A Winning Recipe: How a Resilient Supply Chain Strategy Reduced Egg Inflation

(Photo: Sunny-side up eggs alongside Vital Farms’ sustainable packaging. Courtesy of Vital Farms.)

During historic inflation in egg prices, Vital Farms maintained lower increases in the price of its eggs, buoyed by ethical supply chain practices. According to the U.S. Consumer Price Index released in December 2022, the average price of eggs rose almost 60% in just one year. In comparison, Vital Farms raised the price of their core 12-count product from $5.99 to $6.99, which resulted in only a 17% increase. The national consumer brand, a certified B Corporation, is known for its pasture-raised eggs, which are sourced from hens with at least 108 square feet of room to roam on almost 300 small family farms.

“The reality is, we’re building a brand for the long haul, and we’ve grown our supply year in and year out for 15 years straight,” said Russell Diez-Cansecoi, Vital Farms CEO, in a quote given to Yahoo Finance. “We don’t see a short-term supply and demand shock as an opportunity to just goose our profits and that’s not how we’re operating.”

Some consumers will highlight that Vital Farms’ prices were already higher than the national average, but perhaps it is time to consider why their egg prices were not as impacted.

The reasons behind the soaring egg prices – avian flu, national policy, and grain shortage – are interconnected and unlikely to disappear for good. The avian flu is difficult to prevent as it enters the domestic hen population through contact with wild bird species, particularly during migration patterns. Not only do consumers absorb the fluctuating supply-and-demand costs of birds lost to disease, but taxpayer funds also help egg producers recover the loss through indemnity payments authorized by the USDA. Most notably, grain prices will only increase as the entire world grapples with the grain and wheat shortage caused by the war in Ukraine.

Despite a decline in egg prices this February, the causes of the shortage have not been eliminated. There is data revealing that the avian flu spread more rapidly among factory-farm birds. In 2017 guidelines by the United Egg Producers (UEP) – the most recent on their website, the required minimum space per caged bird is only 67 square inches. UEP also reports that 85% of U.S. production aligns with these “factory-farm” standards.

Compare this now to the model of Vital Farms with 108 square feet per chicken. Smaller flocks dispersed across more land mean that disease can be handled before spreading rapidly from cage to cage. USDA data analyzed by the New Republic backs up this hypothesis, as the avian flu only spread to three small commercial farms in 2022.

As consumers wrestle with the new price of eggs, it is possible they will shift to more transparent companies with stability. In a recent report from the Food Industry Association (FMI) and NielsenIQ, 72% of shoppers say that transparency is either important or extremely important to them when choosing food products. Vital Farms already embraces this mentality with its traceability feature, which allows buyers to enter the farm name from the side panel of their egg carton for a 360° peek at the pasture. Within a strategy document produced by the Vital Farms’ task force on climate-related financial disclosures, one key opportunity recorded is their competitive position as consumer preferences shift toward more sustainable food with increased traceability.

The company’s ESG efforts earned four prominent awards, such as a place on Fast Company’s “Brands That Matter”, a ranking on Whole Foods Market’s “Top 10 Food Trends for 2023”, an IMPACT Award from Progressive Grocer, and designation as an honoree in Texan by Nature’s TxN 20.

This focus on sustainability does not come at a cost to stakeholders either. Their commitment to ethical supply chain practices – called conscious capitalism by the brand – is paying off with record revenue. In their latest earnings report, Vital Farms brand maintained momentum with 28% year-over-year volume growth during their third quarter. The rest of the category, CEO Diez-Canseco noted, declined by 0.5%. The brand currently possesses only 5% household penetration as self-reported in 2022. If consumer preferences shift, however, Vital Farms is well-positioned with 88% of the U.S. pasture-raised egg share.

As the brand looks to expand beyond eggs and butter, Thilo Wrede will join as Chief Financial Officer (CFO) on March 15. He brings years of experience in consumer packaged goods at brands like Sabra Dipping Company and PepsiCo.

“Vital Farms pursues a holistic approach to capitalism that ensures every part of the value chain gets treated fairly. It aligns with my personal values, and as someone with deep roots in the consumer sector, I believe this is the right way to run a business,” said Wrede. “I’m looking forward to helping the company continue to drive profitable growth and generate enhanced shareholder value with a long-term focus.”