Vital Farms – Pasture-raised Egg Demand – 1 June 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Jeff Hinds (JH)
Former VP, Quality, Food Safety, R&D & Production at Vital Farms Inc
Agenda:
1. Brand positioning and pricing power of pasture-raised eggs
2. Shifting consumer preferences toward animal welfare
3. Vital Farms (NASDAQ: VITL) – capacity constraints and distribution challenges
4. Grocery and foodservice penetration
5. Feed cost and profitability outlook
Contents
Q: Could you give us an overview of the egg production industry, highlighting some of the main drivers and
3
key categories, as well as the top players in the landscape?
Q: You touched on the trend of cage-free and pasture-raised eggs. Could you give us an idea of when the
4
pasture-raised eggs trend began in the US? What growth percentage do you think is available?
Q: Could you give us an overview of Vital Farms’ business and the categories and channels it operates in? 4
Q: Could you discuss the higher cost that Vital Farms may incorporate in pasture-raised eggs vs traditional
4
so-called cage-free and caged environment eggs?
Q: How would you compare pricing of pasture-raised eggs to regular USD 0.99 caged eggs?
5
Q: Higher feed costs are a topic across almost every industry that involves poultry or meat. Can you discuss
how that inflationary pressure has impacted Vital Farms? Is the company or the industry as a whole able to
5
manage those feed costs?
Q: How much flexibility does the egg production industry have to manage those higher feed costs? Could you
6
expand on the egg quality and how it varies?
Q: Could you discuss the scale aspect and what it means to run a business model for pasture-raised eggs which
has high inefficiencies, higher feed costs and more variety? What are the benefits or disadvantages to scale
6
pasture-raised? Is there an optimal size?
Q: Could you expand on the impact of different types of birds? How much freedom do farmers have in choosing
different breeds or birds and how has that evolved over time? How does that impact the end result on the
6
industry?
Q: How would you characterise Vital Farms’ relationship with farmers and how it has evolved over the years?
Does Vital Farms lend the brand while farmers raise these eggs based off a certain type of criteria and the
contract follows from that dynamic, or does Vital Farms take ownership of these farms? What is the business
7
model?
Q: How would you describe the demand environment between the different eggs given the 700% price
difference between the low-value USD 0.99 eggs and some of the prices you mentioned for pasture-raised? 7
Q: What is the market share split between the traditional low-value USD 0.99 eggs vs pasture-raised vs organic?
7
Is it still 80% low-quality USD 0.99 eggs, and the remainging 20% is split between other higher grades?
Q: How is the consumer becoming more educated? You noted some of the websites, but how does Vital Farms
go about improving their brand awareness and quality, given that, as you just said, there is a lot of confusion
8
between the different non-GMO [genetically-modified organism], organic and other types of eggs?
Q: Could you elaborate on the regulatory environment for cage-free facilities? How is that trend developing
8
nationally and what are the implications it has for a firm such as Vital Farms?
Q: Could you speak to the definition of cage-free and what it really means, because, like you said, the chickens
8
are not running around, given that they’re labelled as cage-free?
Q: Could you discuss Vital Farms’ capacity and how it compares to industry peers, especially some of the larger
players who are traditionally known for their USD 0.99 eggs but are making that push towards cage-free and
9
perhaps even dabbling into organic, such as Cal-Maine?
Q: Could you discuss the health benefits of the different types of eggs? Would you describe pasture-raised and,
organic as more so a trend of consumers voting with their wallets, or would you say there are true health
9
benefits or nutritional value?
Q: Could you discuss Vital Farms’ distribution channel and where the company has primarily focused its
10
resources historically? What potential opportunities are there to diversify its distribution landscape?
Q: I would assume there is zero penetration for Vital Farms in food service. What are your thoughts on
10
that?
Q: Could you allude to the role that the ESG [environmental, social and governance] trend may be having on
the whole Vital Farms mission statement? How well-placed is Vital Farms to take advantage of growing
10
investor and consumer demand for sustainable best practices?
