Karat Packaging Inc. (KRT): Business Model Canvas [Dec-2025 Updated]

You're digging into the nuts and bolts of Karat Packaging Inc., a company that just posted net sales of $124.5 million in Q3 2025, and you need to know if their strategy is built to last. Honestly, their Business Model Canvas shows a firm wrestling with tariff headwinds-those import duties chewed up 14.4% of their Q3 revenue-but they are actively fighting back by expanding domestic sourcing to roughly 20% of their operations. This isn't just about disposable cups; it's about a $0.45 Billion USD TTM revenue engine balancing a global supply chain with new eco-lines and a dedicated sales force targeting big chain accounts. Stick with me below as we break down the nine blocks, from their key resources like the Karat Earth® brand to how they are using new distribution centers in places like Rockwall, Texas, to secure their market position.

Karat Packaging Inc. (KRT) - Canvas Business Model: Key Partnerships

You're looking at the backbone of Karat Packaging Inc.'s operations-the external relationships that keep the product flowing from Asia to the customer's door. These partnerships are critical, especially given the recent volatility in global trade and tariffs.

Global Network of Diversified Suppliers in Asia and Latin America

Karat Packaging Inc. has been aggressively managing its supply chain risk by shifting sourcing away from China. This is a direct action taken to navigate trade uncertainty and tariff impacts, which have demonstrably increased costs.

The company's progress in supplier diversification as of mid-2025 is clear:

• Sourcing from China was reduced to 15% as of March 2025.
• The target for China sourcing was set to be under 10% by the end of Q2 2025.
• Imports from most vendors in China were temporarily suspended starting mid-April 2025.
• Taiwan represented over 50% of sourcing as of March 2025.

Logistics and Freight Partners to Manage Complex Import Costs

Managing the movement of goods is a major cost center, and the data shows significant pressure here. Ocean freight and duty costs have jumped substantially year-over-year, requiring close management with logistics partners.

Here's how import cost components looked through the first nine months of 2025:

The company also noted an 8.2 percent increase in Cost of Goods Sold for Q2 2025, partly due to these higher logistics expenses.

Financial Institutions like Hanmi Bank for Credit Facilities

Karat Packaging Inc. relies on financial partners like Hanmi Bank for liquidity management, as evidenced by the recent amendment to its revolving loan facility. The company maintains a strong current ratio of 3.12 as of early 2025, suggesting good short-term health.

Key terms of the amended credit facility, effective March 3, 2025, include:

• Lender: Hanmi Bank.
• Borrowing Capacity: Reduced from $40 million to $20 million.
• New Maturity Date: March 14, 2027.
• Interest Rate Basis: SOFR + 2.25% margin, with a minimum SOFR of 1.00%.
• Total Debt-to-Capital Ratio (as of early 2025): 14%.

Karat Packaging Inc. also provided a corporate resolution to guarantee loans made by Hanmi Bank to its subsidiary, Lollicup USA Inc.

Strategic Vendors for New Product Lines like Paper Bags

The focus on environmentally friendly products requires specific vendor relationships for sustainable materials. The eco-friendly Karat Earth line has seen growth, indicating successful sourcing for these specialized inputs.

The share of eco-friendly product sales reached 33.6% in 2024, supporting the company's commitment to this segment.

Furthermore, Karat Packaging Inc. is actively ramping up domestic manufacturing lines, which implies new partnerships or expanded agreements with domestic component suppliers and machinery vendors to support this shift.

Joint Venture with Green Earth Technology for Sustainability

The joint venture with Happiness Moon, Co. Ltd to form Green Earth Technology in Taiwan is a key strategic partnership for vertical integration into compostable products.

The structure and initial commitment details are:

This facility was anticipated to produce approximately 7,560 tons of bagasse products in 2023, with about half earmarked for Karat Packaging Inc.'s customers.

Karat Packaging Inc. (KRT) - Canvas Business Model: Key Activities

You're looking at the core engine driving Karat Packaging Inc.'s performance right now, the actual things the company must do well to keep the lights on and grow. It's all about moving product efficiently and smartly positioning for the future, especially with all the trade uncertainty we've seen.

