Vital Farms’s CEO on turning the eggflation crisis into opportunity

Feeling the impact of eggflation? As egg prices have soared, and the avian flu continues to wipe out millions of birds, many egg producers are struggling, but Vital Farms has managed to keep growing. CEO Russell Diez-Canseco shares how the brand’s relationship with farmers and transparency with customers have allowed the company to turn crisis into opportunity. 

This is an abridged transcript of an interview from Rapid Response, hosted by Robert Safian, former editor-in-chief of Fast Company. From the team behind the Masters of Scale podcast, Rapid Response features candid conversations with today’s top business leaders navigating real-time challenges. Subscribe to Rapid Response wherever you get your podcasts to ensure you never miss an episode.

The price of eggs is up like 50% over the past year, and in some places, more. I know there’s talk about bird flu impacting supply and hens lost. What’s going on?

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.

Russell Diez-Canseco [Photo: Vital Farms]

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% 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.

Vital Farms eggs are particularly expensive, premium eggs. What makes an egg worth paying extra for, especially when eggs are already more expensive?

Matt O’Hayer, our founder, is a serial entrepreneur with a big heart around animal welfare. When we first started this business, more than 95% 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 them, 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.

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? How do you maintain that?

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.

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

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.

What’s at stake for Vital Farms right now?

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.

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

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.

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