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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura,

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Speaker 2: and if you're in the United States, Happy Thanksgiving. Maybe

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Speaker 2: you're getting ready to sit down with friends and family.

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Speaker 2: Maybe there's pumpkin pie on the menu and turkey if

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Speaker 2: you're a traditionalist, Well, to celebrate the holiday, we are

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Speaker 2: also serving up poultry on the Big Take. Not turkey,

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Speaker 2: but chicken. Our friends at odd Loots have put together

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Speaker 2: a three part series called Beak Capitalism. We thought you'd

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Speaker 2: enjoy the first episode. Beak Capitalism is all about how

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Speaker 2: chicken can help us understand some of the thorniest issues

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Speaker 2: facing the US economy well. In this first course, Bloomberg's

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Speaker 2: Joe Weisenthal and Tracy Alloway look at the consumer side

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Speaker 2: of the chicken industry, from the chicken sandwiches war back

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Speaker 2: in twenty nineteen to the rising cost of eggs. If

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Speaker 2: you like it, head over to the odd Loots feed

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Speaker 2: for parts two and three.

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Speaker 3: The chicken sandwich war on Twitter has people clucking all

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Speaker 3: over the country.

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Speaker 1: It's chicken chaos and Milwaukee long lines outside Popeyes. If

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Speaker 1: you didn't jump on that Popeyes Chicken sandwich craze. Your

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Speaker 1: two Lake Popeyes is officially sold.

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Speaker 4: Out, beatings, stabbings, and even car crashes. People behaving very

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Speaker 4: badly in Los Angeles and across the country for that fact,

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Speaker 4: trying to get their hands on Popeyes chicken sandwich in

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Speaker 4: LA two people.

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Speaker 1: On August twelfth, twenty nineteen, Popeyes released their famous chicken sandwich.

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Speaker 1: It was a humble fried chicken breast with pickles and

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Speaker 1: mayo on a brioche bun, priced at a very reasonable

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Speaker 1: three ninety nine.

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Speaker 3: Some people called it a masterpiece, some others were just

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Speaker 3: thrilled to see a delicious alternative to Chick fil A.

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Speaker 3: To be honest, I can't actually remember whether I had

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Speaker 3: it or not. I'll just say those are really Those

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Speaker 3: are really delicious. I totally get it. I get why

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Speaker 3: people love all these sandwiches.

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Speaker 1: I'm sure you were. Remember what happened after this, Joe.

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Speaker 1: Dozens of imitators were launched. I mean, Taco Bell of

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Speaker 1: all places, even did a version a crispy chicken sandwich.

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Speaker 1: Taco and Chick fil A came out swinging. They claimed

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Speaker 1: that they, and not Popeyes, were the original inventors of

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Speaker 1: the chicken sandwich. Meanwhile, Popeye struggled to keep the sandwiches

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Speaker 1: in stock. Fights broke out. There was even a lawsuit.

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Speaker 1: A guy from Tennessee asked for five thousand dollars in

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Speaker 1: damages after he couldn't get hold of one. The chicken

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Speaker 1: sandwich craze was pure mayhem or should I say mayhn.

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Speaker 3: Well, what's really important about the chicken sandwich wars is

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Speaker 3: that they never really ended. Okay, you weren't seeing them

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Speaker 3: hit the headlines in quite the same way anymore. But

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Speaker 3: on menus around the country, chicken is more popular than ever.

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Speaker 3: Burger chains have been launching chicken wings, donut chops have

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Speaker 3: chicken wraps. So you might have an opinion on who

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Speaker 3: ultimately won the chicken sandwich battle. But the real winner

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Speaker 3: of the war was the chicken itself. Or maybe I

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Speaker 3: should say the real winner is the American eater.

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Speaker 1: Yeah, there are more chicken products on offer than ever.

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Speaker 1: In fact, America's consumption of chicken continues to grow, even

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Speaker 1: as appetites for other types of meat like beef, have stalled.

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Speaker 1: The average American consumed a whopping one hundred and sixteen

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Speaker 1: pounds of chicken in twenty twenty three, and that number

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Speaker 1: is only expected to grow, making chicken by far the

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Speaker 1: most consumed meat in America. Each of us is eating

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Speaker 1: something like twenty adorable chickens worth of white meat every year.

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Speaker 1: And what's interesting is that's been happening even as poultry

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Speaker 1: prices have surged. Freshole chicken used to cost about a

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Speaker 1: dollar sixty per pound a decade ago. It now goes

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Speaker 1: for almost two bucks. That's an almost twenty five percent

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Speaker 1: increase and higher than the jump in broader inflation, which,

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Speaker 1: as we all know, has been a huge deal in

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Speaker 1: recent years.

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Speaker 3: So, speaking of inflation, egg prices have become a prime

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Speaker 3: example of recent price pressures, with wholesale egg prices surging

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Speaker 3: by two hundred and seven percent between twenty twenty two

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Speaker 3: and twenty twenty three. Chicken farmers blamed outbreaks of bird

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Speaker 3: flu for the increase, but some saw it as corporate

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Speaker 3: price gouging, result of a handful of powerful companies supposedly

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Speaker 3: taking advantage of consumers at a difficult time. And generally

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Speaker 3: it looks like the bird flu was a big part

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Speaker 3: of the story, but it did happen at a time

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Speaker 3: when prices for all kinds of things we're surging so

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Speaker 3: it's easy to understand why people saw it as as

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Speaker 3: a macro thing.

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Speaker 1: So we have to ask what exactly has been driving

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Speaker 1: the price increases in eggs and that sweet, sweet chicken. Beat,

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Speaker 1: Why has the chicken industry evolved in the way that

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Speaker 1: it has, and what does it say about the nature

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Speaker 1: and future direction of America's economic model.

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Speaker 3: Welcome to Beat Capitalism, in which we explore some of

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Speaker 3: the thorniest issues facing the US economy through the medium

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Speaker 3: of chicken.

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Speaker 1: In this special three part series from all Thoughts, we

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Speaker 1: are going to examine eggs.

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Speaker 3: Get it So, there's going to be chicken puns.

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Speaker 1: Huh, definitely going to be chicken puns. Get used to it.