Strategic global sourcing and supply chain management

Karat Packaging Inc. is actively re-engineering where it buys its goods to build a tougher supply chain. This isn't just talk; the numbers show a clear pivot away from single-source reliance. Comparing the third quarter of 2025 to the second quarter of 2025, the Company increased sourcing from the United States to 20.4 percent, up from 14.6 percent. Simultaneously, imports from Taiwan were reduced to 41.6 percent from 58.0 percent over that same period. This diversification strategy is a direct response to tariff risks and logistics volatility.

The focus on reducing reliance on China has been aggressive, with sourcing from China already down to just 10 percent in the second quarter of 2025. This constant adjustment is key to maintaining their competitive edge.

Here's a snapshot of the sourcing shift:

Manufacturing expansion, increasing domestic sourcing to ~20%

Scaling up domestic production is a major activity supporting the supply chain resilience goal. The push to increase domestic sourcing is clearly visible in the Q3 2025 figures, hitting 20.4 percent, which is a significant jump from the 14.6 percent sourced domestically in Q2 2025. This move helps shorten lead times and insulates a portion of the business from international shipping costs and duties, which were a factor in Q3 2025 import costs rising by $8.2 million.

Distribution and logistics optimization via new US centers

To support faster delivery and the onboarding of new national accounts, logistics infrastructure is being enhanced. The opening of a new distribution center in Chino, California, is a concrete example of this activity. This expansion contributed to $2.8 million of higher rent expense within operating expenses for the first nine months of 2025. Furthermore, a $50 million investment in a U.S. warehouse near headquarters was completed in Q2 2025, designed to slash delivery times. This localized capacity is critical for serving new business wins.

New product development, notably the paper bag category

Developing new product categories is a forward-looking key activity. Karat Packaging Inc. secured a major business expansion to supply paper bags, a new category, to one of its largest national chain accounts. This specific contract is projected to add approximately $20 million in additional annual revenue. Honestly, management has an even bigger ambition here, aiming to scale the paper bag business to more than $100 million in additional annual revenue over the next two to three years. Shipments for this new category began in Q3 2025, with full fulfillment expected by Q1 2026.

The focus on new product development is also heavily weighted toward sustainability:

• Expanding into biodegradable items.
• Eco-friendly Karat Earth® line sales reached 33.6 percent in 2024.
• Adding at least 50 new SKUs in 2024, growing the total to 550.

Custom printing, design, and branding services for chains

Karat Packaging Inc. offers customized solutions that go beyond just supplying stock items. This includes design, printing, and logistics services tailored for specific customers. This capability is directly linked to securing large chain business, such as the paper bag contract mentioned above, which is a multi-year agreement. The ability to offer these bespoke services helps lock in long-term customer relationships.

The success of these activities is reflected in the top-line results, with Q3 2025 net sales reaching $124.5 million, a 10.4 percent increase year-over-year.

Finance: review the Q4 2025 guidance for gross margin, which is forecast between 33 to 35 percent, against the Q3 2025 actual of 34.5 percent.

Karat Packaging Inc. (KRT) - Canvas Business Model: Key Resources

You're looking at the core assets Karat Packaging Inc. (KRT) relies on to execute its business. These aren't just line items; they're the physical and intellectual anchors of their operation, especially as they navigate trade complexities.

Global supply chain and distribution infrastructure

Karat Packaging Inc. (KRT) maintains a significant physical footprint to manage its distribution. As of late 2025, the company operates across 11 operating locations throughout the U.S.. A key strategic move has been agility in its global sourcing. Management reported reducing reliance on China from approximately 20 percent at the end of 2024 to 15 percent by March 2025. Furthermore, the plan was to reduce imports from China to be under 10 percent by the end of Q2 2025, diversifying sourcing to places like Malaysia, Indonesia, Vietnam, and Thailand.

This infrastructure supports various sales channels:

• Online sales category grew by 20 percent in Q1 2025.
• Revenues from Chains and distributors increased by 7.1 percent year-over-year in Q1 2025.

