US Egg Sector Update – Inflation, Alternatives & Category
Management Opportunities – 25 August 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Richard Findlay (RF)
VP, Fresh Merchandising at Fresh Thyme Market (Lakes Ventures LLC)
Agenda:
1. US-wide trend toward cage-free facilities
2. Branded vs private label dynamics and retailers’ criteria for egg manufacturer partnerships
3. Egg contributions to average basket size
4. Rise of plant-based eggs and alternatives
Contents
Q: Could you share an overview of key points relating to egg production and sales through the grocery
channel, as well as trends across products that players can demand a premium for? How has the industry
shift happened across your time? Can you start with the trend you noticed first to what you think is on trend
now?
3
Q: How attainable or practical is implementing cage-free on a large scale, given some legacy practices? What
4
is the typical perception of cage-free? It seems that definition itself is not hugely clear for consumers.
Q: Can you elaborate on the pasture-raised eggs trend and the players you think are leading there? Vital
Farms is popular. Additionally, how do retailers choose which farms to partner with, given you talk to over
20 start-ups?
4
Q: Can you discuss organic or pasture-raised product pricing and the related potential for basket size to
continue increasing? Could you discuss the ability for these prices to continue increasing and the structure of
how much you can get for pasture raised vs organic? How might retailers be considering their own private
label chances of entering that segment?
6
Q: On the trends retailers can take advantage of, do many retailers consider Whole Foods a leader at rolling
out organic and natural products? Might they be considering their ability to adopt some of those products in
their retail establishments? Could you also discuss the health and wellness trend and how quickly retailers
are adapting to a more consumer-centric approach to wellness and their product choices?
7
Q: I consider eggs a very volatile category with a short shelf life. Could you discuss the challenge of
anticipating or keeping up with demand, and promotional levers in the organic and pasture-raised segment,
given there is so much more to lose on this side of the business vs the 80-90% egg that is so cheap?
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Q: How would you assess some of the partners or farmers you work with, their ability to meet demand
during the pandemic and the scaleability? Have you noticed any bottlenecks or supply chain issues when
trying to get partners to commit to more product?
Q: Have consumer trends shifted or reverted to lower-quality eggs in the pandemic-related economic
hardship and increased unemployment? There are probably more complexities in that despite the recent
boom in retail. Are consumers buying large quantities but of cheaper items? How do you assess consumer
elasticity where they may be more price-conscious?
Q: What is your outlook for the egg sector, given everything discussed about private label, branded and
pasture-raised and organic options? How might alternative or lab-grown eggs impact your demand
assessment? Do you expect this category to take share from the organic or pasture-raised ones?
8
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US Egg Sector Update – Inflation, Alternatives &
Category Management Opportunities
Transcription begins at 00:00:00 of the recorded material
NH: Welcome to Third Bridge Forums’ Interview entitled US Egg Sector Update – Inflation, Alternatives &
Category Management Opportunities. I’m Nyree Hinton, and I’ll be facilitating today’s Interview with Mr
Richard Findlay, VP of Fresh Merchandising at Fresh Thyme and also a Professor in business.
Richard, before we start today’s Interview, please state I agree or I disagree to the following statement: You
understand the definition of material non-public information and agree not to disclose any such information,
or any other information which is confidential, during this Interview.
RF: I agree.
NH: Can you start by giving an overview of your background and various roles you’ve held in the industry?
RF: I have been in the grocery landscape for well over 40 years, going on 45 years, and my background has
been in multiple channels. I cut my teeth in Chicago, at a retailer called Jewel Food Stores, which later became
part of Albertsons, and now Albertsons-Safeway, so very traditional. I then also spent some time at H-E-B in
south Texas, in a mass merchant channel for grocery. Then, about 15 years ago, shifted, made a little bit of a
left-hand turn over to Whole Foods Market, and I got into the natural and organic channel. That’s where, as it
relates to eggs and our conversation this morning, shifted from just selling commodity eggs as cheap as
possible, for Easter time getting it down to USD 0.19 or whatever a dozen, to be able to decorate eggs, to now
in the organic with pasture-raised product, or free-range eggs, things like that. Being able to sell them for USD
3.99, USD 4.99, or even more per dozen. That’s my past as it relates to the grocery industry, different retailers,
large retailers across the United States, and also how it intersects with the topic of eggs this morning.