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Speaker 1: Now we are going to examine all of these questions

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Speaker 1: and more, because it turns out chicken has a lot

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Speaker 1: to say about things like inflation and the relationship between

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Speaker 1: workers and big companies, and it creates some big existential

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Speaker 1: questions about what kind of economy we actually want to have.

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Speaker 1: First up, what actually happens when the price of a

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Speaker 1: chicken sandwich or an egg, or even a simple chicken

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Speaker 1: wing takes fight.

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Speaker 5: The chicken sandwich wars were an extremely challenging time for

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Speaker 5: me as a person. It was hard on my family.

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Speaker 5: It was hard of my friends, mainly because every time

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Speaker 5: I had read pressed release about these things, I had

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Speaker 5: to go buy one. I ate so many chicken sandwiches

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Speaker 5: during that war. I was the real casualty. I'm the

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Speaker 5: one that had it tough her into my you know,

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Speaker 5: drive two hours to the nearest Popeyes to go try

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Speaker 5: the sandwich. I didn't.

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Speaker 1: That's Justin McElroy. He's one third of the My Brother,

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Speaker 1: My Brother and Me podcast, and the chicken sandwich Wars

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Speaker 1: were a big deal for him. He spends part of

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Speaker 1: the podcast reading out fast food press releases, and there

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Speaker 1: were a lot of those flying around at this time.

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Speaker 5: A lot of American fast food competition, especially during the

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Speaker 5: time period this is happening, our mid to late two thousands,

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Speaker 5: is really a race to the bottom of who can

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Speaker 5: sort of like reorganize the ingredients in the kitchen in

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Speaker 5: the most disturbing way to try to net headlines. You know,

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Speaker 5: we'll put some doritos in it. Look, we found some

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Speaker 5: freedoms lying around. We shove that in it. Do you

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Speaker 5: like this? Is this anything? And a lot of it

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Speaker 5: seemed pretty desperate, and I think What was so interesting

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Speaker 5: about Popeyees chicken sandwich is that they had the courage

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Speaker 5: as a brand to say, what if we just made

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Speaker 5: something good? And that was kind of the whole hook

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Speaker 5: was it was really good to eat, and it was wild,

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Speaker 5: and this is just a sandwich that was It got

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Speaker 5: famous for being extremely good to eat, which I think

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Speaker 5: was a real breath of fresh chicken.

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Speaker 3: So, as the nation's de facto chicken war correspondent, Justin

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Speaker 3: has thought a lot about why this particular combo took

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Speaker 3: off like it did. Sure, there was a novelty value,

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Speaker 3: and they were delicious.

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Speaker 5: I tend to believe that the best chicken sandwich is

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Speaker 5: the one that's nearby.

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Speaker 3: But chicken sandwiches were also cheap.

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Speaker 5: I know we are wild about these things as a nation.

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Speaker 5: Especially one of the great things is that it's cheaper

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Speaker 5: than beef. So we are just wild about that, and

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Speaker 5: I think we'll continue to be as long as we

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Speaker 5: got all these millions of people to feed.

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Speaker 1: Chicken is still relatively cheaper than a lot of other

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Speaker 1: types of meat, but that doesn't mean that prices for

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Speaker 1: chicken products never went up. Today, a Popeye's Spicy chicken

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Speaker 1: sandwich costs close to six dollars in many cities. That's

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Speaker 1: about a fifty percent increase from its launch price of

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Speaker 1: three ninety nine, and that price went up despite that

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Speaker 1: intense competition among the sandwich makers.

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Speaker 3: In that respect, the chicken sandwich wars might be emblematic

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Speaker 3: of some wider pricing trends. People have chicken, whether it's

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Speaker 3: in sandwich form or something else. We keep buying it

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Speaker 3: even as prices go up and companies keep giving us

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Speaker 3: new ways to consume it.

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Speaker 1: To understand that, we need to talk about my personal

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Speaker 1: favorite chicken item, wings.

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Speaker 2: But the demand for chicken wings is pushing the price

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Speaker 2: to historic levels.

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Speaker 1: So how high will the cost of eating wings go?

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Speaker 3: Your Super Bowl party is going to cost about fourteen

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Speaker 3: percent more than it did last year. A lot of

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Speaker 3: this is the labor shortage the supply chain crunch.

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Speaker 1: Restaurants and suppliers say prices for chicken wings have gone

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Speaker 1: through the roof.

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Speaker 6: It's a no brainer that Wingstop is getting in on

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Speaker 6: the chicken sandwich wars, but with its own twist.

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Speaker 3: Wingstop is one of the biggest wing chains in America,

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Speaker 3: and even they got into the chicken sandwich game in

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Speaker 3: twenty twenty two, the company launched its own sandwich offering,

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Speaker 3: introducing not just one, but a dozen different flavors of

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Speaker 3: chicken and carb combos.

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Speaker 7: So we saw an opportunity to do it different, to

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Speaker 7: do it the Wingstop way, and the launch was pretty

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Speaker 7: incredible because we planned it out. We did all of

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Speaker 7: our forecasting and we were confident we had plenty of

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Speaker 7: inventory when we launched to be able to meet any

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Speaker 7: sort of scenarios we could come up with around demand.

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Speaker 7: But the fact was we sold out in a week,

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Speaker 7: which is pretty remarkable to just see. The strategy was right,

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Speaker 7: the timing was right. The only thing was wrong is

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Speaker 7: we didn't plan for that much volume. But we were

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Speaker 7: able to take a step back, build up supply and

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Speaker 7: relaunch again. And it has been a bit of a

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Speaker 7: game changer for our brand because we're bringing in a

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Speaker 7: record number of new guests into our brand quarter after quarter.

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Speaker 1: Wingstop CEO Michael Skipworth, and he says Chicken Sandwiches did

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Speaker 1: a couple things for his business. They got a bunch

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Speaker 1: of new customers through the door and boosted sales, of course,

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Speaker 1: but there was something else too.

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Speaker 7: There's also a supply chain side of the strategy. The

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Speaker 7: more breast meat that we use, which is where that

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Speaker 7: chicken sandwich file at comes from, where our boneless wings

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Speaker 7: come from, the better It puts us in a position

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Speaker 7: to negotiate our overall buy with these poultry companies and

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Speaker 7: help us execute our supply chain strategy, which is really

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Speaker 7: one that's centered around in chicken wings.