Vital Farms – Pasture-raised Egg Demand
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Vital Farms, Pasture-raised Egg Demand. I am
Nyree Hinton, and I will be facilitating today’s Interview with Mr Jeff Hinds, former VP Quality, Food Safety,
R&D and Production at Vital Farms Inc.
Jeff, before we get started with 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.
JH: I agree.
NH: Thanks, Jeff. Could you start by giving the audience an overview of your background and various roles
that you’ve held in the industry?
JH: Been in the food industry over 30 years. Spent 15 years at Pillsbury, General Mills, seven years at the
Bama Companies, who makes all the pies worldwide for McDonald’s. I was over three plants in China, one in
Europe and four in Tulsa, Oklahoma, before moving to Kansas City. Was with Russell Stover for a short stint
before I joined Vital Farms. During my time at Vital, I started out just over quality and food safety, farm
audits, farmers, and that quickly grew into R&D, production, the logistics, the USDA, the FDA. At the
manufacturing side, I also had control over human safety and environmental concerns, so definitely
understand competitors, what they’re doing and how they’re functioning, and quite a bit about Vital Farms. I
am currently President and COO of Spicin Foods.
[00:02:12]
Q: Could you give us an overview of the egg production industry, highlighting some of the main drivers and
key categories, as well as the top players in the landscape?
JH: I would just tell you that the pasture eggs industry is fairly new, considering everything else. If you look at
Europe, Europe has been doing it for 20-25 years, and I’m sure that eventually the pasture-raised egg market
will become standard commodity products, but, for now, the industry is growing, the space is growing. I would
encourage everybody to go to Cornucopia, to go to Certifiedhumane.com, to go to Gap, which is the World
Animal Protection, and look at all of the people in the space, in that category now. That category is growing
tremendously with both local, regional and a few national competitors. If you look at recent industry trends, or
legal trends, cage-free is becoming, basically, the bottom floor now vs just the caged environment that’s
everybody used to buying the USD 0.99-a-dozen eggs, and so that will soon be the bottom expectation of all
eggs is they will be, at least, cage-free. As far as competitors are concerned, I think, again, you can go to those
websites, Cornucopia, Certified Humane, Gap, and find out a lot about the competition, how big it is, different
standards. Just off the top of my head, main competitors are Pete and Gerry’s, Handsome Brook Farms,
Happy Egg, Organic Valley, Eggs “R” Us, Born Free, NestFresh, Cal-Maine, Perdue. Those are probably your
bigger, large regional to part of a national growth for this space.
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[00:04:52]
Q: You touched on the trend of cage-free and pasture-raised eggs. Could you give us an idea of when the
pasture-raised eggs trend began in the US? What growth percentage do you think is available?
JH: I would say, and as technology has increased, knowledge of consumers has also increased, and great job
to the standard egg industry that tells you, “We’re selling cage-free eggs,” because most ignorant consumers,
unless they research, and I was one of them prior to joining Vital, I thought cage-free meant they were out
running around, playing and having fun, and that’s not really the truth. I think, as I look at the future and I
look at where we are, my biggest thing is, listen, USD 0.99-a-dozen-eggs are never going to go away. There’s
always going to be the ground floor to the egg market. I think if you take the economy at a good or great state,
and you’ve got people making over USD 100,000 a year, the people that are sitting at home researching food,
how it’s produced, what kind of ethical raising or rearing are they doing of the animals, and you have some
passionate people there that are screaming for higher standards, those people are the ones willing to pay USD
4.99, USD 7.99, USD 12.99 a dozen for pasture-raised eggs. Now, I think, in my personal opinion, as long as
the economy is strong, you’re going to have passionate people buying those eggs. My biggest fear for the
pasture-raised industry is that if the economy turns south, people will resort back to the cheaper eggs,
because, at the end of the day, I still have to feed my family and it’s only important to me because I have extra
money to spend. At the end of the day, if the economy turns then I would say the pasture-raised egg market
could be consumed very quickly with lack of business, and I mean consumed by your caged and cage-free eggs.
