holdings, Inc. Annual Report, 2019.

CITATION

Thompson, A. A. (2021). Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases (23rd Edition). McGraw-Hill Higher Education (US). https://bookshelf.vitalsource.com/books/9781264250165

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