Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura,
Speaker 2: and if you're in the United States, Happy Thanksgiving. Maybe
Speaker 2: you're getting ready to sit down with friends and family.
Speaker 2: Maybe there's pumpkin pie on the menu and turkey if
Speaker 2: you're a traditionalist, Well, to celebrate the holiday, we are
Speaker 2: also serving up poultry on the Big Take. Not turkey,
Speaker 2: but chicken. Our friends at odd Loots have put together
Speaker 2: a three part series called Beak Capitalism. We thought you'd
Speaker 2: enjoy the first episode. Beak Capitalism is all about how
Speaker 2: chicken can help us understand some of the thorniest issues
Speaker 2: facing the US economy well. In this first course, Bloomberg's
Speaker 2: Joe Weisenthal and Tracy Alloway look at the consumer side
Speaker 2: of the chicken industry, from the chicken sandwiches war back
Speaker 2: in twenty nineteen to the rising cost of eggs. If
Speaker 2: you like it, head over to the odd Loots feed
Speaker 2: for parts two and three.
Speaker 3: The chicken sandwich war on Twitter has people clucking all
Speaker 3: over the country.
Speaker 1: It's chicken chaos and Milwaukee long lines outside Popeyes. If
Speaker 1: you didn't jump on that Popeyes Chicken sandwich craze. Your
Speaker 1: two Lake Popeyes is officially sold.
Speaker 4: Out, beatings, stabbings, and even car crashes. People behaving very
Speaker 4: badly in Los Angeles and across the country for that fact,
Speaker 4: trying to get their hands on Popeyes chicken sandwich in
Speaker 4: LA two people.
Speaker 1: On August twelfth, twenty nineteen, Popeyes released their famous chicken sandwich.
Speaker 1: It was a humble fried chicken breast with pickles and
Speaker 1: mayo on a brioche bun, priced at a very reasonable
Speaker 1: three ninety nine.
Speaker 3: Some people called it a masterpiece, some others were just
Speaker 3: thrilled to see a delicious alternative to Chick fil A.
Speaker 3: To be honest, I can't actually remember whether I had
Speaker 3: it or not. I'll just say those are really Those
Speaker 3: are really delicious. I totally get it. I get why
Speaker 3: people love all these sandwiches.
Speaker 1: I'm sure you were. Remember what happened after this, Joe.
Speaker 1: Dozens of imitators were launched. I mean, Taco Bell of
Speaker 1: all places, even did a version a crispy chicken sandwich.
Speaker 1: Taco and Chick fil A came out swinging. They claimed
Speaker 1: that they, and not Popeyes, were the original inventors of
Speaker 1: the chicken sandwich. Meanwhile, Popeye struggled to keep the sandwiches
Speaker 1: in stock. Fights broke out. There was even a lawsuit.
Speaker 1: A guy from Tennessee asked for five thousand dollars in
Speaker 1: damages after he couldn't get hold of one. The chicken
Speaker 1: sandwich craze was pure mayhem or should I say mayhn.
Speaker 3: Well, what's really important about the chicken sandwich wars is
Speaker 3: that they never really ended. Okay, you weren't seeing them
Speaker 3: hit the headlines in quite the same way anymore. But
Speaker 3: on menus around the country, chicken is more popular than ever.
Speaker 3: Burger chains have been launching chicken wings, donut chops have
Speaker 3: chicken wraps. So you might have an opinion on who
Speaker 3: ultimately won the chicken sandwich battle. But the real winner
Speaker 3: of the war was the chicken itself. Or maybe I
Speaker 3: should say the real winner is the American eater.
Speaker 1: Yeah, there are more chicken products on offer than ever.
Speaker 1: In fact, America's consumption of chicken continues to grow, even
Speaker 1: as appetites for other types of meat like beef, have stalled.
Speaker 1: The average American consumed a whopping one hundred and sixteen
Speaker 1: pounds of chicken in twenty twenty three, and that number
Speaker 1: is only expected to grow, making chicken by far the
Speaker 1: most consumed meat in America. Each of us is eating
Speaker 1: something like twenty adorable chickens worth of white meat every year.
Speaker 1: And what's interesting is that's been happening even as poultry
Speaker 1: prices have surged. Freshole chicken used to cost about a
Speaker 1: dollar sixty per pound a decade ago. It now goes
Speaker 1: for almost two bucks. That's an almost twenty five percent
Speaker 1: increase and higher than the jump in broader inflation, which,
Speaker 1: as we all know, has been a huge deal in
Speaker 1: recent years.
