Transcript

Egg prices, avian flu & golden yolks, with Vital Farms CEO Russell Diez-Canseco

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1:20 Join us at masters of scale dot com slash apply twenty six. That's mastersofscom slash apply. Twenty six. Now that the spread of bird flu, which is causing egg prices to soar. Shortages are growing from coast to coast. And it stores with eggs on the shelves, sticker shock. It's like$10 a carton.

1:43 I'm like What? The United States Department of Agriculture Predicts egg prices will rise another twenty percent this year.

1:58 Hey everyone, today's episode we're delving into the suddenly wild market around eggs. My guest is Russell Diaz Canseco, CEO of leading egg brand Vital Farms. While many e 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 mostly stayed stable. Russell shares how the brand's relationship with farmers, transparency with customers, and unique business model has 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 Farm's yolks so orange.

2:43 If you're feeling the impact of inflation, Russell offers valuable context beyond just the eye popping price tag. So let's get to it. I'm Bob Sapian. And this Із рапід респонс.

3:00 I'm Bob Safian, and I'm here with Russell Diaz Conseco, CEO of the egg producer Vital Farms. Russell, uh, great to have you with us. Great to be here. So Eggs have been in the news A lot lately, the price of eggs in particular up like

3:17 I don't know, fifty percent over the past year and some places more. W 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 what's going on?

3:34 You know, um, 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 years, and even More recently in the last few months. As a result of avian influenza.

3:50 And That has resulted in Like a supply contraction in the market. Some would say The price impact has

3:59 been outsized relative to the amount of that. enduring supply contraction and that in in earlier Instances of this maybe pricing. didn't remain elevated for as long as it is now. What I can tell you is that Омост ов доз

4:16 Uh birds that have been They call it depopulated, they've been killed. Have been on really large farms, farms with a million or more birds. Uh, in cages, some outside of cages, but all in these big buildings with a lot of birds. And that has it ha that has resulted in more than twelve percent

4:34 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 than many.

4:52 I know your focus is eggs, but you can't be used to all this public attention on eggs. Like are there 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? You know, it's interesting. Certainly eggs are in the headlines for a variety of reasons, right? It's uh it was an election year, food inflation has been a an important topic. I don't love that egg price inflation in particular is such a focus. Uh I I still see eggs as a really high quality, affordable source of protein. And in our case as uh 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. You work with

5:36 Local farms all over the country. Are are there calls you've gotten or situations that you've had to navigate To help them navigate? We do work with now over four hundred and twenty five 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.

5:56 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 south west because it's too dry.

6:07 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.

6:22 To be successful. So whether it's technical education on how to weather a challenge like avian influenza. or financial and uh you know education on how to maybe manage preventive maintenance on your farm to help those birds be as healthy and productive as you as you can get them. We spend a lot of time investing in those farmers. And and the the avian flu the risk is to the hens, not to the consumers of the eggs, right? Or is that

6:49 Even that not clear. I certainly haven't heard of any cases of someone getting uh avian influenza from eating an egg. And we enjoy eggs at our house uh the way we always have. Yeah, the risk is to the bird and It's it's sad. It's uh

7:04 Frankly, you know, our Our purpose is to improve the lives of You know, people, animals on the planet through food. The notion that millions of birds are being killed because of this is uh really heart wrenching for me. I think in the last year in twenty twenty four, we had one of our farms.

7:20 affected and and 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 uh kind of continue his his operation. Eggs are more expensive than they've been. Vital Farm's eggs are particularly expensive, like premium eggs.

7:47 What makes an egg worth paying extra for especially when eggs are already more expensive. When we first started this business, Matt O'Hare is our founder, and he's a serial entrepreneur with a big heart and uh around animal welfare. And he wanted in an industry that at the time had More than ninety five percent of the laying hens in cages. He wanted to create

8:09 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, this new kind of egg that we were trying to popularize.

8:24 In the ensuing years, starting as far back as when I joined the company in twenty fourteen. There have been lots of options. Besides. Vital farms. to buy that commodity, that thing called a pasture raised egg. And yet over the years

8:38 Ours has been the most expensive version of that commodity. And we've been growing Rapidly with healthy margins. We had an IPO in twenty twenty. And so it's something more than just the features and benefits. of the commodity that they're buying.

8:54 They're buying our purpose and they're buying how we do what we do. In addition to this certain kind of egg we produce. 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.

9:14 When we go to a retailer, for example, we're not just trying to transact with the retailer. We're trying to help them plan their business to achieve their goals. Right now it's no secret that we're not filling The orders in full. A lot of egg companies aren't, but you know, we've developed a really powerful brand and and demand, especially in light of the fact that we haven't raised prices in over a year.