Karat Earth® brand of eco-friendly and compostable products

The focus on sustainability is embedded in a key asset: the Karat Earth® line. This brand offers quality, sustainably focused products made from renewable resources. The strategic push behind this line is evident in its adoption rate; the share of eco-friendly product sales increased to 33.6 percent in 2024. This product mix is critical as the company manages cost pressures from tariffs on other materials.

Manufacturing facilities (e.g., new California center)

Physical capacity expansion is a clear resource investment. In March 2025, Karat Packaging Inc. (KRT) announced leasing a new 187,000 square-foot warehouse and distribution center in Chino, California. This facility is designed to nearly double their distribution capabilities in that region and support adding approximately 500 new SKUs of paper products. Separately, the Rockwall, Texas facility stands out as the largest of the 11 U.S. locations, encompassing a 500,000 square-foot manufacturing and distribution center. Earlier, in March 2021, the acquisition of Pacific Cup Inc. in Hawaii for an aggregate purchase price of $1.0 million added domestic manufacturing capacity for certain Karat Earth products.

Liquidity of $84 million as of Q1 2025

Financial flexibility is a tangible resource. As of March 31, 2025, Karat Packaging Inc. (KRT) reported holding $84 million in liquidity, which combined cash, short-term investments, and the revolving credit facility. This was supported by a comfortable debt-to-equity ratio of 0.3x. By the third quarter of 2025, working capital stood at $91.1 million, comprising $34.7 million in liquidity and $19.9 million in short-term investments.

Proprietary e-commerce platform, LollicupStore

The direct-to-customer digital channel, LollicupStore, is a growing asset. This platform serves as a one-stop shop for premium foodservice products, including disposables and beverage supplies. The momentum in this channel is strong, with online sales growing 20 percent year-over-year in Q1 2025.

Here's a quick look at how key financial metrics evolved between the first and third quarters of 2025:

Finance: draft 13-week cash view by Friday.

Karat Packaging Inc. (KRT) - Canvas Business Model: Value Propositions

Comprehensive, one-stop shop for disposable foodservice products

• Karat Packaging Inc. operates as a single reportable segment encompassing the manufacturing and distribution of a diverse range of single-use food and beverage service products.
• Product offerings include food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, and gloves.
• The company's product portfolio spans materials such as plastic, paper, biopolymer-based, and other compostable forms.

Customizable solutions for branding and product design

• The company's manufacturing capabilities provide customizable product options.
• In 2024, Karat Packaging Inc. added at least 50 new SKUs to grow to 550 from 2023.
• A new facility near headquarters will provide additional capacity to add 500 new SKUs to support anticipated growth.

Wide, innovative line of eco-friendly and sustainable products

• The eco-friendly Karat Earth line offers quality, sustainably focused products made from renewable resources.
• The share of eco-friendly product sales increased to 33.6% in 2024.
• Karat Packaging Inc. is actively working on scaling its new paper bag business to more than $100 million in additional annual revenue over the next 2 to 3 years.

Resilient, nimble supply chain mitigating tariff impacts

• By March 2025, sourcing from China was ~15%, down from 20% in December 2024.
• Karat Packaging Inc. plans to further reduce imports from China to be under 10% in Q2 2025.
• Sourcing from China was reduced to just 10% of total supply by Q2 2025.
• Domestic sourcing increased from 15% to 20% of total supply in Q3 2025.
• The company invested $50 million in a U.S. warehouse completed in Q2 2025.

High volume capacity for national and regional chain accounts

• Revenues from the Chains and distributors category increased by 7.1% year-over-year in Q1 2025.
• Sales to chain accounts and distributors were up by 11.4% in Q2 2025.
• The company declared a quarterly dividend of $0.45 per share in Q2 2025.

Here's the quick math on the scale supporting these value propositions as of late 2025:

Karat Packaging Inc. (KRT) - Canvas Business Model: Customer Relationships

You're looking at how Karat Packaging Inc. manages the people and entities that buy their disposable foodservice products. It's a mix of direct sales muscle and digital self-service, all underpinned by clear communication with the market.

