Egg prices, avian flu, and golden yolks

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NEWS ANCHORS: Now to the spread of bird flu, which is causing egg prices to soar.

Shortages are growing from coast to coast.

Some chains like Costco and Trader Joe’s are limiting the amount of eggs customers can buy. And in stores with eggs on the shelves, sticker shock: it’s like $10 a carton.

The United States Department of Agriculture predicts egg prices will rise another 20 percent this year.

BOB SAFIAN: Hey everyone, on today’s episode we’re delving into the suddenly wild market around eggs. My guest is Russell Diez-Canseco, CEO of leading egg brand Vital Farms. While many egg producers find themselves struggling as avian flu wipes out millions of birds, Vital Farms has managed to keep growing. Its eggs are premium-priced, but those prices have stayed stable. Russell shares how the brand’s relationship with farmers, transparency with customers, and unique business model have allowed the company to turn crisis into opportunity. We also talk about why Vital Farms became a B Corp before its IPO, the company’s high-profile lawsuit with PETA, and what makes Vital Farms’ yolks so orange. If you’re feeling the impact of eggflation, Russell offers valuable context beyond just the eye-popping price tags. So let’s get to it. I’m Bob Safian, and this is Rapid Response.

[THEME MUSIC]

I’m Bob Safian and I’m here with Russell Diez-Canseco, CEO of the egg producer Vital Farms. Russell, great to have you with us.

RUSSELL DIEZ-CANSECO: Great to be here.

Copy LinkWhy the price of eggs are so high

SAFIAN: So, eggs have been in the news a lot lately. The price of eggs in particular is up like 50 percent over the past year, and in some places, more. What is going on? I know there’s talk about bird flu impacting supply and hens lost. Although when I go out to the store, there seem to be plenty of eggs, just these big numbers on the price tags. What’s going on?

DIEZ-CANSECO: There’s a fair bit of conjecture about what’s going on in the market. The headline is, yes, a lot of birds have been destroyed over the last couple of years and even more recently in the last few months as a result of avian influenza, and that has resulted in a supply contraction in the market.

Some would say the price impact has been outsized relative to the amount of that enduring supply contraction. Almost all of those birds that have been, they call it depopulated, have been on really large farms, farms with a million or more birds, in cages, some outside of cages, but all in these big buildings with a lot of birds. That has resulted in more than 12 percent of the bird population in the United States being killed over the last year. On our network of small family farms, it’s been less than one-half of one percent.

And I can’t prove to you exactly why we’ve been so lucky to avoid this issue, but we’ve been a lot luckier than many.

SAFIAN: I know your focus is eggs, but you can’t be used to all this public attention on eggs. Are there things over the last year where you’re like, why is this happening? Things that surprised you or made you sort of stop?

DIEZ-CANSECO: You know, it’s interesting. Certainly, eggs are in the headlines for a variety of reasons, right? It was an election year, food inflation has been an important topic, and I don’t love that egg price inflation in particular is such a focus. I still see eggs as a really high-quality, affordable source of protein.

And in our case, as a point of entry for conscious consumers looking for better foods produced in a different way. And I don’t want eggs to lose that status. So, I’m looking forward to a return to normalcy.

Copy LinkHow Vital Farms is supporting their partner farms

SAFIAN: You work with local farms all over the country. Are there calls you’ve got or situations that you’ve had to navigate to help them?

DIEZ-CANSECO: We do work with now over 425 small family farms. They’re not quite all over the country because we choose a certain part of the country that we call the pasture belt because our birds are meant to be outside. So we won’t do it in the northeast because it’s too cold in the winter.

We won’t do it in the southwest because it’s too dry. But the Midwest and the near South, places like Missouri, Arkansas, Tennessee, Kentucky are pretty great for our birds. So, we don’t own those farms, but we’re very interactive and supportive of those farmers because we think it’s in our best interest for them to be successful.

So whether it’s technical education on how to weather a challenge like avian influenza or financial education on how to manage preventative maintenance on your farm to help those birds be as healthy and productive as you can get them, we spend a lot of time investing in those farmers.

