Why Oats Overnight Raised Millions ...Again

Retail Expansion, New Products and Alternative Channels Are All in the Works

It seems oatmeal is a dish best served cold. This week, breakfast brand Oats Overnight announced the close of a $35 million funding round, attracting investors like restaurateur Danny Meyer’s Enlightened Hospitality Investments, Sonoma Brands Capital, and BFG Partners.

CEO and founder Brian Tate revealed that the round was a mix of primary and secondary capital, offering some liquidity to early investors. Just prior to the deal, Califia Farms CEO Dave Ritterbush, who previously was CEO at Quest Nutrition and Premier Nutrition, also joined Oats Overnight’s board of directors.

The funding may have come as a surprise to some members of the industry, with Oats Overnight bringing in $21 million just last year. While Tate and Chief Strategy Officer Nina McKinney wouldn’t speak directly to the reasoning behind two raises, Tate noted that 2023 was a “challenging” time to raise capital.

My take: When Oats Overnight raised last year, it was largely a D2C brand with only 10% of its sales occurring in brick and mortar retail. Though the brand said it wanted to make a bigger push into that channel, we all know that investors no longer are willing to just take a brand’s word for it. Splitting the raise allowed Oats Overnight to prove out their thesis and, one would imagine, raise its valuation. But that’s just my two cents…

So, what did Oats Overnight do with its previous $21 million? Mostly infrastructure. The company opened a 68,000-square-foot facility in Arizona and a second production and distribution center in Ohio. Together the two lower costs, increase margins, and add redundancy to its supply chain.

“We have major retailers leaning into the brand and we anticipate seeing another doubling of year-over-year growth this year, and need to be able to support the manufacturing of those of that volume,” McKinney said. “We're trying to get ahead.”

Despite that investment, McKinney noted the company has had a slower burn rate. Before this round, Oats Overnight had raised about $30 million and still recorded roughly $29 million in assets on its balance sheet.

“Since inception, losses are pretty immaterial relative to the size and scale that we've got on direct-to-consumer,” McKinney said. 

That scale is needed as brick-and-mortar retail sales have grown 200% in the last year, surpassing Amazon in gross sales. When asked if this growth was simply due to adding more retail doors, Tate assured that wasn’t the case, noting that velocities have increased an average of 30%, and even up to 125% in some stores. Additionally, rather than cannibalizing existing sales, the brand is seeing growth in unit sales as it adds more SKUs to shelves.

(Of note: Despite this retail push, D2C still remains king. The brand’s 250,000+ online customers average $55 per order, with a 60% reorder rate).

With $160 million in expected net revenue for 2024 the company is also hitting a “tipping point,” Tate said, in achieving profitability next year.

“It’s exciting to prove out that digitally native businesses can achieve profitability,” McKinney added. 

Entering the club channel is also a possibility, the duo said. Given 72% of its customers eat Oats Overnight products three to six times per week, there’s clearly pent up demand for a larger multipacks, Tate said. Meanwhile, alternative channels such as mini-bars, offices and vending machines are also on the horizon, and that’s where EHI will play a key role. 

But another tactic involves going where the brand has never gone before: Moving beyond oats. Earlier this year the company launched Oats Overnight Coffee, an instant coffee mix with 5 grams of protein per serving (And before you ask it, yes, they are considering new branding that supports oat-less products). Available only to subscribers for now, the recipe is still being tweaked.

“We sell craveable, nutritious and fun products for customers that have protein,” McKinney said. “And we know that we can bring those tenants to other areas of breakfast and other areas of the store.”