[00:02:25]
Q: Could you share an overview of key points relating to egg production and sales through the grocery
channel, as well as trends across products that players can demand a premium for? How has the industry shift
happened across your time? Can you start with the trend you noticed first to what you think is on trend now?
RF: That’s really a great question, and it can take us down so many different paths. What I’ll do is, I’ll start out
at 40,000ft, and I commit to landing this plane for sure, and if there are any further follow-up questions, or if
anyone does want to double click, they certainly have the opportunity to do so. In general, what we are seeing
is a shift towards increasing egg consumption. It’s fascinating, it was, I think, 2015, where we saw a peak as far
as per capita consumption, although the latest numbers I’ve seen is that a typical individual in the United
States will consume just shy of 300 eggs in the course of the year. That’s record high numbers, and, as I
mentioned, from a costing standpoint, the pinnacle of cost was back about 5-6 years ago. We just saw a peak in
pricing, but since that time, costs have come down a little bit. They’re going back up now, most recently with
2020, the COVID situation, and coming, hopefully, out of COVID in 2021.
I guess what is fascinating, as it relates to production, is we are seeing much more concern about animal
welfare, about where product is coming from. Individuals being concerned about the transparency of their
food, and as a result of that, migrating over to, at a minimum, free-range eggs, pasture-raised eggs, and even
the ultimate, if you will, organic eggs. Now, feeding those chickens total organic feed, giving them access to the
outdoors, so it’s not that industrial type of manufacturing facility and that sort of thing. It’s just amazing, even
Private and confidential 3
major producers like Cal-Maine, or Eggland’s Best, or even Rembrandt, or some of those larger players, they’re
actually shifting, and moving some of their production into this more spacious arrangement for the animals,
for the laying chickens. What’s interesting, and as we’ve done some focus groups during my time at Whole
Foods, and my time as Chief Merchant Officer for Fresh Thyme, is that people really do appreciate that. They
notice, with their eyes, the increased size of the yolks, in general the size of the eggs, the quality of the eggs.
What has come through from some focus group research, panel insights in that, is that they feel, even though
they might be paying a little more, they don’t need 2-3 eggs. They only need one egg, or if they want a little
bigger breakfast, maybe two eggs, instead of 3-4, and in reality it’s not that much more expensive. That’s a
little bit of the overview of how consumption is increasing. I’m sure we’ll talk more about COVID on down the
line, but just in general, we are seeing an uptick in egg usage, especially as people are doing a little more at-
home activity. Baking, cooking with eggs, that sort of thing. It’s not just necessarily a centre of the plate
application, but it’s also as an ingredient application for other recipes, and that sort of thing. Those are the
general, overlying shifts that are going on in the industry today, I’d say.
[00:08:00]
Q: How attainable or practical is implementing cage-free on a large scale, given some legacy practices? What
is the typical perception of cage-free? It seems that definition itself is not hugely clear for consumers.
RF: Again, great question, and what it basically refers to, there are some USDA standards as far as the
minimum dimensions that a chicken has to endure in their life, if you will. Again, in those industrial
applications, it’s approximately 1.5ft by, say, 2.5ft or 3ft. They don’t have a whole lot of room to move around,
and it’s like being in a hotel or a smaller apartment complex, if you will, for some of these chickens to live in,
and not be able to move and gain access to environmental, or outdoor application, or that sort of thing.
Basically, a cage-free, by definition, it just means that they have access to the outdoors, and they’re able to
have an environment that allows them to move around, to play. Many manufacturers are putting, I don’t want
to say toys or whatever, but opportunities for chickens to peck, and that sort of thing, which is just indigenous,
or conducive to what their normal activities in the wild are, and all of that.