SAFIAN: And the avian flu, the risk is to the hens, not to the consumers of the eggs, right? Or is that even not clear?

DIEZ-CANSECO: I certainly haven’t heard of any cases of someone getting avian influenza from eating an egg.

And we enjoy eggs at our house the way we always have. Yeah, the risk is to the bird. And it’s sad. Frankly, our purpose is to improve the lives of people, animals, and the planet through food. The notion that millions of birds are being killed because of this is really heart-wrenching for me.

In the last year, we had one of our farms affected. Our job at that point is to help facilitate the farmer getting the birds tested as soon as possible, a diagnosis, getting them connected with the right government agencies that kind of take over from there, and then getting birds back to that farmer as soon as possible so he can continue his operation.

Copy LinkThe eggs that Vital Farms sells

SAFIAN: Eggs are more expensive than they’ve been. Vital Farms eggs are particularly expensive, premium eggs. What makes an egg worth paying extra for, especially when eggs are already more expensive?

DIEZ-CANSECO: When we first started this business, Matt O’Hayer, our founder, is a serial entrepreneur with a big heart around animal welfare. At the time, more than 95 percent of the laying hens were in cages, and he wanted to create a business that could liberate some of them.

And that’s exactly what he ended up doing. So in those early days, we were the only nationally distributed brand of pasture-raised eggs — a new kind of egg that we were trying to popularize.

In the ensuing years, starting as far back as when I joined the company in 2014, there have been lots of options besides Vital Farms to buy pasture-raised eggs.

Yet over the years, ours has been the most expensive version of that commodity. We’ve been growing rapidly with healthy margins. We had an IPO in 2020.

It’s more than just the features and benefits. They are buying our purpose and how we do what we do in addition to this certain kind of egg. We operate with a lot of transparency.

For example, our egg cartons have the name of the farm from which those eggs came on the end of the carton, and you can see a video of that farm on our website. When we go to a retailer, we’re not just trying to transact with them.

We’re trying to help them plan their business to achieve their goals. Right now, it’s no secret that we’re not filling orders in full. A lot of egg companies aren’t, but we’ve developed a powerful brand, and demand, especially since we haven’t raised prices in over a year, is outstripping our supply of eggs.

We’re pretty transparent about what we commit to with those retailers. It’s a rare thing in this world and certainly in the food system. That’s appealing to some.

Copy LinkInside Vital Farms’ pricing strategy

SAFIAN: And if you haven’t had to raise prices over the last year when prices of other eggs have gone up, that means that premium is narrower than it used to be, right? Which I guess is good for you. How do you maintain that? Is that something you expect to maintain, or is pricing, as you’re talking about it, almost not a challenge or issue?

DIEZ-CANSECO: There is some balance to the way we think about the choices we make around pricing. We might have built a strong brand that we could command an even higher price at some point in the future.

We also have a commitment to improving the lives of people, animals, and the planet through food. And we might price ourselves out of some growth that leaves some chickens in cages and leaves some people stuck with an egg that may not be as good for all of our stakeholders. So, we take all that into account when we set pricing.

But the truth is that our cost structure has faced some inflation over the last few years, but nothing that would inspire us or force us to double pricing the way we’ve seen it in the market over the last year.

SAFIAN: And that it sounds like is you’re using more smaller farms as opposed to these bigger industrial farms?

DIEZ-CANSECO: Input costs are what they are. It takes a certain amount of feed, space in a barn, heat in the winter, and veterinary care to produce an egg. These are measurable commodities. We feed our birds corn and soy in addition to what they find out on the pasture, for example.

Those have not doubled in the last six months. There is a pricing discovery mechanism for commodity eggs in this market, driven in part by spot pricing of eggs. When there’s a dislocation of supply, that number can jump up and suddenly find its way into production, pricing to retailers, and pricing on the shelf.

We price as a branded CPG company. I don’t look at that index. We price based on what we think is right as part of the marketing mix, like any other branded company.

