Vital Farms CEO on U.S. food production & trends outlook

Russell Diez-Canseco, Vital Farms CEO joins Yahoo Finance to discuss egg and butter demand, and the company’s commitment to transparent and ethical food production.

Video Transcript

- Outbreaks at food processing centers early on in the pandemic have increased calls for more transparency in the food supply chain and stricter safety measures. We've got the CEO of Vital Farms joining us today, unveiling a new campaign that stresses ethical food production. Russell Diez-Canseco is the CEO. And Russell, let me just start by talking about how significantly you have seen the shift in this space, because it does feel like there have been more eyes on the way our food gets to our table. How does that fundamentally change the way that you operate?

RUSSELL DIEZ-CANSECO: Well thanks so much for the question, and thanks for having me. So the first thing I'd say is that I actually think that it's a secular shift towards people being more conscious of their food choices, wanting food to reflect their values, and frankly, wanting to feel more confident in where their food comes from and how it's produced. And so it's the entire reason we have the right to exist and succeed in the market in which we play, because we are a transparent brand and we bring transparency to what we do. And I think our consumers and our raving fans have really appreciated our approach to that.

ALI CANAL: Hi, Russell. It's Ali Canal here. So we've seen this shift into veganism, plant-based options. Companies like Beyond Meat, Oatly really capitalizing on this trend, and it's one trend that doesn't seem to be going away anytime soon. So I'm wondering how you think that's going to affect the outlook of your business.

RUSSELL DIEZ-CANSECO: Yeah, great question. And great brands that you mentioned. You know, I think brands like the ones you mentioned and we are all trying to solve similar problems with our industrial food system, especially in the United States. We're trying to find ways to reduce the environmental impact on food production. We're trying to find ways to improve the-- frankly, the unsatisfying animal welfare impact of the way we produce food in this country. And so I have a ton of respect for the work that those companies are doing. We're approaching it in a different way, but I think we're all trying to solve the same unmet needs in the marketplace.

ALI CANAL: To make it back off of that, do you see those companies as competition for you guys?

RUSSELL DIEZ-CANSECO: There is so much industrial food to be disrupted in this world that I welcome the day when I feel like I'm going to head to head with the brands that you mentioned, but I think there's a lot of room between now and then.

- And, Russell, you were just talking about just this increased scrutiny, really, on our food supply, and the impact that is having on the environment. Certainly there's a lot of people who are on board with the idea, but does that come at the cost of affordability?

RUSSELL DIEZ-CANSECO: You know, we are at historic lows in this country in terms of the percent of our income that we spend on food. And unfortunately, there's only one place to go from there. Unfortunately, the impact on the environment, the impact on the small family farms-- who generally kind of lose at the end of the movie in this country-- those things have to be reversed. Those are not sustainable for the resilience of our food supply chain and for our country. And so, you know, doing things differently does come with a cost. What we found is that we are able to do things that really matter to our stakeholders, especially our consumers, and they reward us by being willing to pay more for the products we bring them.

- Yeah. And Russell, I wonder how much of that kind of stems from the earlier days, when the pandemic first hit and, you know, people were panicking about the idea of maybe not having eggs or butter on the store shelves. What did you see in maybe retaining some of those customers that gave you a shot when you guys were one of the companies on the shelf, and how you've been able to retain them this far along in the pandemic when, hopefully, we're beyond a bit of those supply concerns now?

RUSSELL DIEZ-CANSECO: Yeah, I really appreciate that question. And it's certainly one that's top of mind for lots of folks. First of all, we were growing really fast before the pandemic. And certainly like many food companies, we saw an acceleration of that as more people ate at home and, to some extent, continue eating at home.

I think two things I'd call out here. One is that if you look at the difference between the egg category overall and specialty eggs-- which is the segment in which we play-- overall for 2020, egg category grew 18.7% for the year but has decelerated in Q4 to about 10%. Whereas for specialty eggs, for the year, they grew 25.5% at retail, and it's decelerated to just 21% in Q4. So I think that's a great indication of more of a secular shift toward premium products, especially in this very commoditized category.

The other thing I'd call out is that we attracted 440,000 new households during the stock-up weeks of March and April of 2020. And our analysis shows that about 20% of those households bought us multiple times in the following 20 weeks, when, presumably, their preferred brand, or their original preferred brand, was back on the shelf. And so with very little marketing or trade spend, we attracted-- and looks like retained-- a big chunk of new households that were excited to engage with our brand.

ALI CANAL: That's awesome. And this summer, you guys launched Vital Farms Egg Bites. You partnered with King Arthur Baking Company for a holiday kit. Do you see yourself going in this direction-- more product rollouts, possibly more meal kits, especially as this pandemic is sort of slowing down in-store shopping?

RUSSELL DIEZ-CANSECO: Yeah, innovation is a key part of our growth strategy. Although I'll tell you, we're still just barely scratching the surface in the big categories in which we play today-- which are eggs and butter, primarily. And so we'll continue to drive growth in those as we attract more and more households to our brand and we continue to attract more and more retailers.

But beyond that, Egg Bites were a great example. It's our first multi-ingredient product. We never made a recipe like that before. And so far, the launch has been terrific. You know, we've added you know hundreds of retail outlets in 2020, and continue to focus on growing out distribution, and the consumer response has been tremendous. So yeah, we'll continue to invest in new categories that we'd like to bring products to the market in.

- All right. The CEO of Vital Farms, Russell Diez-Canseco, alongside Yahoo Finance's Ali Canal. Appreciate you joining us today, sir. Be well.

RUSSELL DIEZ-CANSECO: Thanks so much. Take care.