Speaker 3: So, speaking of inflation, egg prices have become a prime
Speaker 3: example of recent price pressures, with wholesale egg prices surging
Speaker 3: by two hundred and seven percent between twenty twenty two
Speaker 3: and twenty twenty three. Chicken farmers blamed outbreaks of bird
Speaker 3: flu for the increase, but some saw it as corporate
Speaker 3: price gouging, result of a handful of powerful companies supposedly
Speaker 3: taking advantage of consumers at a difficult time. And generally
Speaker 3: it looks like the bird flu was a big part
Speaker 3: of the story, but it did happen at a time
Speaker 3: when prices for all kinds of things we're surging so
Speaker 3: it's easy to understand why people saw it as as
Speaker 3: a macro thing.
Speaker 1: So we have to ask what exactly has been driving
Speaker 1: the price increases in eggs and that sweet, sweet chicken. Beat,
Speaker 1: Why has the chicken industry evolved in the way that
Speaker 1: it has, and what does it say about the nature
Speaker 1: and future direction of America's economic model.
Speaker 3: Welcome to Beat Capitalism, in which we explore some of
Speaker 3: the thorniest issues facing the US economy through the medium
Speaker 3: of chicken.
Speaker 1: In this special three part series from all Thoughts, we
Speaker 1: are going to examine eggs.
Speaker 3: Get it So, there's going to be chicken puns.
Speaker 1: Huh, definitely going to be chicken puns. Get used to it.
Speaker 1: Now we are going to examine all of these questions
Speaker 1: and more, because it turns out chicken has a lot
Speaker 1: to say about things like inflation and the relationship between
Speaker 1: workers and big companies, and it creates some big existential
Speaker 1: questions about what kind of economy we actually want to have.
Speaker 1: First up, what actually happens when the price of a
Speaker 1: chicken sandwich or an egg, or even a simple chicken
Speaker 1: wing takes fight.
Speaker 5: The chicken sandwich wars were an extremely challenging time for
Speaker 5: me as a person. It was hard on my family.
Speaker 5: It was hard of my friends, mainly because every time
Speaker 5: I had read pressed release about these things, I had
Speaker 5: to go buy one. I ate so many chicken sandwiches
Speaker 5: during that war. I was the real casualty. I'm the
Speaker 5: one that had it tough her into my you know,
Speaker 5: drive two hours to the nearest Popeyes to go try
Speaker 5: the sandwich. I didn't.
Speaker 1: That's Justin McElroy. He's one third of the My Brother,
Speaker 1: My Brother and Me podcast, and the chicken sandwich Wars
Speaker 1: were a big deal for him. He spends part of
Speaker 1: the podcast reading out fast food press releases, and there
Speaker 1: were a lot of those flying around at this time.
Speaker 5: A lot of American fast food competition, especially during the
Speaker 5: time period this is happening, our mid to late two thousands,
Speaker 5: is really a race to the bottom of who can
Speaker 5: sort of like reorganize the ingredients in the kitchen in
Speaker 5: the most disturbing way to try to net headlines. You know,
Speaker 5: we'll put some doritos in it. Look, we found some
Speaker 5: freedoms lying around. We shove that in it. Do you
Speaker 5: like this? Is this anything? And a lot of it
Speaker 5: seemed pretty desperate, and I think What was so interesting
Speaker 5: about Popeyees chicken sandwich is that they had the courage
Speaker 5: as a brand to say, what if we just made
Speaker 5: something good? And that was kind of the whole hook
Speaker 5: was it was really good to eat, and it was wild,
Speaker 5: and this is just a sandwich that was It got
Speaker 5: famous for being extremely good to eat, which I think
Speaker 5: was a real breath of fresh chicken.
Speaker 3: So, as the nation's de facto chicken war correspondent, Justin
Speaker 3: has thought a lot about why this particular combo took
Speaker 3: off like it did. Sure, there was a novelty value,
Speaker 3: and they were delicious.
Speaker 5: I tend to believe that the best chicken sandwich is
Speaker 5: the one that's nearby.
Speaker 3: But chicken sandwiches were also cheap.
Speaker 5: I know we are wild about these things as a nation.
Speaker 5: Especially one of the great things is that it's cheaper
Speaker 5: than beef. So we are just wild about that, and
Speaker 5: I think we'll continue to be as long as we
Speaker 5: got all these millions of people to feed.
Speaker 1: Chicken is still relatively cheaper than a lot of other
Speaker 1: types of meat, but that doesn't mean that prices for
Speaker 1: chicken products never went up. Today, a Popeye's Spicy chicken
Speaker 1: sandwich costs close to six dollars in many cities. That's
Speaker 1: about a fifty percent increase from its launch price of
Speaker 1: three ninety nine, and that price went up despite that
Speaker 1: intense competition among the sandwich makers.