The quick answer to your question is not being confined to a small space, being able to have access to the
outdoors, even going from cage-free to pasture-raised, having access to grass and that sort of thing, or feed
that’s out in a grazing area, or that sort of thing. Very similar to what you might see for cattle or that, but
obviously realise that a cow is more in the 800-1,500lb range, where a laying chicken is in the 4-6lb range, so
it just needs a whole lot less space. I’ll also just say that is it possible for our production capabilities to be able
to feed the entire United States? I would say, “Yes, I really do believe.” I’ve had many conversations, even with
the broiler market, with the Tysons of the world, and the Sanderson Farms, and even they are shifting their
production into this pasture-raised programme, because they realise that the yields they get are better. The
price that they get for it is better, so they’re just shifting some of their production facilities, and grow-out
facilities, into these more spacious environments.
That transitioning is happening. I don’t think we’ve achieved a tipping point yet, but it is also astounding to
just see how many small, niche players there are out there. I’ll speak from my experience at Whole Foods,
where I developed relationships with 10-12 different manufacturers across the entire United States, and in
many cases they might supply anywhere from 50-100 stores out of the enterprise of over 500 stores. They’re
able to handle that kind of volume, and you’re starting to see more of these players get into it. Also, I’ll just say,
you’re starting to see some of the larger producers like the Tysons of the world, or the Cal-Maine, pick up some
of these facilities through merger and acquisition. That’s also how the landscape is shifting a little.
[00:13:23]
Q: Can you elaborate on the pasture-raised eggs trend and the players you think are leading there? Vital
Farms is popular. Additionally, how do retailers choose which farms to partner with, given you talk to over 20
Private and confidential 4
start-ups?
RF: Yes, Vital Farms is a great example, actually, of a manufacturer that started out. It just so happens that
when I moved to Austin, Texas, one of the first individuals I met was Matt O’Hayer, who was the founder of
Vital Farms. Matt and I became very close friends, we began doing some business at Whole Foods, again in the
egg business. He made a foray into broiler, but just wasn’t able to make that work, so what’s been great about
Matt and the Vital Farm team, and their current leadership as he’s turned the reigns over to a new CEO, and a
new president and that sort of thing, is that they’re very conscious of animal welfare. They take that as a badge
of honour, and basically their whole business model revolves around that, because they fully believe that if you
put animal welfare first, the quality of eggs in the end product will be magnified, and just a better product, and
I would violently agree with that mindset.
It’s not just Vital Farms, you’ve got Pete and Gerry’s, that’s another manufacturer that’s out there. You’ve got
Happy Eggs, you’ve got Phil’s, you’ve got Farmers Hen House, Wilcox, there’s a litany of players that have
come onto the scene, that are located in different parts of the country. I’m not sure if some of the folks on this
call that’ll be listening in to it are aware, but some of the main states, Iowa happens to be one of the largest.
Well, it is the largest, or number one state for egg production. Texas is big, Arkansas is big, California is big.
You’ve got some players in the mid-Atlantic, Pennsylvania range. It’s interesting that it’s not just the sunny
south where these eggs are being made or produced. Predominantly, you’ve got it being fostered throughout
the entire United States.
The second part of your question, which was really applicable, is, as a retailer, I’m paraphrasing your question,
but, who do we do business with, and, really, why do we do business with them? This begs the question of
category management, and now making monetised decisions. Basically, at Whole Foods, at Fresh Thyme, and
during my career, have created a list of KPCs, or key performance criteria, that help guide those decisions. All
retailers develop their own KPCs, and they might force rank them. They might have different terminology for
it, they might force rank them in different buckets or that sort of thing. For me, what’s first and foremost in
importance of the three buckets, or three pillars that I espouse, this one is 40-45% weighted. Again, most
important. It revolves around the quality and efficacy of the eggs. Here, that means how well the eggs perform.