SAFIAN: Pricing of eggs may fluctuate based on commodity availability. It’s pertinent, obviously, but it’s not relevant to your pricing in your market in the way you think about it.

DIEZ-CANSECO: That’s absolutely right. There have been times over the last 10 years when there were price wars on eggs, and you could find them for 50 cents a dozen at retail, and we didn’t change our pricing. There have been times like now when some of the cheaper eggs are priced higher than ours. We’re sometimes not the most expensive egg right now, and that doesn’t necessarily prompt us to change pricing. What we’ve found over time is that our ability to grow profitably is not very correlated to what’s happening in the broader egg market.

SAFIAN: And, the idea that eggs may stay at this high price indefinitely — this may be the level they’re at now — doesn’t necessarily change or impact your strategy one way or the other?

DIEZ-CANSECO: It doesn’t. I can’t predict the future in terms of what might drive the economics of what we do. One of the really important elements of our operating model is that we develop long-term relationships with these small family farmers. Often they become egg farmers by working with us.

Maybe they weren’t doing that already; in most cases, they weren’t. So we develop a relationship by which we buy all the eggs they produce for a certain amount of time, and they agree only to sell to us. The price we pay is variable, but it only varies with input costs. So I never want a farmer to be, for example, hurt financially because corn and soy prices went up.

I pay them more when they go up, and I pay them less when they go down. The idea is I want them to have a predictable income. At moments like this, when commodity prices and egg prices are through the roof, it can be tempting to say, ‘Hey, maybe I could sell my eggs on the open market and make more than Vital is paying me.’

And while that doesn’t affect what they do during a contract, if a contract is up for renewal, it might catch their attention. Those that I have lived through times when egg prices weren’t so frothy remember when we were paying them more than the spot price for eggs. So we tend to take a long view here, and we prefer working with farmers that do as well.

SAFIAN: I love Russell’s explanation of how the egg market works and what makes Vital Farms distinctive. The brand’s resilience during the avian flu troubles is a great reminder of the value of deep relationships with suppliers and customers. Still, what happens when a brand’s values collide with near-term business imperatives? We’ll dig into that after the break. Stay with us.

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SAFIAN: Before the break, Vital Farms CEO Russell Diez-Canseco talked about how the brand has fared amid the twin crises of bird flu and eggflation. Now, he shares what he learned in the legal battle with PETA, why he brought his son to Vital Farms’ IPO, and what makes the company’s distinctive orange yolks different. Let’s dive back in.

Copy LinkThe power of building a brand around trust

I’ve had conversations with the head of Impossible Foods, who’s talked about branding for meat alternatives. The environmental message doesn’t work. What works is talking about the taste.

It sounds like for you with Vital Farms, you’re sort of straddling both. I mean, you’re making an argument about sort of broader stakeholder impact, not just that these eggs taste better.

DIEZ-CANSECO: I had an epiphany back in 2016. We finally had our first marketing leader, and we were doing what they called consumer ethnography work. So we’re at a store in Minneapolis, and we’re shopping with this woman, this shopper. She’s going through the dairy set. She takes some milk and puts it in her cart, and the facilitator asks her some questions: ‘Why did you choose that milk? Why a quart instead of a half-gallon? I see the carton says organic; what does organic mean to you?’ etc.

And this continues; she picks out some bacon, same questions. Picks out some eggs, same questions. By the third or fourth item, the woman kind of got frustrated. She turned around, threw up her hands, and said, ‘Look, I feel like every week I hear or read another story about a food producer who lied or got caught cheating, not doing what they told me they were doing. The reality is, you’re asking about all these words on the package, but if I trust the brand, I’m not actually paying all that much attention to the claims.’ And so I think what we’ve been able to do — which is not easy — is build a brand around trust and transparency.

Not that we’re perfect or everything to everyone, but we do what we say and we say what we do. That’s hard to come by in this country. It’s true. She’s right.

Copy LinkResponding to PETA’s 2023 lawsuit

SAFIAN: I’m remembering last fall, Vital Farms came under scrutiny regarding animal welfare practices. I think from groups like PETA and other plaintiffs about the farms you work with. That can’t have been good for the brand and building trust with customers.