9:36 Is really outstripping. our supply of those eggs, we're pretty transparent about what we commit to with those retailers. That's a rare thing in this world and and certainly in the food system, and and that's very appealing to some people. And if you haven't had to raise prices over the last year when prices of Other eggs have have gone up.

9:57 That means that premium is narrower than it used to be. Right. I guess it's good for you. H how do you maintain that? Is that something you Expect to maintain or or is pricing as you're talking about it, it almost sounds like pricing isn't really A challenge or an issue.

10:15 There is some balance to the way we think about. The choices we make around pricing. We might have built a brand strong enough that we could command An even higher price at some point.

10:27 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

10:42 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

10:54 That would inspire us or force us to double Pricing the way we've seen it in the market over the last six months. And that it sounds like is because you're using more smaller farms as opposed to these

11:07 Bigger industrial farms. You know, I input costs are what they are. It takes a certain amount of feed and a certain amount of space in a barn and a certain amount of heat in the winter, right? And a certain amount of veterinary care to produce an egg. And those Are very sort of um measurable, trackable commodities. We feed our birds corn and soy in addition to what they find out on the pasture, for example.

11:32 Those Have not doubled in the last six months. There is a pricing discovery mechanism for commodity eggs in this market that is driven in part by kind of spot pricing of eggs. And and when there's a Dislocation of supply, that number can jump up. And suddenly that finds its way into Pricing to retailers and pricing on the shelf.

11:53 We price based on what we think is right as part of the marketing mix, like any other branded company would. Pricing of eggs may fluctuate based on this. commodity availability. Із на

12:05 What's relevant. Yeah. I mean it's pertinent obviously in some ways, but it's not really relevant to what your pricing is in your market, in the way you think about the market. That's absolutely right. There have been times over the last ten years when There were price wars on eggs and they you could find them for fifty cents a dozen at retail and we didn't change our pricing. There have been times like now where some of the cheap what used to be the cheaper eggs are actually high more highly priced than ours. We're actually sometimes not the most expensive egg right now. And that doesn't necessarily

12:36 Uh uh prompt us to change pricing. What we found over time is that our ability to grow, our ability to uh Grow profitably is not very correlated to what's going on in the broader egg market. And and the idea that

12:53 You know, eggs may stay at this high price for indefinitely. Like this may be the level they're at now. That doesn't necessarily change your strategy or impact your strategy one way or the other. It doesn't. It it I can't predict the future in terms of what might drive the economics of what we do. For example, You know, one of the really important elements of our operating model. is that we develop

13:16 long term relationships with these small family farmers. Often they've 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 them to us.

13:34 And 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. So I pay them more when they go up and they Pay them less when they go down. The idea is I want them to have a predictable income stream. At moments like this when commodity prices

13:56 Ar through the roof when 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's paying me and 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

14:16 Times when egg prices weren't so frothy. Remember when We were paying them more than the spot price for eggs. And so, you know, uh we tend to take a long view here and and we prefer working with farmers that do as well. I love Russell's explanation of how the egg market works and what makes vital farms distinctive. The brand's resilience through the avian flu troubles is a great reminder of the value of deep relationships with suppliers.

14:42 And with customers. Still, what happens practically when a brand's values collide with near-terin imperatives? We'll dig into that after the break. Stay with us. Humans will never be more intelligent than AI.

15:05 There's gonna be two types of companies. Those who are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. Rana Al Kalyubi On my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone.

15:30 Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday we release a second rapid response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely from Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode.

16:18 I hope to see you there. Before the break, Vital Farm CEO Russell Diaz Canseco talked about how the brand has fared amid the twin crises of bird flu and eggflation. Now he talks about what he learned in the legal battle with PETA, why he brought his son to Vital Farms as IPO, and what makes the company's distinctively orange yolked eggs different. Let's dive back in. I've had conversations with like the

16:51 the head of Impossible Foods who's talked about, you know, branding for meat alternatives. The environmental message doesn't work. What works is talking about that it tastes great. 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 Stekeholder Impact.

17:10 На ча Better? I had an epiphany back in twenty sixstine. We finally had our first marketing leader. And we were doing what they call

17:22 consumer ethnography work. So we're at a store in in uh minneapolis. And we're shopping with this. Woman, the shopper. She's going through the dairy set. She takes uh 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?

17:41 I see the carton says organic, what does organic mean to you, et cetera. And this continues. She picks out some bacon, same questions, picks out some eggs, same questions. And by the third or fourth item. The woman kinda got frustrated.

17:54 And she turned around, she kinda threw up her hands and she said, Look. I feel like every week I hear another story, read another story about a producer of food. Who j who lied. Who got caught. Cheating, not doing the thing that they told me they were doing.

18:12 And the reality is, you're asking about all these words on the package, but the reality is If I trust the бран. I'm not actually paying all that much attention to the claims. And so I think what we've been able to do. It's not easy.