I mentioned that dark, gold yolk colour, the size of the yolk and the white albumen and all of that. This gets
into the cuttings and the different taste tests that we have with different egg manufacturers, and that’s where
these pasture-raised eggs perform so very well for us. Included still in that firsts bucket, besides quality and
efficacy, is the innovation. Now, some of the things that are trending, and for us organic eggs are first and
foremost. That’s probably the biggest trend that’s going on. People are looking for higher-quality, premium
product. They know that if they are sourcing organic products, whether it’s eggs or whether it’s other proteins,
or, for that matter, just cereal or drinks, functional beverages. Organic just tends to be a little higher-quality,
less ingredients that go into it, pure ingredients that go into it, whether that’s the food, in the case of eggs,
what those laying chickens are eating and all. That’s what’s trending, that animal welfare component is
obviously trending quite a bit. Those, I would say, are the most important areas that we’re working on with
manufacturers.
Then, finally, I’ll just say, in that first bucket is the corporate social responsibility, CSR. As a category manager,
or heading up the procurement area, I just want to make sure that we’re dealing with reputable suppliers, that
care about the environment. They care about the team members that are working for them, they care about the
community that they’re located in, so giving back philanthropically, or that sort of thing. Here’s where I’ll give
accolades to Vital Farms, where a percentage, it’s somewhere between 5% and 10% of their proceeds in
revenue, goes back to philanthropic endeavours. That means a lot. We’re looking to do business with
organisations and enterprises that don’t necessarily pay their C-suite millions of dollars, and they only pay
team members minimum wage, that perhaps there’s even a limit on that financial payout, and that sort of
thing. That’s bucket number one.
Bucket number two in importance, probably 35-40% weighted, is around service and support. Much more
objective and pragmatic around, what’s the time frame for cutting a purchase order and having the product
delivered? Is it four hours? Is it four days? Is it four weeks or four months? Here’s where we’re beginning to
work with some of these small, niche suppliers weeks in advance, so that they can even build up. If we see
seasonality of product, or some promotions that we have going on, that they can increase their laying hens so
Private and confidential 5
that they can produce an increase in number of eggs to support those promotional activities. It’s that
relationship, that collaborative effort around that service. Then I’ll even say, from a support standpoint, here’s
where I’m going to give props or kudos to the Vital Farms group. They’ve got a QR code on their package, that
you scan that with your smartphone, and you can find out exactly where in the United States those eggs were
laid, what farm it was produced on, the name of the farmer, the farmer’s dog’s name, and kids, and that sort of
thing. It gets extremely granular as to the transparency and visibility of how that egg was made, when it was
produced, the food products, that sort of thing. It’s both educational, informative, but it’s also entertaining.
That’s where Vital Farms, and a number of these Pete and Gerry’s, some of these manufacturers, are just doing
a phenomenal job from a marketing standpoint, letting folks know about that product socially, digitally. I’m
the least hip person on this call this morning, but suffice it to say that a number of our constituency, especially
the Gen-Z-ers, the millennials, they care about the food they eat and where it comes from. They want visibility
into it.
Lastly, the last bucket, which is about 20-25% weighted, is the financials. Now, that’s obviously the cost-retail
relationship, that’s economic portion is around the performance of the product, YoY movement, or if it
happens to be a new brand, the most recent run rate, where it might be QoQ, that sort of thing. I even have the
ability to get as granular to see. It’s interesting to see that the Pete and Gerry’s, we see a significant increase in
basket size. A typical, for instance, Whole Foods, and I’ll be careful to not share anything proprietary, but it
might be interesting for folks on this call to understand that a typical shopper, retailers know what the basket
size is. At Whole Foods, for instance, it’s in that USD 30-35 per trip, and they come into a store 2-2.5 times a
week. Well, when they put eggs in their basket, all of a sudden that basket size immediately jumps up to USD
40-45, so there’s about a USD 10 pick-up there, or one-third increase.
What’s also amazing, instead of just buying our USD 3.65 private label, Pete and Gerry’s, when they purchase
that, now we see the basket size catapult up to USD 60-65. We can see some of the adjacent purchases that
they’re making with it, and interestingly enough, no surprise, that we see an increase in baking products when
people tend to buy these pasture-raised or cage-free eggs. We see organic beef products, specifically ground
beef. We see an adjacent purchase around organic produce, which is a highly profitable area for us as well.