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Speaker 3: And this is where we need to talk about where

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Speaker 3: wings actually come from. Is it from chicken, Yes, But

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Speaker 3: according to Michael, chicken wings are one of the most

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Speaker 3: volatile commodities out there, and obviously they're a huge component

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Speaker 3: of Wingstop's business. The company says it's the biggest customer

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Speaker 3: for wings in the country.

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Speaker 7: About volatility and chicken wings and what that can do

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Speaker 7: to the Wingstop restaurants, and it could be as much

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Speaker 7: as a ten percentage point swing in our food cost,

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Speaker 7: which is incredible amount of fluctuation. Now, the reason you

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Speaker 7: see so much volatility in the price of wings is

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Speaker 7: the reality of the fact that these poultry companies, they

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Speaker 7: are not growing these chickens for the wings. They're setting

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Speaker 7: the size of the flock, how many birds they're going

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Speaker 7: to harvest based on breast meat demand. The chicken wings

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Speaker 7: themselves represent six to eight percent of the bird It's

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Speaker 7: a fall off product, and so why you see so

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Speaker 7: much volatility in the price of wings. It clearly is

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Speaker 7: a supply and demand dynamic, but the demand is not

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Speaker 7: what's driving the supply. It's really centered around the overall

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Speaker 7: market for breast meat, and so that's what's created a

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Speaker 7: lot of volatility in that commodity. And there can be

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Speaker 7: years where that spot market hits, you know, below one

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Speaker 7: dollar a pound, and then take a year like twenty

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Speaker 7: twenty one after the pandemic, where every single brand out

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Speaker 7: there added chicken wings to their menu, you saw that

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Speaker 7: spot market hit an all time high of three dollars

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Speaker 7: and twenty one cents a pound.

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Speaker 3: Like a lot of things in the aftermath of the pandemic,

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Speaker 3: the price of chicken wings soared after twenty twenty, jumping

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Speaker 3: more than seventy percent between twenty twenty one and twenty

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Speaker 3: twenty two alone. There were the usual supply chain disruptions.

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Speaker 3: A lot of poultry processors had to curb production because

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Speaker 3: of worker shortages. Labor costs went up, so did chipping

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Speaker 3: and packaging costs.

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Speaker 1: But there was higher demand too. Americans reacted to the

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Speaker 1: trauma of the pandemic. In what I think is a

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Speaker 1: very relatable way, they ordered wings, lots of them, and

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Speaker 1: for chicken wings jumped when we were all isolating. After all,

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Speaker 1: wings are both delicious and can be transported pretty easily.

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Speaker 1: Anyone who's ever ordered a couple dozen at two am

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Speaker 1: because they're the fastest and most delicious thing around probably

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Speaker 1: knows this well.

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Speaker 3: At the height of the price bike, some restaurants were

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Speaker 3: even labeling chicken wings at quote market price, you know,

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Speaker 3: like lobster. Some grocery stores put limits on the amount

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Speaker 3: of drums and flats you could purchase. For a company

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Speaker 3: like Wingstop, the soaring cost of its primary product proved

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Speaker 3: to be an opportunity as well as a challenge.

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Speaker 1: And for one analyst, chicken wings became key to understanding

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Speaker 1: the entire economy.

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Speaker 8: I'm Sam Rynes, and I'm a necro strategist with Wisdom Tree.

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Speaker 3: Part of Sam's job is to predict winners and losers

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Speaker 3: in the macroeconomy and in the years after the pandemic,

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Speaker 3: if you wanted to understand who is winning, you needed

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Speaker 3: to know chicken wings.

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Speaker 1: According to Sam, wings are the perfect pandemic study of

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Speaker 1: all those one off disruptions, it gave companies a reason

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Speaker 1: to raise their price, a strategy he calls price over volume.

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Speaker 8: Price over volume is the idea that companies coming out

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Speaker 8: of the pandemic and through the Ukraine crisis used the

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Speaker 8: excuses that they had to increase prices well beyond what

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Speaker 8: they would have in the pre pandemic, pre Russia invasion

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Speaker 8: of Ukraine period in order to maintain their margins in

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Speaker 8: that environment. That came at the expensive volumes. So the

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Speaker 8: idea of price over volume is companies found it much

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Speaker 8: more interesting to increase prices than to attempt to maintain

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Speaker 8: their volumes over time. So your Wingstops, your McDonald's, your

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Speaker 8: Burger Kings, Taco Bell, KFC. A lot of these restaurants

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Speaker 8: really figured out that, you know, you kind of have

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Speaker 8: it out there, that labor's getting more expensive, that your

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Speaker 8: protein is getting more expensive, so you can raise prices,

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Speaker 8: and you can raise prices pretty dramatically relative to what

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Speaker 8: you could previously. They learned very very quickly that it

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Speaker 8: is much much cheaper to gain margin by changing a

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Speaker 8: price tag than it is to invest in putting more

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Speaker 8: volume out there. It flows straight to the bottom line

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Speaker 8: and you don't have to move prices down anywhere near

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Speaker 8: as quickly as anticipated, if at all.

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Speaker 3: At a time when there were lots of shortages and

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Speaker 3: higher costs, price over volume could be a pretty compelling

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Speaker 3: strategy for businesses. In twenty twenty one, as chicken wing

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Speaker 3: prices were nearing their height, when we Stop said it

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Speaker 3: had increased menu prices by about ten percent.

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Speaker 8: You know, they talked about how their suppliers had worked

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Speaker 8: with them and so their realize costs were only up

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Speaker 8: like seventy percent. Still, that's you know, you sell chicken

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Speaker 8: wings and they're up seventy percent in pricing, that's a

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Speaker 8: pretty big deal for you. What was intriguing about that

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Speaker 8: was it gave them an excuse to raise prices, right

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Speaker 8: so to Wingstop do. Wingstop raised prices, and they raised

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Speaker 8: prices significantly.

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Speaker 1: Those price increases didn't necessarily mean that Wingstop was suddenly

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Speaker 1: making a bucket load of chicken money, but being able

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Speaker 1: to charge more did help protect their profit margins at

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Speaker 1: a difficult time. As Sam points out, Wingstop wasn't unique

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Speaker 1: in this respect. A bunch of other companies like Pepsi,

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Speaker 1: Home Depot, even Walmart arguably did something similar.