Dedicated sales team for large chain accounts and distributors

Karat Packaging Inc. clearly dedicates resources to its biggest customers. The sales engine targeting these larger accounts and distributors showed strong traction in the third quarter of 2025. Specifically, sales to chain accounts and distributors grew by a solid 13.7% year-over-year in Q3 2025. This segment is key to their growth narrative, especially with new product category wins.

The relationship management here is about securing and expanding major commitments. This is evident in the recent paper bag business win, which is a new category for Karat Packaging Inc. This deal is with one of their largest national chain accounts, showing the depth of the existing relationship.

Partnering approach to manage pricing and operational efficiencies

Karat Packaging Inc. describes its approach as partnering with customers while maintaining a disciplined pricing stance. This balancing act is crucial given the cost environment. For instance, management noted they are taking a disciplined pricing approach while focusing on operating efficiency. They have actively managed costs through sourcing shifts; domestic sourcing rose to approximately 20% (up from about 15% the prior quarter), while imports from Taiwan fell to approximately 42% (down from 58%). Also, they implemented price increases for select products on April 1 and broader price adjustments across most product lines in late May to counter rising costs.

Here's a quick look at the Q3 2025 financial context that frames these customer negotiations:

What this estimate hides is the pressure from import costs, which made up 14.4% of net sales in Q3 2025, up from 8.6% in the prior year quarter. Partnering means working through these external shocks together.

Self-service and direct ordering via the LollicupStore online channel

Karat Packaging Inc. also supports direct-to-customer or smaller-scale transactions through its digital presence. They actively use the LollicupStore online channel for self-service ordering. The company has been shifting its online sales focus to this proprietary e-commerce storefront, which helped lower online selling costs. In fact, operating income in Q3 2025 was partly supported by lower online platform fees. Heading into 2026, Karat Packaging Inc. plans to ramp up its online marketing efforts, suggesting this channel remains a focus for customer acquisition and retention.

The relationship with the digital channel involves efficiency gains. They saved $1 million in online shipping and marketing costs by switching providers during the second quarter.

Investor relations for transparency (e.g., Q3 2025 earnings call)

Transparency with the investment community is a key relationship Karat Packaging Inc. manages, primarily through formal disclosures and calls. The Q3 2025 earnings call, hosted by their Investor Relations firm, PondelWilkinson Inc., provided concrete figures. For example, the reported Net Income attributable to Karat was $7.3 million, or $0.36 per diluted share, for Q3 2025. The company also used this forum to announce its first-ever stock repurchase program, authorized by the board for up to $15.0 million, signaling confidence to shareholders.

Key relationship takeaways from the call include:

• Net Sales for Q3 2025 reached $124.5 million, a 10.4% increase year-over-year.
• Adjusted diluted earnings per common share was $0.37 for Q3 2025.
• Operating Cash Flow was notably low at $1.0 million, reflecting increased inventory payments.

Long-term contracts, like the 2-year paper bag deal

Securing long-term commitments locks in revenue streams and solidifies customer relationships. The most prominent example is the new paper bag business secured with a major national chain. This agreement is explicitly for a 2-year term. This single contract is projected to add approximately $20 million in additional annual revenue once fully ramped up. Management has an even bigger vision, stating they aim to scale the paper bag business to more than $100 million in additional annual revenue within the next 2 to 3 years, driven by regulatory shifts and customer preference.

Finance: draft 13-week cash view by Friday.

Karat Packaging Inc. (KRT) - Canvas Business Model: Channels

You're looking at how Karat Packaging Inc. gets its products-foodservice containers, tableware, and the growing paperback line-into the hands of its customers as of late 2025. The channel mix shows some clear winners and some areas facing headwinds.

The core of Karat Packaging Inc.'s volume growth is still heavily reliant on its direct and intermediary sales channels. Sales directed to national and regional chain accounts, coupled with sales through foodservice distributors, showed significant traction in the third quarter of 2025. These combined channels drove net sales up by an impressive 13.7% year-over-year for the quarter. This performance helped push the overall company net sales to a record $124.5 million in Q3 2025. Honestly, this segment is carrying the load right now.

