Friday, September 30, 2022

Kodiak Cakes Update: What Happened After Shark Tank

Kodiak Cakes on Shark Tank

Joel distributes samples to each Shark, with a man in a furry bear suit behind him

Two entrepreneurs from Park City, Utah, have come to the Shark Tank with their rendition of a favorite breakfast treat. Cameron Smith and Joel Clark of Kodiak Cakes have come to the Shark Tank, seeking a $500,000 investment in exchange for 10% of their business. Kodiak Cakes is a flapjack and waffle mix, but is unique because it’s made with 100% whole grains and no added fats or sugars. The only thing you have to do to prepare it to add water; Cameron says he promises that the Kodiak Cakes taste amazing. Even Joel says when he was only 8 years old, he went around selling pancake mix just like that of Kodiak Cakes in a red wagon. His mom always wanted to sell her pancake mix, so they decided to give it a try. Now, Joel and Cameron are determined to bring Kodiak Cakes to the next level.
Joel and Cameron then distribute samples, included with berry syrup which actually is a mix of five different berries. The berry syrup is also their product, and they actually have a line of fruit syrups as well at Kodiak Cakes. Every single Shark is impressed with the flavor, and happy with the sample; Robert even says he’d eat more, if there are any. Joel says that they receive emails and letters every day that complement the two on Kodiak Cake’s flavor. Robert then asks how far the two have taken Kodiak Cakes, and Cameron says that between the two of them so far, they have actually brought the product into Target stores nationwide.
The first order at Target was a $260,000 order, and a year after their entry into Target, Joel says they are on track to do a million dollars in sales at Target alone; they are actually on track, as that is their forecast and that has been accurate so far. Joel continues on, saying they have a low price at Target, but Target eats up a large margin of 45% of all the sales despite pushing the product out to more than 16,000 stores nationwide. They are constantly re-ordering, and Cameron says that they actually came to the Shark Tank looking for capital so that they can grow more.