DIEZ-CANSECO: We did get sued by a group of class action attorneys, and PETA was part of that. We prevailed. The case was dismissed with prejudice. We didn’t settle.

Essentially, the assertion was, ‘You say you’re an ethical food company; in our opinion, ethical food can’t be produced by animals. Therefore, you are misleading consumers.’ But there was no gotcha video. There was no ‘we caught you doing something you didn’t say you were doing.’ As I said, we’re not perfect for everyone. The important part is that we’re transparent about what we do and that we don’t do anything to lose that trust.

SAFIAN: Episodes like this, the headlines come out and a lot of people, like the woman you’re talking about in the supermarket, just see the headlines, right?

DIEZ-CANSECO: It can be incredibly frustrating. It’s funny; in that specific example, it’s not lost on me that PETA doesn’t sue big industrial factory farmers because they’re not competing with PETA for the consumer’s attention. We are. Because we appeal to conscious consumers, they’re appealing to conscious consumers. They have sued Whole Foods a lot of times. It might sound like hubris, but there’s almost a point of pride. If PETA sues you, maybe you’re onto something.

SAFIAN: And there aren’t necessarily strategic lessons that you took from that experience?

DIEZ-CANSECO: Well, a few things come to mind. The situation in 2024 became what I would describe as clickbait. We’re a popular brand among conscious consumers. If you’re trying to build your personal brand among conscious consumers, one way is to attack the thing they trust. One of the things that help a company like ours ride that wave is that we have the courage of our convictions. We are doing what we say and saying what we do, so our team doesn’t feel defensive. There was a lot of ownership among the people in my company to tell our story and defend ourselves against baseless attacks. That’s crucial. You can’t fake your way to the kind of trust we have, and you can’t fake your way to getting a whole company committed to telling their story.

Copy LinkThe benefits of being a B-Corp

SAFIAN: Yeah, I mean, Vital Farms is, along with being a public company, a certified B Corp, and you’ve said that being a B Corp helps your shareholders, that it strengthens the competitive edge. Is that what you’re talking about with this example?

DIEZ-CANSECO: What I would say about being a B Corp and a public benefit corporation is that when we went public in 2020, we did it with a lot of introspection because there’s a lot of conjecture that when you’re a public company, you become beholden to short-term results.

You start to operate in a different way. It can be tempting to compromise your values, and it was important to us that we not allow that to happen. Our pre-IPO investors, our board comprised mainly venture capital and private equity firms that had invested in us over time, chose to have Vital Farms reincorporated as a public benefit corporation.

Our charter essentially says I don’t have to just maximize shareholder value. I must define the impact we’ll have on other stakeholders and consider them when running the company. Presumably, if you’re a traditional investor who thinks only shareholders matter, you might be put off by that. You might think it’s not great for profitability, which could impact the stock price at the IPO. But my investors said, “If this protects you from the public market, we’re willing to do that,” and that’s what we did.

SAFIAN: And I guess the philosophy behind that is that in the long run, it will help the company be more valuable. You’re not reacting to short-term investors and market fluctuations.

DIEZ-CANSECO: I often get asked, “How do you balance purpose and profits?” There’s a trade-off implied, but I don’t see one. I think of purpose as a driver of our long-term success, which includes profitable growth. The fastest way to destroy value would be compromising my values and destroying trust. I have a responsibility to ensure investments in our people, farmers, and the environment return to our income and balance sheets. A dissatisfying compromise can’t last long, or you’ll be in hot water with stakeholders.

Copy LinkBringing family on farm visits

SAFIAN: I’ve heard you mention bringing your wife and family when visiting farms. What’s that about?

DIEZ-CANSECO: Balancing work and family has been challenging in my career. Saying goodbye to my child on Mondays for work trips can feel like leaving something on the table, regardless of the job’s benefits. At Vital Farms, I wanted to integrate my family more. If they weren’t kept in the dark, perhaps our separation wouldn’t feel as significant.