For the direct-to-consumer or small-to-medium business side, the online e-commerce storefront, LollicupStore, is showing modest but positive momentum. Online sales increased by 3.1% over the prior year quarter. This growth is happening while the company is actively ramping up its online marketing efforts heading into 2026, especially as they expand the paperback business to new customers.

The retail channel sales, however, are definitely feeling the pressure. In Q3 2025, sales through this specific channel were down by 12.5% compared to the same period last year. Management attributed this decline to softness in the overall retail sector, which is something we see across the board in consumer goods.

To support this growth, Karat Packaging Inc. has been investing heavily in its physical footprint. The company recently relocated its headquarters to Rockwall, Texas, which now houses the largest of its 11 operating locations across the U.S. This new facility is a substantial 500,000 square-foot manufacturing and distribution center, designed to create a more streamlined environment and better serve customers nationwide from a central location with room to grow.

Here's a quick look at how the key channels performed in the third quarter of 2025:

You should also note the strategic push into the paperback segment, which is a channel-adjacent opportunity. The company expects this new product line to generate approximately $20 million in additional annual revenue from a single chain account, with a longer-term goal exceeding $100 million annually within 2 to 3 years.

The operational backbone supporting these channels includes several key facilities:

• Rockwall, Texas Facility: Largest of 11 U.S. operating locations.
• Rockwall Square Footage: 500,000 square-foot manufacturing and distribution center.
• Chino, California Hubs: Two warehouse facilities remain vital for inventory management.

Finance: draft 13-week cash view by Friday.

Karat Packaging Inc. (KRT) - Canvas Business Model: Customer Segments

You're looking at the core customer base for Karat Packaging Inc. (KRT) as of late 2025. The business model clearly targets volume through established foodservice channels, while also nurturing direct-to-business sales and adapting to sustainability trends. Honestly, the numbers from the third quarter of 2025 give you a clear picture of where the growth-and the softness-is right now.

The primary revenue drivers remain the larger, established players in the industry. Karat Packaging Inc. groups its largest customer base into a single reporting category for some periods, but the Q3 2025 commentary separated them slightly, showing strong momentum in that core area. This segment is definitely where the bulk of the volume comes from, which is key when you consider the company's overall net sales reached $124.5 million in Q3 2025.

Here's how the key customer groups performed in terms of year-over-year growth for the 2025 third quarter:

The focus on national and regional chain restaurants, along with foodservice distributors, is evident in the reported growth figures. These customers rely on Karat Packaging Inc. for a wide range of disposable foodservice products, including food and take-out containers, tableware, cups, and cutlery.

For the Small-to-medium businesses (SMBs) segment, the growth is channeled through online platforms. You saw online sales increase by 3.1% over the prior year quarter in Q3 2025. This channel is supported by operational improvements, such as the opening of a new distribution center in Chino, California, which enabled approximately 500 new SKUs.

The retail sector is definitely feeling headwinds. Sales to this channel were down by 12.5% compared to the prior year quarter, which management attributed to the softness of the overall retail sector. If you're looking at near-term risks, this segment's performance is one to watch closely.

Customers prioritizing sustainable packaging solutions represent a significant area of future opportunity, especially given regulatory shifts. Karat Packaging Inc. has its eco-friendly Karat Earth line, but a major focus is on the paper bag business expansion. Here's the quick math on that specific push:

• Expected additional annual revenue from a single large chain account for the new paper bag line: approximately $20 million.
• Management's goal for the paper bag line revenue within 2-3 years: more than $100 million annually.
• Domestic sourcing rose to approximately 20% of supply in Q3 2025, up from about 15%.

The company is actively managing its supply chain to meet these environmentally conscious demands while mitigating import risks. For instance, China sourcing was cut to 15% by March 2025, with most China imports suspended mid-April, aiming for less than 10% by the end of Q2 2025, diversifying to Malaysia, Indonesia, Vietnam, and Thailand.

Karat Packaging Inc. (KRT) - Canvas Business Model: Cost Structure

You're looking at the hard numbers that drive Karat Packaging Inc.'s cost base as of late 2025. This is where the rubber meets the road on their supply chain strategy.