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Speaker 3: For sam What really differentiates the price over volume idea

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Speaker 3: is what happened when chicken wing prices started to come down,

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Speaker 3: but Wingstop's menu prices didn't suddenly drop alongside them, so.

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Speaker 8: They raised prices. Where it began to show through was

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Speaker 8: on the other side of the chicken wing crisis. Chicken

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Speaker 8: wing prices fell and they fell back to where they

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Speaker 8: had been previously, and they fell back, you know, call it,

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Speaker 8: from almost three dollars per pound back to around eighty

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Speaker 8: five cents a pound, and those are peak to kind

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Speaker 8: of try off pricing. But if you think about that,

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Speaker 8: that's a pretty powerful thing. When you haven't moved your price,

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Speaker 8: if your Wingstop, so you've got the chase up in price,

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Speaker 8: you're not moving your price lower to kind of give

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Speaker 8: back to the consumer. You're maintaining that price now. So

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Speaker 8: all of a sudden, your margins have really begun to expand,

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Speaker 8: and that's not going to go anywhere anytime fast.

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Speaker 3: So the price increases of the past could still be

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Speaker 3: a tailwind for a business like Wingstop Today. The company

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Speaker 3: says it's increasing menu prices by a smaller amount, just

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Speaker 3: one to two points, which is closer to the historical average,

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Speaker 3: but they're still rising and from a higher starting point too.

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Speaker 1: In an economy where consumers keep spending and entire industries

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Speaker 1: are raising prices all together at the same time, prices

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Speaker 1: can go up and stay there even when input prices

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Speaker 1: the cost of actually making the stuff, start to fall.

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Speaker 1: It's an added wrinkle in the way we think about prices,

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Speaker 1: and one that could come back to rear its ugly

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Speaker 1: head even as inflation has slowed.

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Speaker 3: The Meg is a twenty eighteen science fiction film about

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Speaker 3: a seventy five foot megalodon, a giant shark basically that

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Speaker 3: terrorizes a group of scientists working in the Pacific Ocean.

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Speaker 3: For Sam rhymes, though Meg is something different that could

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Speaker 3: still be pretty scary.

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Speaker 1: Is it a giant chicken?

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Speaker 3: No, here's Sam.

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Speaker 8: What companies learned was really that consumers pay attention to

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Speaker 8: the Meg right and kind of the scary shark out there,

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Speaker 8: which is milk, eggs, and gasoline.

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Speaker 3: That's the Meg, milk, eggs and gasoline.

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Speaker 8: And when you have egg prices that are going up

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Speaker 8: dramatically and doing it very quickly, you better have an

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Speaker 8: excuse to you for that price to be moving, and

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Speaker 8: you better be able to explain why the cost of

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Speaker 8: everything that includes eggs is also going up, whether it's mayonnaise,

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Speaker 8: whether it's bread, et cetera. That's really going to have

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Speaker 8: an effect on the consumer psyche. But at the same

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Speaker 8: time they're not necessarily going to step back from consuming it.

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Speaker 8: So a lot of the companies out there, whether it's Pepsi,

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Speaker 8: whether it's Craft Hinds, ConAgra, they found that consumer demand

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Speaker 8: is rather inelastic, that there is not anywhere near the

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Speaker 8: sensitivity to price that they thought there was pre pandemic,

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Speaker 8: pre invasion.

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Speaker 1: People love chicken so much that even as prices go up,

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Speaker 1: they keep buying. I gotta admit, Joe, my personal price

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Speaker 1: elasticity for chicken wings is extremely anelastic. It is the

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Speaker 1: opposite of a rubber band or a rubber chicken. If

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Speaker 1: prices go up, I am definitely still buying.

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Speaker 3: Point taken. But the idea that price is and by extension,

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Speaker 3: inflation might act a little differently in extraordinary times is

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Speaker 3: starting to gain some traction. And Sam isn't the only

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Speaker 3: one who's thinking about this.

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Speaker 9: My name is zabel A Viba. I'm an economists at

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Speaker 9: the University of Massachusetts Amherst, and I've been working on

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Speaker 9: inflation for a number of years, first in the context

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Speaker 9: of China's transision to a market economy, which was all

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Speaker 9: about structural ruptures, and then in the context of the

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Speaker 9: overlapping emergencies of recent years.

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Speaker 1: The soaring price of chicken wings wasn't the result of

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Speaker 1: a single thing. The events of twenty twenty clabberd supply

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Speaker 1: chains and led to labor shortages. Russia invaded Ukraine in

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Speaker 1: early twenty twenty two, which caused the price of grains,

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Speaker 1: the basic building block of poultry feed, to go up.

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Speaker 1: Then there was an outbreak of bird flu, which we'll

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Speaker 1: talk more about in a second. Demand for wings spiked

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Speaker 1: at that same time, and companies like Wingstop responded to

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Speaker 1: that environment by raising their prices. Put it all together,

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Speaker 1: and you had a recipe for record wingflation.

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Speaker 3: Isabella says. The worry is that these types of inflationary events,

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Speaker 3: which she calls overlapping emergencies, are becoming more common, and

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Speaker 3: this isn't just a US phenomenon. Globally, priced for poultry

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Speaker 3: are still up thirty three percent since the pandemic.

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Speaker 9: When we talk about the overlapping emergencies of recent years,

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Speaker 9: I would refer to a conjunction of different things that

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Speaker 9: have been kind of in the making for a while,

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Speaker 9: but that have been culminating in recent years, and that

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Speaker 9: are also not really going away. The first is, of course,

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Speaker 9: climate change. It's no longer an issue that kind of

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Speaker 9: will bother our children or grandchildren, but it's an issue

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Speaker 9: that is relevant in the here and now. Global warming

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Speaker 9: is a reality. Extreme weather events have become very frequent

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Speaker 9: pretty much anywhere in the world. If you ask people,

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Speaker 9: can you think of an extreme weather event, they will

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Speaker 9: probably be able to name one that is not very

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Speaker 9: far away from them. And on top of this situation

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Speaker 9: around climate and weather, we have mounting geopolitical tensions. We

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Speaker 9: have an unstable global order that is as unstable as

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Speaker 9: it hasn't been in many years, if not decades, which

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Speaker 9: all of these things can have implications for the stability

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Speaker 9: of production networks, for the stability of distribution, and therefore

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Speaker 9: ultimately for the stability of economies, societies and democracies and

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Speaker 9: states and so on, which then of course has again

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Speaker 9: feedback dimensions into the degradation of the natural environment, into

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Speaker 9: climate change, against climate change, and into the geopolitical environment.