As far as growth is concerned, I think the category is growing. I think it’s growing more locally than nationally.
If I look out on the market, those consumers that say, “Hey, listen, I want to pay for a pasture-raised egg. I
want to know that those girls are outside running around playing and having fun,” and the Vital Farms
packaging is amazing, it is, it pops off the shelf, but once I buy Vital Farms eggs and I enjoy and I can see the
difference in pasture-raised and conventional eggs, the thing about it is is I’m a consumer and now, when I go
to the store, I see Vital Farms, but then next to Vital Farms’ eggs, I see local pasture-raised eggs. Everybody
knows that local trends are increasing, everybody wants you to buy local, and to think that I could help
support a local farm with the same pasture-raised eggs, I’m definitely going to try the eggs. If they’re
comparable, then I’d rather support local than I would a large national company, so is there growth in the
space? Yes. Do I think it’s limited nationally? I do, to a few per cent, and I think that’s why you see companies
like Vital Farms expanding their just standard shelled eggs into other avenues of revenue.
[00:09:28]
Q: Could you give us an overview of Vital Farms’ business and the categories and channels it operates in?
JH: All of this is public knowledge. They expanded, oh gosh, several years ago into the butter industry and
really were trying to figure out the breadth of the company, can its ethical standards be transferred from an
egg, a chicken farm to dairy. I think they’ve done an excellent job of doing that, which is why they have a
growing market for their pasture-raised butter and ghee. I think that that can tell a lot of people a story about
at least putting their toe out into the water, something other than eggs, and I think that they’ve been successful
doing that. I think if you look at how they’re expanding their egg market, they’re doing that under hard-boiled
eggs, and those could be diced and sliced for, like a Whole Foods grocer has places in there that you can eat,
restaurants. They’ve got that, but then they also have the two-packs of hard-boiled eggs that you can buy.
They’ve got breakfast bars now, they’ve got Egg Bites now, and they’ve also partnered up with King Arthur, in
the flour and the baking industry, that includes branded Vital Farms egg in their products.
[00:11:35]
Q: Could you discuss the higher cost that Vital Farms may incorporate in pasture-raised eggs vs traditional so-
called cage-free and caged environment eggs?
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JH: Basically, I would ask you to just close your eyes and imagine what an all-encompassing structure would
look like, and I would tell you to put walls and a ceiling on a football field and fill it full of chickens, and
whether that be caged or caged-free, they don’t go outside. Those birds are stuck inside there. You’ve got,
basically, a conveyor belt of feed running around the entire plant, coming from a feed mill that’s at the end of
the football stadium. Then you’ve got a cleaning, manufacturing, I’d say, processing site right beside that, so
the eggs, once they’re laid, they roll onto another conveyor and they’re transported directly into where they
process the eggs, clean them, inspect them, pack them, and then they have a truck right there and they’re
ready to go out to open market. That’s your caged and cage-free USD 0.99-, USD 1.50-a-dozen eggs.
The different model for your pasture-raised eggs is individual farms, farmers, spread out all over the country
in the pasture belt, and they’re going to have 5,000 birds vs 1-2 million birds, 10,000 birds, 15,000 birds,
20,000 birds, but it depends on where you’re at in the scaling process. You obviously have a lot of
inefficiencies there, as far as feed mills, I mean the whole supply chain. You’ve got to get feed to those outlying
farms. That’s an added cost, because they’ve got to drive to deliver, unload it, drive back. Then the eggs are laid
and then they have to be stored on-site in a cooler that meets all the guidelines, legal guidelines. Then, when
the load is ready to be picked up, another reefer truck comes and picks those eggs up and hits as many farms
as he can until he’s got a full trailer where he takes it back to get processed, and that location is in Springfield,
Missouri. You can see that that’s where a lot of money is tied up. I would tell you that a pasture-raised egg, and
this depends on the certification body, because each certification body has different standards of how much
land one single bird needs, so as you scale up from a 2,500-bird plot to a 25,000-bird plot, you’re talking a lot
more acreage for those birds, but, again, you still don’t get the efficiencies of a couple of million birds in one
barn.