The Cost of Goods Sold (COGS) for Karat Packaging Inc. in the third quarter of 2025 hit $81.6 million. This was up significantly, a 17.8 percent increase from $69.3 million in the prior-year quarter. This rise reflects both sales growth and the impact of external costs flowing through the inventory.

A major component driving up COGS is the cost of imports. Import costs, which include ocean freight and duty, were a substantial headwind. In Q3 2025, these costs accounted for 14.4 percent of net sales. To put that in dollar terms, based on Q3 net sales of $124.5 million, import costs were approximately $17.93 million for the quarter. This is a sharp increase from the 8.6 percent of net sales in the prior-year quarter, directly impacting the gross margin, which settled at 34.5 percent for Q3 2025.

Operating expenses are another key area. Total operating expenses in Q3 2025 were $34.3 million, up from $32.2 million year-over-year. This increase wasn't uniform; you can see the pressure points clearly.

Here's a breakdown of the key cost drivers and financial context for Q3 2025:

The pressure on operating expenses came from several places, showing the cost of scaling distribution and supporting higher sales volume. You can see the specific dollar increases that management called out:

• Shipping costs increased by $2.1 million due to higher sales volume.
• Rent expense rose by $0.7 million, tied to a facility lease extension and a new distribution center opening in Chino, California.
• Salaries and benefits expenses were up by $0.6 million.

Regarding inventory holding costs, the company is actively managing its stock levels. Karat Packaging Inc. increased its import volume by 21.0 percent in Q3 2025 to purchase more inventory ahead of expected business expansion. While the specific inventory holding cost dollar amount isn't published, the goal is to maintain efficiency, with an estimated inventory turnover target around 60 days. This inventory build was partially offset by a 13.4 percent decrease in average freight container rates for the quarter.

For Capital expenditures for manufacturing and distribution expansion, the financial reports confirm activity, such as the opening of a new Chino distribution center, which contributed to higher rent expense. However, a specific, itemized capital expenditure figure for manufacturing and distribution expansion for late 2025 is not explicitly detailed in the Q3 2025 earnings summary.

Finance: draft 13-week cash view by Friday.

Karat Packaging Inc. (KRT) - Canvas Business Model: Revenue Streams

You're looking at how Karat Packaging Inc. brings in the money, which is all about moving physical product through different channels. The core of the business is definitely the volume of disposable foodservice products they sell.

The latest quarterly snapshot shows Net sales from disposable foodservice products hit $124.5 million for the third quarter of 2025. This was a record quarter for top-line revenue, representing a 10.4 percent increase from the prior year quarter's $112.8 million. The Trailing Twelve Month (TTM) revenue as of late 2025 stands at $0.45 Billion USD.

Karat Packaging Inc. generates revenue across several key customer segments, showing a clear focus on B2B relationships. Here's a breakdown of how the sales channels performed in Q3 2025:

• Sales to chain accounts and distributors saw significant momentum, growing by 13.7% in Q3 2025.
• Online sales also contributed positively, ticking up by 3.1% over the prior year quarter.
• The retail channel, however, experienced a contraction, with sales down 12.5% over the prior year quarter.

The company is actively diversifying its revenue base by entering new product categories, which is a major strategic move to capture future growth, especially given regulatory shifts favoring sustainable options. This is where the new paper bag category comes in.

The launch of the new paper bag category is a significant development. Karat Packaging Inc. secured a major contract with one national chain account for this new line. This specific business is expected $20 million annually over a 2-year term, with shipments starting in Q3 2025 and expected to ramp up. Management has an ambition to scale this paper bag business to over $100 million in additional annual revenue within two to three years.

To give you a clearer picture of the Q3 2025 revenue components, even though the prompt focuses on foodservice, here are the reported revenue segments for that quarter:

The growth drivers for the quarter were volume expansion and a favorable product mix, which added about $9.4 million and $3.5 million, respectively, to net sales. This growth was only partially offset by an unfavorable year-over-year pricing comparison of $0.7 million. Honestly, that volume growth is what kept the top line moving forward despite margin pressures from tariffs.

Finance: draft 13-week cash view by Friday.