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Speaker 3: There's another thing playing out too. When all these different

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Speaker 3: emergencies hit the headlines, consumers hear about it, they pay attention,

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Speaker 3: and so when companies decide to respond to higher input

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Speaker 3: prices by raising their prices, those price increases might seem

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Speaker 3: reasonable to customers, especially if everyone is doing it at

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Speaker 3: the same time.

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Speaker 1: It's a different way of thinking about prices to the

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Speaker 1: way we usually do in traditional economics. We tend to

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Speaker 1: think about price as the result of the relationship between

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Speaker 1: supply and demand. When demand is high and supply is low,

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Speaker 1: prices go up, and the inverse happens too, prices go

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Speaker 1: down when demand is low. Companies are supposed to compete

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Speaker 1: on cost.

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Speaker 3: But when there are all these emergencies and one off

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Speaker 3: disruptions and the new use price stting starts to look

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Speaker 3: a little bit more complicated. If everyone has an excuse

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Speaker 3: to raise prices because there's a major emergency like a

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Speaker 3: global pandemic, then maybe businesses don't really feel as much

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Speaker 3: pressure to lower prices.

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Speaker 9: In the context of these overlapping emergencies, and specifically in

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Speaker 9: the context of tangible shocks that consumers see and listen

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Speaker 9: to on the news watch on TV, such as climate

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Speaker 9: disasses such as war such as supply chain blockages, like,

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Speaker 9: for example, the images of the Port of la that

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Speaker 9: so many consumers have seen. In that kind of context,

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Speaker 9: when they walk into the store and they see that

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Speaker 9: prices have gone up, they think that these price increases legitimate,

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Speaker 9: or that these price increases make sense. They don't come

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Speaker 9: out of thin air. This is to say that firms

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Speaker 9: navigate prices also as social relationships, as part of the

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Speaker 9: relationship with their customers. And on the demand side, this

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Speaker 9: means that the elasticity of demand is not god given,

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Speaker 9: but it's context dependent. The willing of people to pay

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Speaker 9: its context dependent.

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Speaker 3: And of course, even if prices for essentials like chicken

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Speaker 3: go up, we can't just stop eating food.

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Speaker 1: Although the intermittent fasting growers might try.

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Speaker 3: We might consume less of it or try to find

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Speaker 3: cheaper alternatives, but we can't stop buying it all together.

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Speaker 3: And as Isabella points out, in an inflationary environment, it

440
00:24:18,680 --> 00:24:20,640
Speaker 3: might even be that people spend more on basics.

441
00:24:21,240 --> 00:24:25,160
Speaker 9: Generally speaking, the more essential or the more basic good is,

442
00:24:25,280 --> 00:24:28,400
Speaker 9: the lower the price. Elyticity right, you can even get

443
00:24:28,440 --> 00:24:32,560
Speaker 9: that kind of perverse effects where if inflation is high

444
00:24:32,600 --> 00:24:36,560
Speaker 9: and consumers fee squeeze, they might end up spending more

445
00:24:36,640 --> 00:24:40,879
Speaker 9: money on essentials than on less essential goods, and hence

446
00:24:40,920 --> 00:24:45,240
Speaker 9: their price elyticity for these essentials might even be declining

447
00:24:45,280 --> 00:24:48,240
Speaker 9: in an inflationary environment, and I would argue that firms

448
00:24:48,240 --> 00:24:50,720
Speaker 9: are very much aware of that. If you, for example,

449
00:24:50,760 --> 00:24:53,480
Speaker 9: look at the earnings costs of Tyson and the question

450
00:24:53,560 --> 00:24:57,720
Speaker 9: of demand elyticity on chicken, then you see that they

451
00:24:57,760 --> 00:25:01,080
Speaker 9: refer to chicken as a protein that is a staple

452
00:25:01,359 --> 00:25:05,280
Speaker 9: that people have as part of their day to day diet,

453
00:25:05,600 --> 00:25:08,040
Speaker 9: as their daily bread if you want so, so that

454
00:25:08,160 --> 00:25:12,480
Speaker 9: the demand elasticity is relatively low. So yes, I would

455
00:25:12,600 --> 00:25:16,440
Speaker 9: argue that in the context of food and agriculture, when

456
00:25:16,480 --> 00:25:20,639
Speaker 9: we talk about basic food staples, the demand elthicity tends

457
00:25:20,680 --> 00:25:23,399
Speaker 9: to be relatively low, which means that if price is

458
00:25:23,440 --> 00:25:26,560
Speaker 9: showed up, you do not get a strong demand response

459
00:25:26,840 --> 00:25:30,199
Speaker 9: and instead you basically get a very heavy cost burden

460
00:25:30,440 --> 00:25:32,919
Speaker 9: carried by consumers that cannot do without this stuff.

461
00:25:35,080 --> 00:25:38,200
Speaker 1: The meg strikes again. Not only do we pay more

462
00:25:38,240 --> 00:25:41,480
Speaker 1: attention to the price of essentials like milk, eggs, and

463
00:25:41,560 --> 00:25:44,320
Speaker 1: gas and chicken meat, but we don't have much of

464
00:25:44,320 --> 00:25:47,800
Speaker 1: an option to stop buying them. Everything might taste like chicken,

465
00:25:47,960 --> 00:25:50,879
Speaker 1: but that doesn't mean we'll all just stop buying the

466
00:25:50,920 --> 00:25:56,159
Speaker 1: real deal. And speaking of essentials, let's talk eggs, the eggsentials.

467
00:25:56,880 --> 00:26:00,480
Speaker 6: My name is Clein Hickman. I'm the president of our

468
00:26:00,600 --> 00:26:05,680
Speaker 6: family business, Hickman's Egg Branch in Buckeye, Arizona. We have

469
00:26:05,720 --> 00:26:09,040
Speaker 6: a few million chickens and we sell eggs around the Southwest.

470
00:26:09,400 --> 00:26:13,440
Speaker 1: Glenn Hickman runs the biggest egg operation in Arizona. It's

471
00:26:13,440 --> 00:26:17,159
Speaker 1: still family owned eighty years after Glenn's grandmother started the

472
00:26:17,200 --> 00:26:19,560
Speaker 1: business with just a few egg laying hentons.