18:27 is we've been able to build a brand around trust. And transparency. Not that we're perfect, not that we're everything to everyone, but that we do what we say and we say what we do. And that's hard to come by in this country. It's true, she's right. I mean I'm remembering. Last fall Vileforms came under some

18:47 Scrutiny regarding animal welfare practice. I think from groups like And then some other Plaintiffs. At the farms you work with. I mean that can't have been good for the brand and building trust with customers.

19:00 We did. We got sued by a group of Class action attorneys and PETA was a part of that. We prevailed, we the case was dismissed with prejudice, like 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're misleading consumers.

19:20 But there was no like gotcha video. There was no we caught you doing something you didn't tell us you were doing. Like 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 To lose that trust.

19:36 Episodes like this like The headlines come out and a lot of people Like the woman you're talking about in the supermarket just sees the headlines, right? Well, it it can be incredibly frustrating. I it's funny in that specific example. It's not lost on me.

19:51 The PETA doesn't sue big industrial factory farmers. Because Big industrial factory farmers aren't competing with PETA for the consumers' attention. We are. Right, because we are appealing to conscious consumers. They're appealing to conscious consumers. They have sued whole foods a whole lot of times.

20:11 Maybe it sounds like hubris, but There's a certain almost conf confirmation, a a little bit of point of pride that if PETA sues you, maybe you're on to something. And there aren't necessarily sort of strategic lessons that you took from that experience. Well

20:27 A few things come to mind because What happened that you were referring to from twenty twenty four. it became what I would describe as clickbait. You know, we're a popular brand amongst conscious consumers. If you're trying to build your personal brand amongst conscious consumers, one way is to attack the thing that they trust. I think

20:46 one of the things that helps a company Like ours. sort of ride that wave is that we do have the courage of our convictions, that our crew members can be confident we are doing what we said and saying what we do. So they're not back on their heels. There was a lot of ownership amongst the people in my company. To really.

21:05 Get our story out there and defend ourselves against. What I would describe as baseless attacks. And that's what it's all about. I can't you can't fake your way. to the kind of trust that we have, and you can't fake your way to getting

21:20 uh an entire company full of crew members to do what it took. to get our story out there. So there's It was a great test, I think, of the resilience we built as a company internally and And a great test of whether we're really doing what we say.

21:35 Hm. Yeah, I mean I Vital Farms is along with being a public company is a certified B Corp. And you've said that being a B Corp helps your shareholders, that it it that it strengthens the competitive edge. Is that what you're what you're talking about with this example? What I would say about being a B Corp and a public benefit corporation. When we when we went public in twenty twenty.

21:55 We did it. You know, with a lot of introspection because There's uh you know, th there's a lot of conjecture that when you're in a public company, you become beholden to short term Results.

22:07 You start to operate in a different way, it can be tempting, maybe to compromise on your values. And it was important to us that we not allow that to happen. One way that our Pre-IPO investors, our board was primarily comprised of venture capital and private equity firms that had invested us in us over the time. One way that they put their money where their mouths were. was they chose

22:31 to Uh to have vital farms reincorporated the public benefit corporation. One of the main features of that. Is that

22:40 Our charter uh Basically says I don't have to just maximize shareholder value. I have to define the impact we'll have on other stakeholders. And And I

22:51 I I I need to Consider the other stakeholders when m running the company. Mm. Presumably.

23:00 If you are a traditional investor who thinks that sh shareholders are the only ones that matter, you might be off put off by that. You might think that that is not gonna be great for your profitability and making an investment in vital farms, and presumably that in turn results in a drag on the stock price at the IPO.

23:18 My private company investors said If this is what it takes to help ensure that you're protected from the vagaries of the public market, We're willing to do that. And that's exactly what they did. And I guess I mean part of the philosophy behind that i is that in the long run

23:35 that will help the company be more valuable in the long term, right? It's just you're not you're not having to react In the same way to short term investors in short term market turns. I commonly get the question. How do you balance

23:49 Purpose and profits. There's a trade off. implied in the question. And I don't see one. I think of purpose as a driver of our long term success, and that includes the profitable growth of the company.

24:06 The fastest way for me to destroy value as a company would be to compromise our my values. And do something to destroy. But yeah, I think I have a really big responsibility to make sure that the investments we make In our people, in our farmers. In the environment.

24:23 find their way back to our income statement and our balance sheet over time. I don't think you can Have a dissatisfying compromise. for too long, or else I I think you're gonna be in trouble with some of your stakeholders. I know you've mentioned before that you've sometimes

24:39 Bring your wife and your family along when you go visit a new farm. What is that about? Where did that come from? So You know, I I've been very lucky in my career. I've got some really wonderful companies that I've been a part of, learned a lot over the years. One of the things I faced over a lot of years in my career was that. Age old question about work life balance. How do you say goodbye to your kid on Monday morning on the way to the airport and come back on Thursday night?