Then, one area that I can’t necessarily connect the dots is that we see an increase in adult beverages, and
specifically white wines, and wines with bubbles. I don’t know if that’s people making some brunch
applications, and having some mimosas or whatever. I guess we’d have to do a focus group. My point is that as
a category manager, I’m looking at those financials, those economics, to see what it’s doing to the profitability
of that category, as well as the profitability of the entire store. That’s how we look at it, and frankly, as it relates
to Pete and Gerry’s, would I discontinue that product? Chances are no, because of the fact that it just grows
total basket so significantly. That’s a long-winded answer to your question, and I’ll pause to see if there’s
anything you want to double click on.
[00:27:40]
Q: Can you discuss organic or pasture-raised product pricing and the related potential for basket size to
continue increasing? Could you discuss the ability for these prices to continue increasing and the structure of
how much you can get for pasture raised vs organic? How might retailers be considering their own private
label chances of entering that segment?
RF: Great question, again. Realise that retailers typically set a target margin for every single category in the
store. In general, the egg category can be pretty competitive, where, when it’s promoted, eggs will be sold as
cost, or maybe only making a 10-15% margin, gross margin that is. In general, typically, as an industry,
traditional supermarkets, the Albertsons, the Safeways, the Krogers of the world are going to set a 30-35%
target margin for eggs. A natural and organic at Whole Foods might be a little higher than that, a little
different labour structure and that sort of thing, so it might be in the 35-40%. Then, conversely, you might
have mass merchants like a Walmart, or even a Target, or club stores like a Costco, or a Sam’s, that work off of
25-30% margins every day, so it really varies.
The beauty of having those target margins out there is that when you are sourcing these premium products,
you make incremental penny profit on that. Said another way, if a dozen eggs of traditional, I’ll call it Cal-
Private and confidential 6
Maine, industrial-raised eggs, cost USD 1, for simplicity’s sake, for a dozen eggs, and that retailer wants to
make approximately 40% on it, then the retail’s going to be approximately USD 1.60. From a retail standpoint,
the retailer’s going to make USD 0.60 profitability or margin pennies on that product, but if they’re buying,
say, premium eggs that are USD 2, and they want to make that much, say 40%, now all of a sudden the retail’s
going to be, say, USD 3.29, or in that range, and now they’re making USD 1.20 on that product. It’s enhancing,
clearly, the retailer’s margins, but also, up the supply chain, it’s enhancing the manufacturer, because in
reality, they’re not having to sell that at commodity prices and only charge USD 1. In reality, they’re able to sell
it for USD 2-3, so it certainly enhances the egg producer as well as the retailer.
You could argue ultimately, Rick, now the consumers have to pay that premium, but it is extremely elastic, and
consumers see the benefit and the advantage of it, and they’re willing to pay for it. That gets back to that
financial component of category management and why it’s so advantageous to shift out of the commodity
arena and push these higher-valued, premium eggs out there. Ultimately, there will be a ceiling of what people
will be able to buy, but what I just find astounding is how these cage-free eggs have become so ubiquitous. Just
as an example, last time I happened to be visiting down in Austin, I filled up the car in a 7-11 gas station
basically, a convenience store, and when I went in to pay, here were, in the refrigerated case at a convenience
store, Vital eggs at USD 7.99 per dozen. Not only is it in those traditional retailers and organic retailers, but it’s
even in convenience stores. I guess about the only ones where I haven’t seen it are those non-retail places like
a Lowe’s or a Home Depot or something. If you go in and buy a ball-peen hammer and get a dozen eggs, but,
who knows, maybe it’ll get to those channels of trade eventually as well. I hope that answered it well enough.
[00:33:46]
Q: On the trends retailers can take advantage of, do many retailers consider Whole Foods a leader at rolling
out organic and natural products? Might they be considering their ability to adopt some of those products in
their retail establishments? Could you also discuss the health and wellness trend and how quickly retailers are
adapting to a more consumer-centric approach to wellness and their product choices?
