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Why eggs are becoming more expensive, according to Vital Farms CEO

Vital Farms CEO Russell Diez-Canseco joins Yahoo Finance Live to explain the factors leading to higher egg prices, whether consumers are trading down, and the outlook for egg commodity costs.

Video Transcript

- Eggs. For the most of the last few decades, they've been a consistent, affordable, if not very cheap source of protein for as long as we can remember. But nowadays, not so cheap. The price of eggs up 47% from a year ago, if you can believe it or not. Nobody knows that better than Russell Diez-Canseco. He's the CEO of Vital Farms. He joins us now, along with Ali Canal. Russell, it's nice to see you, sir. Appreciate you being here. Can consumers expect those prices to begin to come down?

RUSSELL DIEZ-CANSECO: I've certainly read reports to that effect. And a lot of the big changes you're seeing at the shelf today are driven by both a shortage of eggs due to the avian influenza outbreak earlier this year as well as the inflation we've seen in commodity costs, including corn, soybeans, and diesel fuel. The predictions are those things are starting to come down. And I would certainly expect you'd see commodity egg prices come down as a result as well.

ALI CANAL: And with the cost of conventional eggs rising, I'm curious from your perspective how you've seen that impact consumer behavior. Have you seen consumers trade up and buy some of your organic products since the price parity is a little more even there? Or are they still trading down since we are still operating in a pretty bad inflationary environment?

RUSSELL DIEZ-CANSECO: Yeah. Great question. And there are a lot of inputs there. The headline would be the following. You're right. We raised our prices for the first time in five years this year, but at a fraction of the rate of more conventional eggs. And so you're right. There has been a price compression where the cheapest eggs are priced a lot closer to the price of our eggs, which are very premium and special eggs.

That said, we typically haven't seen that much interaction between a consumer who's looking for the very cheapest eggs and the consumer who's buying ours. And as a result, I think we wouldn't necessarily see a big benefit. But also, as those conventional prices come back down, I don't think that'll create a big headwind for us. What we're seeing more broadly, though, I think is based on the broader challenges across the store in terms of cost increases and the hit to the consumer's wallet.

At the lower end of the price range, you're seeing real growth there. So the cheapest eggs are seeing tremendous sales growth, partly due to inflation and partly, we believe, because consumers are trading down. And you're seeing outsized growth at the high end, which is where we play. It's the brands and price points in the middle where we're starting to see some weakness as the underlying trend of bifurcation in the economy accelerates in this environment.

ALI CANAL: And to follow up on that, given the volatility that we've seen in the egg category, how do you safeguard your business to make sure that you have enough supply, to make sure that prices aren't running up to a level where you can't keep up with that, especially because you're dealing with a lot of external factors, right? You mentioned the bird flu, for example. What kind of safeguards are in place there?

RUSSELL DIEZ-CANSECO: Yeah. So we have a really resilient supply chain that has helped us and will help us in a few really important ways. One is we only buy eggs from farms with whom we have a direct relationship. And those purchases are governed by a contract we write directly with them. We buy everything they produce. And we set pricing in advance. But we also adjust pricing as commodity costs go up and down. So we never want a farmer to lose money working with us simply because corn or soy prices went up, for example.

So that helps us, however, avoid short-term price shocks that are based on supply issues, for example, as we saw when there was stock up shopping in the spring of 2020. Commodity prices went through the roof in part because demand just expanded substantially. And many producers raised their prices. Grocery stores raised their prices. We didn't raise prices. We didn't have to from a cost perspective. And we didn't want to because we don't want to grow our brand based on short-term kind of opportunism in that way.

Another way that we're protected, I think, more so than the industry overall is that our business is built by partnering with over 300 small family farms. What that means is that even if one of them were to be affected by avian influenza, it's a fraction of 1% of our total supply. And in fact, our farms were not affected at all this time, nor were they affected the last time there was avian influenza. And so I think our biosecurity and other practices on those farms has a lot to do with our staying resilient.

- All right, Russell. Not all business here. Got to ask you about a little fun. We're all about collaboration here. Your burger collab caught my eye. Tell me about this back to school burger you've launched. Because it looks delightful.

RUSSELL DIEZ-CANSECO: I love it. We love partnering with brands that I think share our values. And we especially love partnering with brands here in Austin, Texas. And so being able to partner with a great growing brand with such great products like Hopdoddy and do a back to school program with them I think was just right on the money. We love them. I think they appreciate the partnership. And my son, there's no better burger in his mind than a Hopdoddy burger with a Vital Farms egg on it.

- How do you put it? Is it fried? Is it over easy? What's the best way to put a burger with an egg?

RUSSELL DIEZ-CANSECO: Personally, just to keep it from getting out of hand, I sure appreciate a little bit of an over hard fried egg. I think that's an efficient way to keep that burger in one piece.

- When that yoke just goes into the whole burger, Russell, it's delightful.

RUSSELL DIEZ-CANSECO: Magic.

- Great to have you on. Russell Diez-Canseco, Ali Canal, great to have you both.