IPO: Pasture-raised egg co Vital Farms goes public, plans moves into new categories

The firm – now a certified B Corporation – is issuing 5,040,323 shares of its common stock at $22 a share, while the selling stockholders named in the prospectus are offering 4,263,654 shares of common stock (totaling 9,303,977 shares, valuing the company at $204.7m).

Vital Farms​​ will not receive any proceeds from the sale of shares* by the selling stockholders, said the company, which will begin trading on the Nasdaq Global Select Market under the ticker symbol ‘VITL​​.’  The offering is expected to close on August 4.

While the plethora of different claims on egg packaging can be bewildering, there are big differences between ‘pasture-raised’​ eggs​, which in the case of Vital Farms, come from hens given 108 square feet of unrestricted outdoor access; and ‘cage-free’​ eggs​, which are from uncaged hens kept inside cramped barns often with no access to the outdoors; ‘free-range’​ eggs​ – which can be from hens kept in barns with limited space and limited access to the outdoors; and ‘organic’​ eggs​ – from hens kept free of antibiotics and hormones, fed organic feed, and living free range, but sometimes with limited space and access to the outdoors, Vital Farms​​ founder (now executive chairman) Matthew O’Hayer told FoodNavigator-USA in a 2017 interview​​:

“I think that once consumers understand what ‘cage-free’ really means, they will make the switch​ [to pasture-raised]. “

"I think of going from caged to cage free as being like going from a crowded elevator with a four-foot ceiling to a mosh pit in a rock concert. It's just not much better. I always tell people that we're not just in the farming business or the animal welfare business, we're in the education business. ​

"It wasn't so long ago that no one ever thought about this at all. An egg is an egg. But that's changing very rapidly." ​

Sales of $140.7m in 2019​

According to securities filings​​, Vital Farms sources products from a network of approximately 200 small family farms, and posted sales of $140.7m in 2019, with net income of $3.3m, from sales of shell eggs, hard-boiled eggs, liquid whole eggs, butter, and ghee, sold in 13,000 stores nationwide.

It has a 76% share of the US pasture-raised egg category, and is the #1 egg brand at Whole Foods Market and Sprouts by retail dollar sales, and the #2 egg brand at Kroger and Target.

‘Our products generate stronger velocities and, we believe, greater profitability per unit for our retail customers [than competitor products]’​

Egg Central Station, a shell egg processing facility owned by Vital Farms in Springfield, Missouri, is capable of packing three million eggs per day, said the firm. “We believe owning and operating this important element of our supply chain is a key differentiator and provides us with a competitive advantage, which we intend to continue to leverage to grow both our net revenue and gross margin.”​

“Our products generate stronger velocities and, we believe, greater profitability per unit for our retail customers in key traffic-generating categories as compared to products offered by our competitors. We believe we have significant room for growth within the retail and, in the medium- to long-term, foodservice channels and can capture this opportunity by growing brand awareness and through new product innovation.​

“We also believe there are incremental growth opportunities in additional distribution channels, including the convenience, drugstore, club, military and international markets, which we may access along with retail growth opportunities to enable us to continue our net revenue growth.”​

It added: “Our relatively low household penetration of 2%, or approximately 2.5m US households compared to the shell egg category penetration of approximately 93%, provides a significant long-term growth opportunity for our business.”​

New product development​

There are also more opportunities to extend the Vital Farms brand into adjacent categories, said the company, which is planning to launch egg bites and says it has plans to expand its presence in the refrigerated value added dairy category.

“We have several products in our innovation pipeline that we believe will be successful in these adjacent markets.”​

According to SPINS data, the US pasture-raised retail egg market notched up $177m in retail sales in 2019 and has grown at a CAGR of 31.7% between 2017 and 2019, while the specialty egg (including pasture-raised, free-range and cage-free) market notched up US retail sales of $1bn.

• Cage-free? Free-range? Pasture-raised? Click HERE​​​​ to read the American Egg Board’s guide to egg terminology

*Goldman Sachs & Co. LLC, Morgan Stanley and Credit Suisse Securities (USA) LLC are acting as joint lead bookrunning managers for the offering. Jefferies, BMO Capital Markets Corp. and Stifel, Nicolaus & Company, Incorporated are acting as bookrunning managers for the offering.