Vital Farms CEO shares how brand is navigating market obstacles at ICR Conference
At the 2023 ICR conference last week, Russell Diez-Canseco, president & CEO of Vital Farms, alongside Bo Meissner, CFO, took to the stage to share how the brand is navigating a myriad of market pressures, seeing growth, and plotting out a future that might take it beyond the egg and dairy categories.
The multipronged crisis of avian influenza, inflation
While the entire food space is facing challenges at the moment, the egg category has some unique factors that are impacting price and production.
On the inflation front, food-at-home prices are up 11.8%, while egg prices soared a staggering 59.9% year on year in December 2022 vs December 2021, driven by rising costs and avian flu.
"The real driver of what's going on in this very moment has been the effects of avian influenza," Diez-Canseco said. "It's taken out more than 10% of the laying flock in the United States, which historically had about 330 million birds; we've lost over 40 million of those."
And as large egg producers are looking to add more birds back into their production cycles, they are finding that "it's taking a little longer to rebuild the flock" because many are being killed by avian flu in the process of adding them, which has created some short-term price increases, Diez-Canseco said. While the market is expected to rebound in 2023, he added that it’s taking a bit longer to rebuild because "influenza has been lasting longer."
How Vital Farms is tackling these market pressures
While the egg market overall has been feeling this multipronged market pressure, Vital Farms' approach to egg production has provided some cover from inflation and avian flu. While many egg producers are seeing around 65% year-over-year inflation per Nielsen data, Vital Farms' price inflation is "more like in the 20s on a percentage basis," Diez-Canseco said.
Part of the reason why the price increases haven't been as bad is that Vital Farms prices are higher, "so the inflationary drivers of corn and soy, being big components of [hen] feed, as a percent of our total cost of goods and our total revenue is much smaller than then for commodity producers," Diez-Canseco said.
Another way Vital Farms is combatting these pressures is through its production model, which has created “a pretty resilient” supply chain, Diez-Canseco said. Vital Farms doesn’t own any farms, but instead works with roughly 300 US farmers to procure its eggs, he explained. Given the number of farms that Vital Farms work with, if one farmer “decides to work with a different brand … it's less than 1% of our total supply,” he added.
This distributed network of 300 farms also has some benefits when it comes to combating avian influenza. Of the 40 million birds that have died from avian influenza, “those birds primarily are those … factory-farm birds in cages,” Diez-Canseco said.
Expanding in new regions, markets
While Vital Farms touts a robust supply chain, the brand has also made progress in expanding its overall footprint, growing its distribution network, and tapping into markets that it previously hasn’t served.
Over the last 12-18 months, Vital Farms has expanded in the northeast of the US, "which was sort of the last bastion of sorts of under-penetrated market for [the brand],” Diez-Canseco said. Speaking frankly about the challenges of this region, he pointed out that "those retailers had bigger checks that you had to write to get on a shelf," so Vital Farms initially prioritized more cost-effective growth areas.
To make progress in this area, Vital Farms put resources into the opportunity in the northeast, dedicating a salesperson to the region and adding a new broker and distributor in New York, which has been a city of focus in the brand's northeast expansion, Diez-Canseco said.
Additionally, Vital Farms has expanded beyond the wall of the grocery store by more than doubling its business in the foodservice space in 2022 by distributing through Sysco, Diez-Canseco said. Instead of simply trying to get in every restaurant, he noted that Vital Farms is “partnering with small chains … with a differentiated offering that has a similar demographic to our consumers, and they’re branding on their menu the Vital Farms brand.”
Applying the egg recipe to other categories
Another reason that Vital Farms has been able to weather the current challenges in the egg market is because of its strong customer base, Diez-Canseco claimed. Vital Farms consumers aren't typically "cross-selling the egg category," instead opting for Vital Farms because of its story, he said. These consumers are also concerned about animal welfare and “suspicious of the incumbent guys,” he said.
"We've built a real connection with consumers that's allowed us to retain them and grow our share wall with them over time because what we offer them in terms of trust and transparency is rare."
This kind of brand loyalty for Vital Farms will be crucial as the brand sets up its plan for future growth. In exploring market opportunities beyond eggs and dairy, Vital Farms is reaching out to consumers and asking what products they’d like to see from the brand. As the brand looks for growth opportunities, Vital Farms will look to recreate the roadmap that it used for eggs and apply the lessons learned to new categories, Diez-Canseco said.
“We entered a commoditized category that we felt was worthy of disruption,” Diez-Canseco said. "There’s an awful lot of white space in that grocery store to do things.”