RF: I certainly don’t mean this as coming from a point of hubris or bigger than anyone else, but Whole Foods
is on that cutting edge, especially of healthier eating trends, certainly those organic trends. Again, every
retailer breaks categories into three buckets. They might have different terminology and vernacular, but, at
Whole Foods, it’s a win, it’s a parity, and it’s a staple. The egg category happens to be a win and because of
that, they put a little extra focus on it, they tend to give it, maybe, more macro space. They review the category
much more frequently, tend to review it every quarter, so every 90 days they’re making some nuanced
changes, refreshes to planograms and schematics. Then, certainly once a year, doing a macro shift, and maybe
giving additional space to those win categories such as eggs, and maybe taking it away from parity categories,
where you want to be as good as, or certainly staple categories, that you carry basically because you have to.
One other direction of answering that question is that not only is it the role and responsibility for it, but many
manufacturers love to work with the organic channel because you tend to have earlier adopters maybe a
slightly more educated consumer that is willing to be on that cutting edge of trends, of technology, and that
sort of thing. Also, the natural and organic channel typically does not charge slotting fees, or that sort of thing,
because they deal with so many of these small start-up, niche suppliers. The last thing they want to do is put
any onerous slotting fees, charges, or that, that might inhibit their ability to be successful. You put all those
factors together, and that’s why you see Whole Foods doing business with these 10 or 12 different niche
manufacturers. As well as even a Cal-Maine, or whatever, that would be producing some of their private-label
products, just as they might for Kroger or Walmart, or that sort of thing. It’s this kind of juxtaposed position
where these small start-up companies start at a Whole Foods, or even a Sprouts or a Fresh Thyme, and then
shortly thereafter, the Kroger’s of the world, the Walmarts, will pick them up, say, 90 days, or 180 days after
that, and give them a little bit of space in their stores as well.
I’ll just say, overarchingly, is the fact that we’re seeing that natural and organic, or healthier lifestyles,
continue to grow, and grow exponentially. When I started, back 15 years or so ago, I think I was the class of
2005, natural and organic sales were about 2-3% of the total grocery industry, or of total grocery sales. 2019
numbers that I saw, natural and organic sales represented about 8-9% of the grocery industry and in 2019, I
Private and confidential 7
believe it was somewhere over USD 1tn, or closer to a USD 1.2tn marketplace. Estimations by 2025 are that
natural and organic sales will be pushing 14-15% of the grocery market. I’m not sure what it’ll be, probably
about USD 1.5tn, maybe north of USD 1.5tn. My point is, part of that trend, that organic product that I was
mentioning before as a trend, is certainly gaining legs, and we see it being very bullish for these egg producers
to get into this landscape.
[00:39:46]
Q: I consider eggs a very volatile category with a short shelf life. Could you discuss the challenge of
anticipating or keeping up with demand, and promotional levers in the organic and pasture-raised segment,
given there is so much more to lose on this side of the business vs the 80-90% egg that is so cheap?
RF: You’re spot on in that assessment. I’ll say that’s part of the reason why many retailers will attempt to
enhance the margin a little bit, to offset that shrink. I know that you might think that’s counterintuitive, Rick,
you raise the retail, and all that’s going to do is potentially increase shrink, but what it does is it allows retailers
the opportunity to mark down the product a little more. One of the advantages that a Whole Foods has in their
business model, and I think even some other retailers are beginning to take advantage of it as well, even the
Wegmans, the Gelson’s, the Publix and all. If indeed they see some of their eggs are beginning to become
short-coded, they would never ever sell anything out of date or turn it over to their food service area out of
date.
That just goes against any of the ethics of any of those retailers, but, suffice it to say, what they’ll do is the
proverbial turn lemons into lemonade. They will give those eggs over to the chefs in their food service areas.
They can turn them into food products that are sold on salad bars, that are sold on hot bars, or that sort of
thing. We actually began promoting, on the salad bars, Vital Farms’s hard-boiled eggs, that they were organic
and pasture-raised. We actually had to begin producing additional product on those bars to keep up with the
demand for it. It’s just an exit strategy and an opportunity that retailers have to enhance those margins a little
bit but you’re exactly correct. There are some risks, but, with those risks, the rewards can be a little higher, and
that’s where, typically, retailers will maybe stretch that elasticity, or push those margins a little bit.