Kodiak Cakes flapjacks
Kodiak Cakes flapjacks

Mark asks why they don’t just borrow money against their receivables, and even Lori suggests that they rollover any income from sales and that way they wouldn’t even have to take out a loan. Joel says that while they could grow the pancake mix as they have been, they want to explode the business. Kevin asks for numbers, and Joel breaks it down; this year, they are on track to hit 5 million dollars in sales, and last year, they made (not were projected, mind you) 2.5 million dollars. This is about 75% pancake mix, while the syrups are 22% and their fringe products make up the final 3%.
Kevin says he wants to be completely realistic, and there is nothing proprietary about the Kodiak Cakes product. It’s just pancake mix. However, what they are building is the Kodiak Cakes brand, and ultimately if the brand becomes big enough, they should be hope to be bought at that point because they will be inching closer and closer to gaining shares of the market and stealing business and shelf space. However, Kodiak Cakes is not there yet because $5 million is not at a point where they can become aggressive, but so far, Kodiak Cakes has shown an interesting beginning, Kevin says.
Kevin continues on, saying that he doesn’t think the business is worth $5 million and the pair’s investment was far too generous. They are trying to sell the business to Kevin at 10 times their pre-tax profits, which Kevin is too smart to be bought up into. However, Joel says that they have found that there is a market that wants to buy whole grain, healthy breakfast foods, and a lot of the other pancake mixes are white flour and healthy. Bringing up Kevin’s earlier point, Joel points out that those are commodities, while the Kodiak Cakes pancake mix is different because it offers the whole grain option.
However, Kevin points out that one “famous aunt” (Aunt Jemima products) has a leading share in the market, so to be taking share away from that brand would cause them to notice. Since Aunt Jemima products are significantly lower to manufacture and produce, and Joel says that Aunt Jemima’s products are actually up to 50% cheaper than Kodiak Cakes products, both to purchase the product and to produce. All of the Sharks look deflated, and Robert breaks it down for the pair in reality; no mom would walk into Target and pay twice as much for a premium product. However, Joel insists that these moms would, and that their sales have only been increasing; in the last 3 years, their sales have been growing from 40 to 50% per year.
Kodiak Cakes’ cost to make one box of mix is $1.65, and the selling price is, on average, a price of $3.02. However, Lori mentions that the packaging is what really catches her eye, and since Kodiak Cakes is based on the Kodiak bear, she mentions that the packaging makes her think of an outdoor camping-type of breakfast which can really appeal to the sense. When Joel says that people love the brand, Robert mentions that people really don’t because they don’t know the brand; no mom walks into Target and mentions, “oh, it’s the Kodiak Cakes brand!”
Kevin speaks up, saying that there are two monster competitors in the breakfast mix space; they have to be very careful about their aggregation strategy because the competitors have so much more capital that they can come in and instantly take the shelf space. However, Mark insists that Kevin is wrong because Target, and stores like Costco, have to have competition in order to ensure that big-brand competition which gets customer loyalty, and in turn, extra profit. Mark asks who would take Kodiak Cakes’ place in that competition, as there always has to be a second product, or there always has to be an alternative.
Joel admits that while they sell half the product of the bigger names they can still generate a higher margin of revenue for the store. Robert stops the two and says that while they have been making millions, and that is fantastic, he needs to know why they need the $500,000 in exchange for the 10% ownership that brought them to the Shark Tank. With the investment, Joel says they want to pay a number of slotting fees, which are a way to pay your way into a store which then generates a return on. A slotting fee is an upfront fee to pay in order for shelf space, and Joel says that they have actually done this for 17 years and have always made a return. Lori admits that she has to defend the two, and there are millions of people who would pay a slotting fee, and Target picked Kodiak Cakes.
Kevin asks how he, the investor, would receive his money back. Joel says that over four years, their sales would grow to $20 million with this investment from the Sharks, which would net the investor back their initial investment in four years’ time before they started to profit. However, Kevin says that there are numerous multi-million dollar commodity pancake businesses, and wants to know how much revenue Kodiak Cakes will be generating. Joel says that with the investment, Kodiak Cakes will now be generating one to one-and-a-half times their current revenue.
Kevin says that true companies do not trade for their forecast of ten-times cashflow, and when Joel says they spoke to bankers about their strategies of investment, Kevin points out that the bankers never actually wrote a check. However, Kevin makes an offer of $500,000 for 50% of the investment, as he says he personally finds that the valuation of Kodiak Cakes would be $2 million. Joel and Cameron still have a lot of work to do, and Kevin would want a larger piece of the pie, especially in consideration that the valuation he gave was far less than Joel and Cameron’s asking investment.
Despite this, Kevin admits that since the two would never accept the offer, he would not actually offer it, and he pulls out of the deal all together. Kevin is out.
Robert offers $500,000 in exchange for 35% of the company, saying he wants the risk. Barbara makes an offer next, offering $250,000 in exchange for 20%, but the two will have to find another $250,000 from another Shark. Lori folds out of the deal, as she says she is not a fan or passionate about pancakes. Mark exits out of the deal next, saying that he thinks the two are going to face a lot of issues when they take production to a larger scale. Kevin goes in with Barbara, but he wants 50% in exchange for $500,000 split between himself and Barbara.

The new Muffin mix
The new Muffin mix from Kodiak Cakes

In the end, Joel and Cameron say that they appreciate the offers of the Sharks, but ultimately they will decline all the offers because they want to keep the company profitable. Mark and Lori say they think the two are smart for refusing to give up so much equity, but Kodiak Cakes does not find its investment they came into the Shark Tank for.

Kodiak Cakes Now in 2018 – The After Shark Tank Update

Since Joel and Cameron’s appearance on Shark Tank, Kodiak Cakes has exploded in popularity. Not only have they introduced numerous new lines of products to the Kodiak Cakes brand including oatmeal and ice cream, Kodiak Cakes can now be found all over the media. Kodiak Cakes is an official food of Weight Watchers, Diabetic Living, and Shape Magazine. Kodiak Cakes has grown behind a pancake-and-syrup brand to now also include cookie mixes, barbecue sauces, muffins, and dessert mixes. Kodiak Cakes can be found in a variety of stores including HEB, Meijer, Target, Wal-Mart, and Marsh. Check with their website to find a series of stores near you that might carry some delicious Kodiak Cakes products.

Steven Kahn
King of the Bears, Shark Tank enthusiast, failed network engineer, sour cream enthusiast, Nanchaku instructor, Techman, Mega Man X fan, vaporizing know-how


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