Analyzing Fast Brands’ Journey to Disruption
Instant Brands, the parent company behind the Instant Pot, filed for Chapter 11 bankruptcy today, as first reported by Bloomberg. The company, which also owns the Pyrex glassware brand, announced that it has reached a new financing agreement of $132.5 million to support the company as it navigates bankruptcy proceedings and finds a new way forward.
Signs of trouble began to emerge at Instant Brands earlier this year when the Wall Street Journal reported that the company had hired consultants to help it restructure. At the time, the company had a $400 million line of trade credit at a heavy discount due to rising interest rates. According to Bloomberg, a combination of high interest rates, dwindling access to new lines of credit, and a deteriorating cash position forced the company to finally file for Chapter 11.
So what happened? How did Instant Brands, the company behind what was once the fastest-growing countertop appliance in the US, go from high flyers to Chapter 11 in just a few years?
Below are some of the reasons I believe led to the company’s current predicament:
The Pressure Cooker Phase Reaches the Instant Water Fill
Part of the reason for Instant Pot’s success has been its incredible consumer value. In one multi-tool, a buyer had a rice cooker, a steamer, a bean maker, a yogurt maker, a sauté pan — you name it — all for $100 or less. It was hard to beat, which is why Instant went from zero brand recognition a decade ago to becoming a household name in the category it created (or, in a sense, reinvented) in just a few short years.
The problem with exponential growth is that you can reach market saturation very quickly. The product (and its clones) was affordable to almost anyone, and before long, anyone who wanted one had it. But unlike high-tech products like the iPhone, the Instant Pot isn’t something most consumers want to replace every few years.
Clones, Ninjas, and Narrow Competitive Moats
While the Instant Pot’s revival of the pressure cooker was a new take on an old category, it was easy to pull off. Because of this, it wasn’t long before dozens of cheap copies flooded Amazon and other online retailers.
At the same time, fast-moving brands like SharkNinja continue to innovate. They jumped into new categories of cooking appliances (such as refrigerators) much faster than Instant Brands, who admittedly were latecomers to the category. Instant’s CEO said the company continues to look for its next hit, as it enters a financial restructuring.
In a way, the ease with which low-cost copycats and big brand-savvy companies like SharkNinja were able to create similar products that directly competed with Instant Brand’s showed how narrow, in retrospect, Instant’s competitive moat was. In other words, there is no significant technology, productivity or product differentiation that companies entering the market must overcome.
Unaffordable Pricing and Low Customer Loyalty
Although Instant is similar to the smart multicooker category, the brand has not built significant brand loyalty. Customers, who often bought the Instant Pot or its clone for fire sale prices, did not view the Instant Pot brand as unique or irreplaceable. Other categories such as built-in ovens, refrigerators, or coffee makers often have large price tags and a premium user experience description. At the same time, Instant Pot was often seen as cheap in price and quality. Much of the damage surrounding a low-rent brand image was self-inflicted.
Buy High, Sell Low
When Corelle and Instant Pot announced the merger of the two companies, the combined value of the new business was estimated at nearly $2 billion. Much of that market value was attributed to the white-hot Instant Pot, which means Corelle will pay out the nose to bring the company and its fast-growing product line into the fold.
While I don’t have the guesswork Corelle put together to estimate the debt load they’ll take on to finance the acquisition, it’s probably not too much of a leap to say they didn’t predict Instant Pot sales as quickly as they did. And, as explained in the Journal in March, the company isn’t even close to finding the hit to help the company get back on track. At the same time, the lean operating model of Instant Pot’s early days (which had four employees in 2013) is long gone, paving the way for Corelle’s corporate management (the combined company had 1,900 employees earlier this year).
What is important is that Instant Brands become more powerful as the product begins to reach market consumption. In the years that followed, Instant lagged behind competitors like SharkNinja and Dash, who came out with often better-looking products in new categories at similar or lower prices. The result is this week’s announcement.
It’s too early to tell how the company will move forward. After the bankruptcy, Instant will have a clean balance sheet but a very small innovation team, and without the company’s founder Robert Wang (who left the company in late 2021), it is unclear where the next idea to change the company will come from.