[00:15:26]
Q: How would you compare pricing of pasture-raised eggs to regular USD 0.99 caged eggs?
JH: If you’re talking about consumer pricing, so for your standard pasture-raised egg, you’re looking at USD
4.99 a dozen, and then, if you look at non-GMO pasture-raised eggs, so the only difference there is the birds
are getting non-GMO feed, now you’re looking at USD 7.99 a dozen. Then, if you look at organic, you’re going
to look upwards USD 10.99-12.99 a dozen for organic eggs, and those will be raised on certified organic farms
and fed certified organic feed.
NH: I’m assuming Vital Farms offers products in all three, organic, non-GMO and the last one you
mentioned.
JH: Yes, which, for them, is just conventional pasture-raised, so they don’t do any major testing like they do
for non-GMO and organic feed.
[00:16:52]
Q: Higher feed costs are a topic across almost every industry that involves poultry or meat. Can you
discuss how that inflationary pressure has impacted Vital Farms? Is the company or the industry as a
whole able to manage those feed costs?
JH: Managing feed cost is definitely a ball to juggle. You’ve got to have a very solid nutritionist that is
specifically educated for the egg industry, because nutrition can really mess up the girls, their laying rates, the
quality of egg that they lay, so there is a lot tied up in that aspect. Man, that’s horrible.
Private and confidential 5
[00:18:09]
Q: How much flexibility does the egg production industry have to manage those higher feed costs? Could you
expand on the egg quality and how it varies?
JH: You’ve got to to be careful with that, I think, because each individual flock is different. Unfortunately, the
chickens that are produced here in the United States have evolved over time, because you’ve got people jacking
around with their DNA, their genetics, trying to make them produce a higher-quality, better-consistency egg,
and so every year you get fluctuations of different DNA birds. Different bird types do different better for
pasture-raised, but that’s a lot of detail. I would say, as far as dealing with the economics and the increase and
de-pricing, I think one thing, if you’re fortunate enough to be scaling at the same time pricing goes up, so
imagine having a full truckload of feed and when you’re first starting out, you’ve got 500-2,000 birds per farm,
and those farms are spread out 10-15 miles apiece from each other. There’s a lot of travelling that really drives
my costs up, so how do I scale and keep my prices down? It would seem logical, but you would just build a
bigger barn and put more birds in it. That way I’ve only one stop for a full truckload of feed and I’ve got one
pickup for the eggs to fill up a truck vs multiple stops, so scaling can have an impact on controlling costs.
Obviously, you look at ingredients and just, say, corn or soybean, or anything that goes into the make-up of
their feed, as the market shifts and fluctuates, you’ve got to be able to fluctuate with it, so to have multiple
formulas of food is very important, depending on what’s going on with the crops around the world. Whether
the prices are increasing or decreasing, you’ve got to be able to be flexible with that, but there is wiggle room
on both sides of that fence, with the farmer and Vital, to absorb those costs, and, obviously, if they get too
extreme and scaling can’t offset the price increase, then the consumers will have to get a price increase.
[00:21:20]
Q: Could you discuss the scale aspect and what it means to run a business model for pasture-raised eggs which
has high inefficiencies, higher feed costs and more variety? What are the benefits or disadvantages to scale
pasture-raised? Is there an optimal size?
JH: To be honest with you, it’s a fair question and it all boils down to consumers’ perception of what’s going
on on a farm, what does a family farm look like? Does a family farm consist of 2,500 birds or 50,000 birds? I
think it’s all about consumer perception, and as long as the consumer accepts whatever define that is of family
farm, then I think that they have flexibility to scale, whether that’s a 50,000-bird farm or a 100,000-bird farm.