473
00:26:20,040 --> 00:26:23,720
Speaker 6: This our eightieth year and there's a picture hanging in

474
00:26:23,760 --> 00:26:26,400
Speaker 6: my office that my dad is still alive. He's ninety

475
00:26:26,400 --> 00:26:28,760
Speaker 6: five years old and he's in kind of a baby

476
00:26:28,760 --> 00:26:33,359
Speaker 6: stroller with his father who is feeding some chickens that

477
00:26:33,400 --> 00:26:36,160
Speaker 6: are you know, you would call cage free or free range.

478
00:26:36,400 --> 00:26:39,800
Speaker 3: Today Hickman Family Farms includes a feedmal on, a processing

479
00:26:39,840 --> 00:26:42,600
Speaker 3: plant that's capable of shilling more than seven hundred and

480
00:26:42,680 --> 00:26:44,200
Speaker 3: fifty thousand eggs per hour.

481
00:26:45,000 --> 00:26:47,720
Speaker 6: Size Wise, you know, Hickman's is probably larger than some

482
00:26:47,840 --> 00:26:51,880
Speaker 6: and smaller than the biggest ones, but the egg business

483
00:26:51,920 --> 00:26:55,840
Speaker 6: is still pretty concentrated. There's not much more than twenty

484
00:26:55,920 --> 00:26:59,680
Speaker 6: or twenty five producers that really produce probably eighty five

485
00:26:59,680 --> 00:27:02,320
Speaker 6: percent of the product that's out there. So you know,

486
00:27:02,359 --> 00:27:04,000
Speaker 6: we have a few million chickens.

487
00:27:04,200 --> 00:27:07,119
Speaker 1: Hickman is on the supply side of the economy. He

488
00:27:07,240 --> 00:27:09,840
Speaker 1: makes the things that other people are buying, in this

489
00:27:09,920 --> 00:27:13,880
Speaker 1: case eggs, but his customers aren't really you and me. Instead,

490
00:27:13,920 --> 00:27:15,920
Speaker 1: he's selling to the big grocery stores.

491
00:27:16,000 --> 00:27:18,320
Speaker 6: Everyone knows who they are. They're the Walmarts of the world.

492
00:27:18,359 --> 00:27:20,440
Speaker 6: They're the Krogers of the world, they're the safe Ways,

493
00:27:20,480 --> 00:27:23,720
Speaker 6: the all these those are national customers. And then we

494
00:27:23,800 --> 00:27:28,560
Speaker 6: also have, you know, regional retailers that operate in different areas.

495
00:27:29,080 --> 00:27:32,040
Speaker 6: And then you also have the institutional grocers, the national

496
00:27:32,040 --> 00:27:34,680
Speaker 6: ones such as Cisco and US food Service, and then

497
00:27:34,680 --> 00:27:39,359
Speaker 6: you have regional retailers. Also beyond that, you have smaller

498
00:27:40,200 --> 00:27:44,640
Speaker 6: distributors that tend to go into restaurants, you know, produce companies,

499
00:27:44,840 --> 00:27:48,359
Speaker 6: meat companies, smaller institutional grocers.

500
00:27:48,760 --> 00:27:51,680
Speaker 1: In early twenty twenty three, the structure of the egg

501
00:27:51,720 --> 00:27:55,120
Speaker 1: market became exciting for all the wrong reasons.

502
00:27:56,359 --> 00:27:57,720
Speaker 3: They're so bad tracing.

503
00:27:58,080 --> 00:28:00,200
Speaker 1: Look, I'm just going to say, if you don't don't

504
00:28:00,320 --> 00:28:04,000
Speaker 1: like egg and chicken puns. You should already have exited

505
00:28:04,080 --> 00:28:04,800
Speaker 1: the podcast.

506
00:28:05,720 --> 00:28:08,760
Speaker 3: Uh I remember this, Wholesale prices for eggs jumped. If

507
00:28:08,800 --> 00:28:11,639
Speaker 3: you look at the consumer price index, egg inflation reached

508
00:28:11,640 --> 00:28:13,800
Speaker 3: the stunning seventy percent year on air.

509
00:28:13,920 --> 00:28:18,480
Speaker 1: A new emergency was raging avian flu. Fresh off the

510
00:28:18,480 --> 00:28:21,400
Speaker 1: back of the COVID nineteen pandemic and all those snarled

511
00:28:21,440 --> 00:28:24,560
Speaker 1: supply chains, there was something new to worry about. Bird

512
00:28:24,560 --> 00:28:29,280
Speaker 1: flu is highly contagious. It spreads rapidly, especially among chickens

513
00:28:29,280 --> 00:28:32,640
Speaker 1: that are crowded together in commercial poultry houses. They can

514
00:28:32,720 --> 00:28:35,679
Speaker 1: die within days once it strikes, and it can quickly

515
00:28:35,720 --> 00:28:37,480
Speaker 1: wipe out entire flocks.

516
00:28:37,680 --> 00:28:39,520
Speaker 3: Yeah, and if there's any sign of it in a

517
00:28:39,560 --> 00:28:43,000
Speaker 3: commercial bird or egg operation, chickens need to be culled.

518
00:28:43,400 --> 00:28:45,520
Speaker 3: So the result of the most recent outbreak is that

519
00:28:45,560 --> 00:28:47,640
Speaker 3: more than one hundred million birds have been lost in

520
00:28:47,640 --> 00:28:50,520
Speaker 3: the US. That's an egg price is soaring and even

521
00:28:50,560 --> 00:28:53,680
Speaker 3: turn them into a political movement, something chicken Sandwich has

522
00:28:53,800 --> 00:28:55,200
Speaker 3: never really managed to achieve.

523
00:28:56,120 --> 00:28:58,360
Speaker 6: You know, we're trying to do the best we can

524
00:28:58,440 --> 00:29:01,520
Speaker 6: to get more eggs out there. I think it's unfair

525
00:29:01,880 --> 00:29:07,720
Speaker 6: that when politicians squawk. They use a dozen eggs as

526
00:29:07,760 --> 00:29:11,840
Speaker 6: a benchmark for higher egg prices than those kind of things.

527
00:29:12,240 --> 00:29:14,720
Speaker 6: And I think that's just because people relate to eggs.