25:06 And not feel like you left something on the table that week. As good as the job might be. And one of the things that was important to me in this job was that I find a way to better integrate what was important to me at home with what was important to me at work.

25:22 And Part of it was this theory that If I could bring my family along with me sometimes. And it was less of a mystery what I was doing when I wasn't at home. Maybe it wouldn't be so dissatisfying for us not to be together.

25:37 Every day. So my first year at Vital Farms. We developed a relationship with a group of farmers that had been Producing eggs for another egg company that was selling them to us, and we started to work directly with them.

25:51 And that takes a lot of trust because we hadn't really done that before and we were great at marketing and sales, but back then we didn't have a lot of experience supporting the farmers directly. And these farmers were all uh Mennonite farmers, deeply uh faith driven in in everything they did. very family oriented. They wanted to be egg farmers because they wanted to be able to provide for their families. on their farm. They didn't want to go into town to have a job.

26:19 It was important for me that they understood that I felt strongly about my family, too. Was important for me. To introduce my family to those farmers so they could see why I was so passionate about helping them be successful. It personalized it for them. So in January of 2015, on a very cold Monday. My wife and my son and I flew up to Missouri. She brought

26:42 14 bags of her homemade organic granola, which is like kryptonite, it's amazing. And We went farm to farm. And my son at the time was maybe eight. His name's Nathan. And we introduced ourselves and we Gave them the granola and met their family and And told them how much we appreciated the chance to work with them. And it

27:00 I think it made a real impact. Mm. So it it sounds like this is both Good for your family. And 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

27:15 helped anchor those relationships. But isn't it neat? But Those two things Coincided.

27:22 Mm. And isn't it rare? for those two things to coincide. It was absolutely great for the business. And 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 twelve. We had breakfast tacos. It was amazing. And I I think that's great for us as a family, and I think it's great for our stakeholders to see.

27:50 That that's a value that we hold. Hm. My wife will uh will kill me if I don't ask you this question. So the yellow of the yokes. They're like a different color. In the file farms eggs than the other eggs that she gets. Like

28:05 Why is that? How does that happen? Does it what like what does it mean? So your color is driven by what the bird eats. And there is some influence. of toyoke color when a bird goes outside and eats something besides the corn and soy that's the primary role in their diet.

28:24 Most eggs naturally have a pretty pale yoke. Because most chickens that are raised in cages are fed corn and soybeans, and they result in a certain level of Of a certain color. Consumers Have told us very clearly that they want.

28:39 A more orange yoke, and 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 yoke color. And with us, it's primarily uh uh marigolds.

28:54 And paprika of all things. There's nothing artificial about it. If it's an organic egg, those things are organic. But it really contributes to the the enjoyment of the eggs and it's what our uh consumers want. So uh Russell, what's at stake for Vital Farms right now? Our goal is to build America's most trusted food brand.

29:16 And the way we build America's most trusted food company. is by operating. In a certain way, a very values and purpose driven way of operating. So From that.

29:26 Sense. What's really important, what's at stake is how do we continue to scale. a world class organization with a very strong culture in a remote environment. We went remote in twenty twenty. We're still

29:39 Remote first. We've got Some crew members who are packing eggs or servicing farms that need to be in a certain location. And a lot of us work from home. That's top of mind for me because long before it shows up in any performance indicator, there's always that risk that you do something to lose trust, that you do something to upset the culture you've you've built. So that's

30:01 A primary focus for me. For all the chickens, it's about the people. It's an interesting way, but I think an appropriate way to put it. Like like again. We have an awful lot of focus on treating those chickens well and helping make sure that they don't Get sick from avian influenza and it's working.

30:18 But It takes vigilance. It takes a lot of ownership on the part of everybody, the farmers and our crew members who support them, and great execution. And those things are hard to come by, I think, in many respects. And so we work really hard to make sure that we maintain that that level of commitment. Russell, this was great. Thank you so much for doing it. Really appreciate it. Thanks very much.

30:40 So what makes an egg business special, the chickens or the people? Sounds like the start of a bad bar joke. But Russell's commitment to transparency for Vital Farms as people and its products isn't comedy. It's hardcore commerce. What he's learned in eggflation and what Vital Farms has demonstrated is that consistent attention to brand promise pays off. Especially amid crisis, we need to stay true to ourselves.

31:08 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.

31:26 Rapid response is a wait what original. I'm Bob Safian. Our executive producer is Eve Tro. Our producer is Alex Morris. Assistant producer is Masha Makutonina. Mixing and Mastering by Aaron Bastanelli. Theme music by Ryan Holiday. My head of podcast is Letal Malad.

31:45 For more, visit rapidresponsshow.com.