The biggest hurdle is finding the land, and there’s a lot of land, trust me, and so, if you find a farmer with the
right land, that either has a good relationship with their bank or banker and can erect a barn, then they can
utilise land that couldn’t be utilised in other areas. I say that because if you look at a true chicken, who a
chicken is, how they have evolved, chickens love jungles. They love being in elevated trees. They don’t like just
running around out in the middle of an open field. They hate that, because of predators, and they get spooked
a lot, so they love the protection, the natural protection that trees provide them. If you can find farms with
natural tree coverage, the chickens just absolutely love that, but, as I told you before, the genetics have
changed over time because of scientists and DNA. You actually have to train the birds to go outside, and that’s
over the course of several weeks. From their rearing farm to their laying farm, it’s several weeks of training of
how to get them to go outside and just not necessarily eat, but go outside and play and run around and have
fun. I think scaling up all depends on consumer insight, what that magic number is, but, like I said before, if
you take 10 farms with 2,500 birds spread out vs one farm of 25,000 birds, you’re going to be much efficient
and effective scaling up to that 25,000-bird farm.
[00:25:11]
Q: Could you expand on the impact of different types of birds? How much freedom do farmers have in
choosing different breeds or birds and how has that evolved over time? How does that impact the end result
Private and confidential 6
on the industry?
JH: First of all, the farmers aren’t jacking around with the genetics. It’s these laying houses that actually
incubate the eggs, destroy the male chicks in the process and give you, probably, 98-99% female chickens
delivered to the farm. Those are the ones that are jacking around with their genetics and, right now, there’s
really not a lot of regulatory environment over that, and they wait every year for the feedback to see how the
bird did, consumption, and that would be feed and water, vs lay rates. Did the bird eat very little and lay an egg
every 25 hours, or did it consume a lot and lay every 48 hours? Does the chicken do well outside? Does the
chicken maintain its feathers during its life cycle? What is their mortality rate and ability to fight off infections
that birds can get that does impact their lay rates and their functionality? That’s the biggest thing, and
different birds perform differently, and what’s crazy is every year they’re different. Every year, they’ve jacked
around with the DNA and you may have a bird that’s completely naked at 35-weeks-old, which means they
have no freaking feathers. They may still be laying fine, but the biggest fear that I had was somebody trying to
make a name for themselves and going out, sneaking on a farm and filming a video of something that is not
standard, that a farmer has deviated from the standard, or they just find a bird that’s featherless, and then I
can imagine all the stories that would spawn off of that. I think that that’s the other hurdle with genetics. It’s
an ever-evolving yearly change.
[00:28:32]
Q: How would you characterise Vital Farms’ relationship with farmers and how it has evolved over the years?
Does Vital Farms lend the brand while farmers raise these eggs based off a certain type of criteria and the
contract follows from that dynamic, or does Vital Farms take ownership of these farms? What is the business
model?
JH: I would say that there is a good demand of farmers that want to work and do pasture-raised eggs, so, at
the end of the day, they can have less eggs, or, excuse me, less birds, less eggs and make the same amount of
money as they could if they were in a high-production facility. I tell people it’s the difference between a
McDonald’s scenario and a Red Robin scenario, your standard USD 0.99-a-dozen eggs are like McDonald’s.
They just spit them out, thousands at a time, and there’s a conveyor of hamburgers, vs Red Robin, where you
get a sit-down meal and a big hamburger, so it’s two different models to sell to consumers.
[00:30:03]
Q: How would you describe the demand environment between the different eggs given the 700% price
difference between the low-value USD 0.99 eggs and some of the prices you mentioned for pasture-raised?