528
00:29:14,720 --> 00:29:18,080
Speaker 6: They're like in ninety eight percent of all refrigerators, so

529
00:29:18,160 --> 00:29:22,000
Speaker 6: they are staple. But believe me that the egg farmers

530
00:29:22,120 --> 00:29:25,360
Speaker 6: in the United States are trying their ding to every

531
00:29:25,400 --> 00:29:28,040
Speaker 6: single day to produce the maximum amount of eggs to

532
00:29:28,080 --> 00:29:29,520
Speaker 6: satisfy the demand out there.

533
00:29:30,320 --> 00:29:32,280
Speaker 3: Okay, so what is actually happening when the price of

534
00:29:32,320 --> 00:29:34,960
Speaker 3: eggs goes up? How do prices hack? So to speak?

535
00:29:35,240 --> 00:29:38,440
Speaker 1: Now you're getting into it, Joe. Okay, here's Glenn.

536
00:29:39,000 --> 00:29:43,360
Speaker 6: The egg market is kind of an unusual animal. The

537
00:29:43,480 --> 00:29:47,280
Speaker 6: Board of Trade that commodities tradeline, corn, soybeans, and those

538
00:29:47,360 --> 00:29:50,720
Speaker 6: kind of things. That's actual cash pricing that's transacted during

539
00:29:50,800 --> 00:29:53,960
Speaker 6: the day. The egg business tends to be a little

540
00:29:53,960 --> 00:29:58,200
Speaker 6: bit different. There's a national market that's quoted by a

541
00:29:58,320 --> 00:30:01,840
Speaker 6: third party that has no in in either retail or production,

542
00:30:02,480 --> 00:30:07,080
Speaker 6: and they observe trades between unaffiliated parties. From there, they

543
00:30:07,120 --> 00:30:09,840
Speaker 6: come up with an index that they quote each day,

544
00:30:10,440 --> 00:30:13,880
Speaker 6: and the egg producers tend to sell off that index.

545
00:30:14,000 --> 00:30:17,960
Speaker 6: So if the egg market is quoted up, then we

546
00:30:18,040 --> 00:30:20,360
Speaker 6: go our prices go up, it quotes down and we

547
00:30:20,440 --> 00:30:23,760
Speaker 6: go down. But we really don't have a lot of

548
00:30:23,840 --> 00:30:27,400
Speaker 6: leverage to say, gee, I don't really care what the

549
00:30:27,440 --> 00:30:29,240
Speaker 6: market is. This is what I'm going to sell my

550
00:30:29,320 --> 00:30:32,440
Speaker 6: eggs for. So we tend to all follow the same

551
00:30:32,480 --> 00:30:36,240
Speaker 6: market and we negotiate deals relative to that market with

552
00:30:36,320 --> 00:30:37,320
Speaker 6: our major customers.

553
00:30:38,520 --> 00:30:40,800
Speaker 1: So when Glenn is selling his eggs to a customer,

554
00:30:41,000 --> 00:30:44,080
Speaker 1: a big grocery store or someone like that, he starts

555
00:30:44,120 --> 00:30:47,440
Speaker 1: with an egg index price and negotiates a discount from there.

556
00:30:47,760 --> 00:30:50,040
Speaker 3: And of course that raises the question of where the

557
00:30:50,040 --> 00:30:51,600
Speaker 3: egg index price comes from.

558
00:30:51,920 --> 00:30:55,680
Speaker 6: So the benchmark price is set by this third party

559
00:30:55,800 --> 00:31:01,760
Speaker 6: and they collect data from many sources. Street owns a

560
00:31:01,880 --> 00:31:06,840
Speaker 6: nonprofit called egg clearing House, and so it's blind trading.

561
00:31:06,960 --> 00:31:08,680
Speaker 6: If I need to buy a load of eggs or

562
00:31:08,720 --> 00:31:11,040
Speaker 6: I need to sell a load of eggs, I post

563
00:31:11,080 --> 00:31:14,160
Speaker 6: it on this clearing house. They match buyers and sellers

564
00:31:14,680 --> 00:31:19,320
Speaker 6: and that information is public. The blind trading that participants

565
00:31:19,320 --> 00:31:23,040
Speaker 6: are not known, but the kind of egg is detailed,

566
00:31:23,120 --> 00:31:26,320
Speaker 6: the area from which it shipped, the area from which

567
00:31:26,360 --> 00:31:30,360
Speaker 6: it delivered, and those kind of things. Additionally, we may

568
00:31:30,480 --> 00:31:34,520
Speaker 6: trade privately with another producer, and when we do that,

569
00:31:34,720 --> 00:31:38,800
Speaker 6: it behooves us to have accurate market quotes. So it's

570
00:31:38,960 --> 00:31:43,520
Speaker 6: better to provide that information to the market reporter, whether

571
00:31:43,600 --> 00:31:46,720
Speaker 6: it comes from a public trading platform or a private transaction.

572
00:31:47,520 --> 00:31:52,200
Speaker 1: Joe, which came first, the chicken or the egg price index? Okay,

573
00:31:52,360 --> 00:31:55,600
Speaker 1: So when avian flu starts hitting laying flocks in the

574
00:31:55,720 --> 00:31:58,880
Speaker 1: US and farmers have to coal sick chickens, it takes

575
00:31:58,920 --> 00:31:59,800
Speaker 1: a while to build back.

576
00:32:00,040 --> 00:32:04,320
Speaker 6: Apply What mostly affects the price of eggs is whether

577
00:32:04,440 --> 00:32:07,880
Speaker 6: or not we have enough production to meet the normal

578
00:32:07,920 --> 00:32:12,000
Speaker 6: demand when you have to depopulate a flock or a farm.

579
00:32:12,160 --> 00:32:16,080
Speaker 6: That's not normal in our business. Normally, if a typical

580
00:32:16,120 --> 00:32:18,440
Speaker 6: farm has ten buildings and they each have one hundred

581
00:32:18,440 --> 00:32:21,840
Speaker 6: thousand birds, you probably have a flock going in and

582
00:32:21,960 --> 00:32:27,360
Speaker 6: out about every two months, and you have the replacement

583
00:32:27,480 --> 00:32:31,600
Speaker 6: growing capacity to accommodate that. So when you have an

584
00:32:31,840 --> 00:32:35,080
Speaker 6: entire farm that goes out of production, they're cold as

585
00:32:35,120 --> 00:32:38,760
Speaker 6: you say, and now you have ten barns empty without

586
00:32:38,800 --> 00:32:43,200
Speaker 6: any kind of outside help. If you will, you're going

587
00:32:43,240 --> 00:32:46,680
Speaker 6: to grow a barn of replacement bullets every ten weeks.

