"An Egg Is An Egg"

Vital Farms (VITL) Initiation

Vital Farms (VITL) CEO Russell Diez-Canseco: “We have built our brand around trust and transparency… It is more expensive to not torture an animal. To do the right thing isn’t always cheap.”

Vital Farms, the leading seller of pasture-raised eggs in the U.S., shares certain characteristics with TSOH portfolio holding Fever-Tree. Each took a somewhat unconventional - and ultimately successful - approach towards gaining share in an established market: premium products at much higher prices than mainstream competitors, but while still at relatively low levels in absolute terms. Before the most recent outbreak of avian influenza, a dozen conventional eggs was roughly $2 at retail, versus roughly $6 - $7 for a dozen pasture-raised eggs from Vital Farms - certainly a healthy price premium, but the core customer isn’t going to break the bank spending an extra ~$100 annually on eggs (the average American eats about 270 eggs each year).

Those higher unit revenues support certain product / supply chain decisions that differ from mainstream competitors, and which appeal to a subset of consumers. For founder Matt O’Hayer, as recounted by Diez-Canseco at VITL’s 2023 Analyst Day, that main point of differentiation was focused on the housing and living conditions for the hens who lay their eggs: “The idea he had was to get those birds out of their cages and give them an environment in which they can express their natural behaviors. At that time, ~95% of the laying hens in this country were in cages. Today, it is less than 70%.”