JH: Again, I would just tell you logically that the financial side of it for the farmer has to be good enough to
get a bank loan. Most of those farmers, whether they have money or they don’t have money, have to be able to
have a resource, like a bank, to borrow money and it’s got to make sense for the bank to support it, so, as far as
how much profitability there is, it’s got to satisfy a bank’s needs for the return on the investment. With that
being said, there is a demand for farmers. They have a line of people wanting to get in. The cool thing, cool or
not cool, I guess, thing about Vital is that most of their farmers are Amish or Mennonite, so they’re very well-
knit, tight communities. Whether they’re three states away or five minutes away, they communicate very well
with each other, so as long as you’re doing the right things, you’re going to have an endless supply of the
Amish and Mennonite families that want to grow pasture-raised eggs.
[00:31:52]
Q: What is the market share split between the traditional low-value USD 0.99 eggs vs pasture-raised vs
organic? Is it still 80% low-quality USD 0.99 eggs, and the remainging 20% is split between other higher
Private and confidential 7
grades?
JH: I would say 90% of the egg industry is still in the caged/cage-free pack-out type, and that is your USD
0.99-, USD 1.29-a-dozen eggs. I think the remaining 10% of the population takes up the bulk of your one-offs,
and that’s organic, non-GMO, pasture-raised, free-range. Unfortunately, there’s a lot of undefined territory if
you ask consumers the difference between all of those, and I know that, great job of Vital, that they own the
majority of that 10% market share. It’s been 5%, 6%, 7%, I think, what they’ve controlled and its really
penetrating the national market, and then the remaining 4%, 3% is going to be more of those one-offs, the
free-range, organic, non-GMO products. I think a lot of those are the same consumers just trying to figure out
what the hell the difference is between organic, non-GMO, free-range and pasture-raised.
[00:34:07]
Q: How is the consumer becoming more educated? You noted some of the websites, but how does Vital Farms
go about improving their brand awareness and quality, given that, as you just said, there is a lot of confusion
between the different non-GMO [genetically-modified organism], organic and other types of eggs?
JH: I would say that one thing that I know they’ve done well is they know who is buying their eggs, they know
their income, they know male and female status, they know how to reach that consumer audience and on what
platforms. You don’t see Vital Farms spending a lot of money on traditional television stations. You’ll see
YouTube videos and you’ll see them promoting it on social media, so they’ve done an excellent job of defining
who the consumer is, how to reach them, how to pull on their heartstrings in order to ante up and get the
premium eggs. I think that’s one thing they’ve done an excellent job of, is knowing who their consumers are.
[00:35:35]
Q: Could you elaborate on the regulatory environment for cage-free facilities? How is that trend developing
nationally and what are the implications it has for a firm such as Vital Farms?
JH: I don’t think that’s going to impact Vital at all, the changing of the floor. California started the jumping on
the bandwagon of cage-free eggs being required by law, and so you’re just seeing more and more states doing
that. To me, it’s the natural evolution of the egg industry, and much like Europe did quite a while ago, when
their landscape changed, is that will be the floor in the United States. You won’t be able to buy a caged egg, I
think, in the next five years, and maybe 10 at the most, to get all 50 states to buy up on it, but it is a trend and
it’s happening. It’s been happening the last few years, and it will continue to grow until all 50 states are on
board of, “Our minimum standard requirement for eggs will be cage-free.” I think, again, it’s just the
evolution, and then how long will that keep its foothold with the consumers that assume that cage-free means
they’re out running around playing. I think if the economy does great, you’re going to see more and more
people going and looking for a premium egg, but if the economy turns south, I think that’s my biggest concern
for all of the farmers that are in a premium egg market.
[00:37:43]
Q: Could you speak to the definition of cage-free and what it really means, because, like you said, the chickens
are not running around, given that they’re labelled as cage-free?
JH: I tell you what, it’s a better story than it is factual. Birds are predators and, if you do a lot of research,
they’re crazy. I’ve seen a live bird get eaten faster than I could pick them up, standing beside me, because a girl
gets henpecked and then once they see blood, it’s insane how they’re de-gutted in seconds, and that’s the
reality of just natural attrition of birds and animals. At the end of the day, these are animals and they’re going
to behave however they want to. A caged environment, we hate the thought of that, but they put four or five
Private and confidential 8
birds in there, and those birds are fine in there, they eat, they drink when they want, and then they shoot out
eggs. If you go to a cage-free environment, really the only things they’re doing is lifting those cages up and off.