588
00:32:46,720 --> 00:32:49,440
Speaker 6: So it's going to take you an entire cycle.

589
00:32:49,960 --> 00:32:52,640
Speaker 3: So supply is clearly a factor in the benchmark egg

590
00:32:52,640 --> 00:32:55,120
Speaker 3: price going higher, but there's still an open question about

591
00:32:55,120 --> 00:32:57,360
Speaker 3: what happens after that one t of eggs hit the

592
00:32:57,400 --> 00:32:58,600
Speaker 3: shelves of grocery stores.

593
00:32:58,920 --> 00:33:01,440
Speaker 1: The bigger the customer, the higher the discount they can

594
00:33:01,480 --> 00:33:05,120
Speaker 1: potentially negotiate from egg farmers like Glenn, but there are

595
00:33:05,160 --> 00:33:08,720
Speaker 1: only so many companies that egg farmers can actually sell to.

596
00:33:09,360 --> 00:33:14,760
Speaker 6: The Consolidation and concentration of the grocery industry has obviously

597
00:33:14,840 --> 00:33:20,280
Speaker 6: had an impact on how every industry responds to that.

598
00:33:20,960 --> 00:33:23,320
Speaker 6: At one point in time, Higman's egg branch had one

599
00:33:23,360 --> 00:33:25,640
Speaker 6: hundred thousand chickens, and we thought we had the bowl

600
00:33:25,640 --> 00:33:29,000
Speaker 6: by the horns. We had plenty of customers that we

601
00:33:29,040 --> 00:33:35,120
Speaker 6: could service. Now a large grocer can consume in a

602
00:33:35,160 --> 00:33:38,640
Speaker 6: region easily the eggs from a million birds each week.

603
00:33:39,240 --> 00:33:44,200
Speaker 6: So we have these relationships now that instead of having

604
00:33:44,400 --> 00:33:47,400
Speaker 6: twenty customers each buying fifty cases of eggs, we have

605
00:33:47,480 --> 00:33:50,280
Speaker 6: one large customer buying the production from a million birds.

606
00:33:50,680 --> 00:33:53,240
Speaker 6: So that concentration is always concerning, and.

607
00:33:53,160 --> 00:33:56,640
Speaker 1: A chicken occupies a unique position in the US diet.

608
00:33:57,000 --> 00:33:58,959
Speaker 1: We eat a lot of it, whether it's eggs from

609
00:33:58,960 --> 00:34:02,719
Speaker 1: the grocery store in sandwich form or takeout wings, and

610
00:34:02,840 --> 00:34:06,640
Speaker 1: like many things, prices went up in recent years. Understanding

611
00:34:06,680 --> 00:34:09,080
Speaker 1: what help do it can deepen the way we think

612
00:34:09,120 --> 00:34:10,680
Speaker 1: about inflation in general.

613
00:34:11,040 --> 00:34:13,719
Speaker 3: Yeah, there's no single thing at play here. There's a

614
00:34:13,719 --> 00:34:16,480
Speaker 3: lot of demand for chickens. People love it, people need it.

615
00:34:16,719 --> 00:34:18,680
Speaker 3: And when there's lots of demand and supply gets hit

616
00:34:18,719 --> 00:34:22,600
Speaker 3: by overlapping emergencies, whether it's COVID or bird flu, prices

617
00:34:22,600 --> 00:34:22,960
Speaker 3: go up.

618
00:34:23,200 --> 00:34:26,120
Speaker 1: And when all those emergencies are hitting an industry all

619
00:34:26,160 --> 00:34:29,360
Speaker 1: at once, when they're all in the news, companies have

620
00:34:29,440 --> 00:34:33,080
Speaker 1: a reason and excuse even to raise their prices and

621
00:34:33,200 --> 00:34:34,560
Speaker 1: potentially keep them there.

622
00:34:34,880 --> 00:34:38,320
Speaker 3: But recent issues facing the poultry industry illustrate a wider

623
00:34:38,360 --> 00:34:41,520
Speaker 3: point about America's economy and the decisions being made about

624
00:34:41,520 --> 00:34:43,960
Speaker 3: how it should be structured and who benefits from it.

625
00:34:44,680 --> 00:34:47,800
Speaker 1: Next up on Beat Capitalism, we are going from buying

626
00:34:47,880 --> 00:34:51,520
Speaker 1: chicken sandwiches to the business of actually growing the birds.

627
00:34:52,160 --> 00:35:02,319
Speaker 1: Welcome to the Thunderdome now with added chicken. Beat Capitalism

628
00:35:02,360 --> 00:35:06,520
Speaker 1: is written by Tracy Alloway, Carmen Rodriguez, and Joe Wisenthal.

629
00:35:06,120 --> 00:35:08,760
Speaker 3: Produced and edited by Carmen with the help of Kilbrooks

630
00:35:08,800 --> 00:35:15,759
Speaker 3: and Dashel Bennett. Our Old Blots theme song and sound

631
00:35:15,840 --> 00:35:18,720
Speaker 3: mixing was chickenized by our engineer Blake Maples.

632
00:35:19,120 --> 00:35:22,880
Speaker 1: This meaty serving of chicken industry puns and information was

633
00:35:22,920 --> 00:35:24,839
Speaker 1: fact checked by Dash and Kale.

634
00:35:24,880 --> 00:35:27,840
Speaker 3: Brendan Newnham is our executive producer, and Sage Bauman is

635
00:35:27,880 --> 00:35:29,319
Speaker 3: Bloomberg's head of Podcasts.

636
00:35:29,520 --> 00:35:32,040
Speaker 1: If you enjoyed this three part deep dive into the

637
00:35:32,120 --> 00:35:35,719
Speaker 1: chicken industry, please consider leaving a positive review on your

638
00:35:35,719 --> 00:35:38,280
Speaker 1: favorite podcast platform. Thanks for listening.

639
00:36:00,080 --> 00:36:00,120
Speaker 7: A