I will say, most recently, because of COVID, it has been basically a non-issue, because of the fact that breakfast
and breakfast products have been one of the leading categories that have increased or seen the largest YoY
gain. It has been absolutely amazing. Frankly, even in focus group work, we have seen the traditional, and
we’ve known for some time that the traditional three meals a day have gone by the wayside, and that people
were at least supplementing that with maybe a morning or an afternoon snack. The pandemic hit, and what
people have told us is they were basically eating 7-8 times a day. They were just perpetually grazing
throughout the day because they weren’t going into the office, they weren’t going to school, so they were
snacking. Portions might go down, but what was also fascinating was the resurgence of breakfast. Not
necessarily that window between 6:00 and 8:00, people were having breakfast at night, between 20:00 and
22:00, or in the afternoons, or whatever, or just even cooking some eggs for snacking, or that sort of thing. It
has just been absolutely amazing to see the breakfast category show 20-25% YoY growth during the year 2020,
and even still seeing double-digit growths in the mid teens, in all, so far into 2021, so it doesn’t seem to be
letting up at all. That’s where we are, if you will, from a COVID impact on the industry.
[00:45:08]
Q: How would you assess some of the partners or farmers you work with, their ability to meet demand during
the pandemic and the scaleability? Have you noticed any bottlenecks or supply chain issues when trying to get
partners to commit to more product?
RF: To say the least, last year was rough. Supply chain, many of the folks listening to this, I’m sure, saw those
pictures of empty shelves and supermarkets not being able to keep up with demand. That was absolutely the
case. However, we’ve shored that up, we’ve stabilised it a little bit. I know from a strategic standpoint,
Private and confidential 8
interestingly enough, it’s been positive for many of the small start-up companies, because I’ve actually forged
some new relationships, at Farmers Hen House, for instance, or even Wilcox was another one. We began
ordering product from additional or incremental suppliers, just so we’d have eggs to sell.
Interestingly enough, there’s not necessarily a lot of brand loyalty with this product. What people are loyal to
is just the fact that they are organic, or that they are pasture-raised. That’s where we’re seeing that whole
segment of the category grow. It’s really incumbent upon the manufacturers, now, to have that marketing
support to push their brand and drive that. The answer to your question is, what retailers did was began
expanding the number of suppliers that they were doing business with, so that they’d be able to at least offer, if
a guest or a customer came into the store, maybe they were looking for a Vital Farms egg, but if it was out of
stock, there was some other egg that they were able to put into their basket. That’s the biggest way, or at least
how retailers adjusted and pivoted during the pandemic.
Then, from a manufacturer standpoint, I think they have begun working more closely and collaboratively with
their feed suppliers, with their processors, to just be able to expand their capability and their supply, and be
even more efficient. Obviously, one of the biggest areas, and where we’re seeing costs starting to inch up a little
bit, is because of those labour costs, because of the feed costs, because of the transportation costs, and some of
the new Department of Transportation regulations, and that sort of thing. I think that’s an area where
manufacturers are starting to see this inflation take hold, and that’s not necessarily a bad thing for producers
or for retailers, because they’re able to start to inch up their wholesale price, their retail price, a little bit.
Customers are, I won’t say thrilled with it, but they at least understand that it’s not necessarily these producers
or CPG companies attempting to gouge without guilt, but there is some rationale for these price increases, and
that sort of thing. I hope that gives at least an idea of how the producers are working on their supply chain,
and also how I see costing and inflation, at least for the rest of this year. I think we could see some pricing go
up 2-5% through the rest of 2021 in the egg market.
[00:50:02]
Q: Have consumer trends shifted or reverted to lower-quality eggs in the pandemic-related economic hardship
and increased unemployment? There are probably more complexities in that despite the recent boom in retail.
Are consumers buying large quantities but of cheaper items? How do you assess consumer elasticity where
they may be more price-conscious?
RF: What has been fascinating about the economics of this particular scenario through the pandemic, and I
compare it to 2008-09, when we went through that recession, but that was much more a United States-centric
recession, and it impacted us greater. You saw people with incomes reduced and trading down. They were still
perhaps buying beef, but instead of buying steaks, they were buying ground beef, or, instead of buying
boneless, skinless chicken breasts, back in ’08 and ’09, they might be buying drumsticks and thighs, so you
saw that trading down. In this particular scenario, 2020 through the pandemic, yes, there have been some
significant hardships, and people have had incomes just horrifically impacted.