If I take a quarter-inch cage on the sides and on the top of these cells and I raise them up, when I’m looking at
a football field that’s 100-yards long and then it’s full of caged birds and I raise up those cages, I am going to
give the birds more room to run around just naturally. That’s the only thing a caged-free environment is, is
they’ve taken the cages and they’ve raised them up, and those birds will then be able to naturally go where they
want to go. That means your alpha-females, so those ones that are very strong and strong-willed, they’re going
to work their way up to the top tier in a farm, and kind of your migrant workers will stay down on the ground
floor, and then you’ve got some in the middle that jockey for position up the scale. It’s quite humorous how the
birds are, but that’s just their natural habitat. The stronger, more alpha-dominated birds will go up to the top
of that pyramid inside of a barn. Caged and cage-free, just imagine five birds in a cage that’s a foot by a foot by
a foot and they just raise those cages up, and that’s cage-free.
[00:40:56]
Q: Could you discuss Vital Farms’ capacity and how it compares to industry peers, especially some of the
larger players who are traditionally known for their USD 0.99 eggs but are making that push towards cage-free
and perhaps even dabbling into organic, such as Cal-Maine?
JH: I think most of your big players, like your Perdue and your Cal-Maines of the world, in my mind, they’re
battleships and they’re not as agile as a smaller player. It’s going to take them a lot more money and a lot more
time to change their programmes and what they establish as their ground floor. Again, I would say as more
people populate the areas and we have to produce more eggs, scaling up is going to be easier for your cage, or,
excuse me, your non-caged birds. Again, I can just pack more birds into that barn, now that I’ve removed the
cages, and I can get more efficiencies because I just added 10,000 more birds, so scaling up is definitely much
easier. Even organic, it’s all about how you define these things, and that’s the crazy thing. Organic does have
some ties to it from birds, they’ve got to be fed organic products, and if they’re caged or cage-free, then that’s
really it. I would say most of those farms are always organic, and then they do a clean-out, they do a sanitise
and then they bring in another flock to stay organic, but that’s it.
As far as capacity for the rest of the world, the deals with free-range or pasture-raised, you’ve got to be
prepared months, if not years, in advance to scale, because you have to order the pullets, the baby chicks, 2-3
years in advance, so they can scale up as the industry scales up. Especially if you’re doing brown eggs, there are
several breeds of those birds, but it takes birds that are brown that are going to lay the brown eggs that
consumers really think a brown egg means pasture-raised. A brown egg just means the feathers of the parents
were brown-feathered vs your traditional white-feathered eggs, or chickens. To grow capacity-wise, it’s all
going to be about forecasting and are you going to over- or under-forecast, which is definitely a slippery slope,
because if you over-forecast, then you’re killing birds, or you’re basically giving eggs away, and if you under-
forecast, then someone’s going to steal market share.
[00:44:56]
Q: Could you discuss the health benefits of the different types of eggs? Would you describe pasture-raised and,
organic as more so a trend of consumers voting with their wallets, or would you say there are true health
benefits or nutritional value?
JH: The simple answer is it’s all about tugging at consumers’ hearts to open up their wallet. If you do the
research, there is one, there may be two articles that allude to the fact that pasture-raised birds produce a
higher nutritional-valued egg, and that article is quite old. As you dig into the study that was involved there,
there were a lot of holes in that study, but, overall, the nutritional value of the egg is all determined off of the
feed. If you’re eating healthy food and taking your vitamins, you should be healthier and thus produce, for a
chicken, better eggs. If they’re not eating the right nutrition, then, holy cow, you may get a thin-shell day, you
may get an egg that the yolk is busted inside of it because the membrane is too weak. You’ve got to feed them
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the right mixture and it’s all (? 46.56) dependent, from the nutritionist, on all the scientific data, like water
consumption, feed consumption, lay rates, sickness of the birds. You can watch the data come in and make the
best decisions, but, at the end of the day, nutritional value, you can adjust through feed. Is there any more
nutritional value in a pasture-raised, free-range, cage-free? No. If there is, it’s very minute and there’s not a lot
of scientific evidence that says it is a higher nutritional-valued product.