In 2015, my wife, son, and I visited our farmers to develop trust. These Mennonite farmers prioritized family, opting for farming to stay close-knit. I wanted to show my dedication not just to the business but also to my family. So we traveled to Missouri with homemade granola and introduced ourselves. It resonated.

SAFIAN: So it sounds like this is both good for your family, your family life and yourself, but also good for the business. I mean, you weren’t just doing it because it was good for the family. It also helped anchor those relationships.

DIEZ-CANSECO: But isn’t it neat that those two things coincided?

And isn’t it rare for those two things to coincide? It was absolutely great for my family. And that’s been a theme of my experience at this company. And what I want for all of my crew. My son was in the kickoff meeting for the IPO with all the bankers and lawyers because I wanted him to see what that was like.

He was 12. We had breakfast tacos. It was amazing. and I think that’s great for us as a family and I think it’s great for our stakeholders to see that that’s a value that we hold.

Copy LinkWhy do Vital Farms eggs have a different color yolk?

SAFIAN: My wife will kill me if I don’t ask you about the color of the yolks. They’re like a different color in Vital Farms eggs than the other eggs that she gets. Like, why is that? How does that happen?

DIEZ-CANSECO: Yolk color is driven by what the bird eats and there is some influence to yolk color when a bird goes outside and eats something besides the corn and soy that’s the primary role in their diet.

Most eggs naturally have a pretty pale yolk because most chickens raised in cages are fed corn and soybeans, resulting in a certain color. Consumers have told us they want a more orange yolk. We eat with our eyes as much as with our other senses. And so we’re able to add other natural ingredients to the feed to achieve that yolk color. With us, it’s primarily marigolds and paprika. And we’re very transparent about that.

We talk about it on our website. There’s nothing artificial about it. If it’s an organic egg, those things are organic. But it really contributes to the enjoyment of the eggs, and it’s what our consumers want.

So it’s a conscious, I don’t want to say branding decision, but differentiator. Well, there’s no moat around it. Any egg producer could achieve any level of bright orange yolk they would like to. And we are very careful not to correlate the fact that our birds are meant to go outside with the color of the yolk.

It’s tempting to say, ‘If you have an orange yolk, it must mean the birds were well-treated.’ There’s no correlation there.

Copy LinkWhat’s at stake for Vital Farms right now?

SAFIAN: So, Russell, what’s at stake for Vital Farms right now?

DIEZ-CANSECO: Our goal is to build America’s most trusted food brand. The way we build this company is by operating in a certain way — a values and purpose-driven way.

So from that sense, what’s really important and what’s at stake is how do we continue to scale a world-class organization with a strong culture in a remote environment? We went remote in 2020. We’re still remote-first. Some crew members packing eggs or servicing farms need to be in a specific location, but a lot of us work from home.

That is top of mind for me because, long before it shows up in any performance indicator, there’s always a risk of losing trust or upsetting the culture you’ve built. So that’s a primary focus for me.

SAFIAN: For all the chickens, it’s about the people.

DIEZ-CANSECO: It’s an interesting but appropriate way to put it. Again, we focus significantly on treating chickens well and preventing them from getting sick from avian influenza. It’s working, but it requires vigilance, ownership from farmers and crew members who support them, and great execution.

Those qualities are hard to come by in many respects, so we work hard to maintain that level of commitment.

SAFIAN: Russell, this was great. Thank you so much for doing it. Really appreciate it.

DIEZ-CANSECO: Thanks very much.

SAFIAN: So what makes an egg business special? The business or the people? It sounds like the start of a bad bar joke. But Russell’s commitment to transparency, Vital Farms’ people, and its product isn’t comedy, it’s hardcore commerce. What he’s learned amid eggflation and what Vital Farms has demonstrated is that consistent attention to brand promise pays off. Especially during a crisis, we need to stay true to ourselves. For a chicken, maybe that’s easy. For the rest of us, it can take work and discipline, and that’s a good thing. I’m Bob Safian. Thanks for listening.