Conversely, and in some research that we’ve seen, we have also seen that there are individuals with
incremental, or a greater amount of, disposable income. In reality, they’re actually trading up in many cases,
because they’re unable to travel, they’re not putting gas in their cars, or whatever. I realise that’s shifting out of
that mindset now that we’re halfway through 2021, but still folks are working from home and not travelling as
much. Here’s where categories such as ice cream, the biggest area that’s growing is premium ice cream. It’s not
in novelties, or in the bakery area, it’s premium desserts and cakes. Mind you, they’re smaller portions,
because people are snacking more. They are attempting to eat healthier, and, obviously, premium ice cream,
or premium cakes, or, for that matter, even eggs, might be perceived as not the healthiest, but certainly folks
on paleo or keto or Whole30 diets absolutely love it, and those special diets, they’re growing egg consumption.
My point is that, with those that do have additional disposable income, and that sort of thing, we’re seeing
people trade up in 2020 and 2021, as opposed to trading down. I realise I’m painting with a broad brush, and
that that’s not every segment of the population. There are certainly some folks on food SNAP, or that sort of
thing, that might be looking to extend it, but it is amazing, in general, where we’re seeing more commodity
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eggs remaining flat, but the premium eggs growing double digit.
[00:54:32]
Q: What is your outlook for the egg sector, given everything discussed about private label, branded and
pasture-raised and organic options? How might alternative or lab-grown eggs impact your demand
assessment? Do you expect this category to take share from the organic or pasture-raised ones?
RF: It absolutely has. I would violently agree with your hypothesis there. Interestingly enough, here in one
side of my mouth, I was talking about inflation through the rest of this year, and I do think we will see costs go
up. However, by 2022, and moving into 2023, and maybe even the next 2-3 years, I believe that these egg
alternatives are going to put a strain on the margins of traditional laying chickens and animal eggs, if you will.
The reason I say that is we see more people migrating to it. The technology is improving. You look at a 16-
ounce bottle of liquid eggs, of just eggs, and it’s retailing for approximately USD 5.99 at a Whole Foods store.
It’s equivalent to a dozen eggs, so it’s in parity, if you will, to the pricing of these pasture-raised eggs, I should
say, organic eggs, not conventional eggs. That technology is improving. You’re going to see those costs starting
to come down.
You’re seeing other form factors show up, so it’s not just liquid eggs. We have had plant-based eggs and
powders, and that sort of thing. You might remember going to hotels and having scrambled eggs, and they’d be
a little gritty. Those were made from powder. Now the efficacy and quality is coming from liquid egg knock-
offs. It has improved, but you’re even seeing fried egg plant-based products, whether it’s refrigerated or frozen,
improve. Matter of fact, I have seen some hard-boiled eggs where a cutting that was made from cashew and
mung beans put up against a chicken egg, and it was almost indistinguishable, so, now, we’re talking about
hard boiled, to fried eggs, to scrambled eggs, as well as liquid eggs, used for cooking and that sort of thing.
Those costs are going to continue to decrease and compress, and that’s going to put a strain on producers, I
believe, in the upcoming years for the pasture-raised. They’re going to just have to continue to get smarter and
to work more efficiently, or it’s going to just simply compress their margins that they’re making. That’s where I
see it, even in the next 2-3 years, and how this plant-based is not a fad by any means. It is a trend that’s here to
stay. It’s not just for what I call vocal vegans, but rather it’s for mainstream America.
[00:59:02]
NH: We will now end the Interview. Let me close by saying thank you, Richard, for your input. We covered
almost all aspects of what I wanted to touch on today, so thank you for that. Thank you, clients, for joining
Third Bridge Forum’s Interview today. If you’d like to speak to Richard in a private call or meeting, please let
your relationship manager know. Have a good one.
Transcription ends at 00:59:18 of the recorded material
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