[00:47:42]
Q: Could you discuss Vital Farms’ distribution channel and where the company has primarily focused its
resources historically? What potential opportunities are there to diversify its distribution landscape?
JH: I think they still have a lot of market to penetrate in retail stores, but I think it’s pretty well-known, and, if
you research it, you can find this out, that Matt was good friends with the owner at Whole Foods, and since
they were friends, they talked about what opportunities are out there. Matt used to sell eggs as a kid, farm-
fresh eggs, to neighbours, and so it was natural for him to jump on the, “Let’s create a pasture-raised egg that
would be sold in Whole Foods.” Once that was established and Vital started growing with Whole Foods and
started getting out, instead of just local Whole Foods, to going regional and then national, Whole Foods really
helped Vital scale up. I would tell you not every retail store will do good with Vital, and, I would tell you, just
like Walmart. My hometown Walmart, there’s no way that the people in that town would or could afford a
USD 4.99-a-dozen egg, they just won’t do it, but if you go to a nice neighbourhood, that average income is well
over USD 100,000, that Walmart would support a USD 4.99-a-dozen egg. I think that that’s the big difference,
but if you look at big retail chains that carry Vital, Target is the biggest one, and they are that bottom-tiered
Vital Farms’ eggs. They don’t do the non-GMO too much, or the organic very much at all, but pasture-raised,
that’s a good spot for Vital Farms, or any pasture-raised. Then I would say your other national channels, so
your Natural Grocers, your Sprouts, the premium, organic markets are where those consumers are.
[00:50:36]
Q: I would assume there is zero penetration for Vital Farms in food service. What are your thoughts on that?
JH: No. There’s definitely food service that does Vital. Like I said, they’ve got both hard-boiled eggs in food
service and they’ve got, it’s funny, if you go down to Austin, which is where they’re from, you’ll go to numerous
restaurants that have eggs on the menu, and whether it’s not even a breakfast place, if you order a hamburger
with an egg on it, it says, “Vital Farms eggs”. They’re definitely in the food service industry. Not as big as retail,
but yes, they definitely have that in their portfolio.
[00:51:43]
Q: Could you allude to the role that the ESG [environmental, social and governance] trend may be having on
the whole Vital Farms mission statement? How well-placed is Vital Farms to take advantage of growing
investor and consumer demand for sustainable best practices?
JH: I would tell you, at the end of the day, it’s a brand and it’s marketing the brand, and the brand is that
morally, ethically, environmentally sound production model for the consumer. They can get, right now, eggs
and butter that are based off of this ethical standard for humanely raising animals. While there’s still
opportunity to grow in the egg industry, you have to think about it from a bigger perspective, is what does Vital
Farms stand for and where else can they put their toe and then jump into that still has that humanely-raised
animal? They’re doing it on butter. They’ve got cows that are out running around as pasture-raised cattle, so
they have a lot of room if they want to grow and expand that brand, because the same consumers that are
buying their eggs naturally bought the butter, and those that are buying the eggs and the butter will naturally
buy whatever else they want to ethically raise, humanely raise. The grocery store shelves are full of
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opportunities.
[00:54:13]
NH: We’re just about out of time, so we’ll end the Interview there. Let me close by saying thank you, Jeff, for
your time today, and insights, and also thank you, clients, for joining Third Bridge Forum’s Interview today. If
you wish to speak with our specialist in a private call or meeting then please let your relationship manager
know. Goodbye.
JH: Goodbye. Thank you.
Transcription ends at 00:54:28 of the recorded material
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