Speaker 3: In that respect, the chicken sandwich wars might be emblematic
Speaker 3: of some wider pricing trends. People have chicken, whether it's
Speaker 3: in sandwich form or something else. We keep buying it
Speaker 3: even as prices go up and companies keep giving us
Speaker 3: new ways to consume it.
Speaker 1: To understand that, we need to talk about my personal
Speaker 1: favorite chicken item, wings.
Speaker 2: But the demand for chicken wings is pushing the price
Speaker 2: to historic levels.
Speaker 1: So how high will the cost of eating wings go?
Speaker 3: Your Super Bowl party is going to cost about fourteen
Speaker 3: percent more than it did last year. A lot of
Speaker 3: this is the labor shortage the supply chain crunch.
Speaker 1: Restaurants and suppliers say prices for chicken wings have gone
Speaker 1: through the roof.
Speaker 6: It's a no brainer that Wingstop is getting in on
Speaker 6: the chicken sandwich wars, but with its own twist.
Speaker 3: Wingstop is one of the biggest wing chains in America,
Speaker 3: and even they got into the chicken sandwich game in
Speaker 3: twenty twenty two, the company launched its own sandwich offering,
Speaker 3: introducing not just one, but a dozen different flavors of
Speaker 3: chicken and carb combos.
Speaker 7: So we saw an opportunity to do it different, to
Speaker 7: do it the Wingstop way, and the launch was pretty
Speaker 7: incredible because we planned it out. We did all of
Speaker 7: our forecasting and we were confident we had plenty of
Speaker 7: inventory when we launched to be able to meet any
Speaker 7: sort of scenarios we could come up with around demand.
Speaker 7: But the fact was we sold out in a week,
Speaker 7: which is pretty remarkable to just see. The strategy was right,
Speaker 7: the timing was right. The only thing was wrong is
Speaker 7: we didn't plan for that much volume. But we were
Speaker 7: able to take a step back, build up supply and
Speaker 7: relaunch again. And it has been a bit of a
Speaker 7: game changer for our brand because we're bringing in a
Speaker 7: record number of new guests into our brand quarter after quarter.
Speaker 1: Wingstop CEO Michael Skipworth, and he says Chicken Sandwiches did
Speaker 1: a couple things for his business. They got a bunch
Speaker 1: of new customers through the door and boosted sales, of course,
Speaker 1: but there was something else too.
Speaker 7: There's also a supply chain side of the strategy. The
Speaker 7: more breast meat that we use, which is where that
Speaker 7: chicken sandwich file at comes from, where our boneless wings
Speaker 7: come from, the better It puts us in a position
Speaker 7: to negotiate our overall buy with these poultry companies and
Speaker 7: help us execute our supply chain strategy, which is really
Speaker 7: one that's centered around in chicken wings.
Speaker 3: And this is where we need to talk about where
Speaker 3: wings actually come from. Is it from chicken, Yes, But
Speaker 3: according to Michael, chicken wings are one of the most
Speaker 3: volatile commodities out there, and obviously they're a huge component
Speaker 3: of Wingstop's business. The company says it's the biggest customer
Speaker 3: for wings in the country.
Speaker 7: About volatility and chicken wings and what that can do
Speaker 7: to the Wingstop restaurants, and it could be as much
Speaker 7: as a ten percentage point swing in our food cost,
Speaker 7: which is incredible amount of fluctuation. Now, the reason you
Speaker 7: see so much volatility in the price of wings is
Speaker 7: the reality of the fact that these poultry companies, they
Speaker 7: are not growing these chickens for the wings. They're setting
Speaker 7: the size of the flock, how many birds they're going
Speaker 7: to harvest based on breast meat demand. The chicken wings
Speaker 7: themselves represent six to eight percent of the bird It's
Speaker 7: a fall off product, and so why you see so
Speaker 7: much volatility in the price of wings. It clearly is
Speaker 7: a supply and demand dynamic, but the demand is not
Speaker 7: what's driving the supply. It's really centered around the overall
Speaker 7: market for breast meat, and so that's what's created a
Speaker 7: lot of volatility in that commodity. And there can be
Speaker 7: years where that spot market hits, you know, below one
Speaker 7: dollar a pound, and then take a year like twenty
Speaker 7: twenty one after the pandemic, where every single brand out
Speaker 7: there added chicken wings to their menu, you saw that
Speaker 7: spot market hit an all time high of three dollars
Speaker 7: and twenty one cents a pound.
Speaker 3: Like a lot of things in the aftermath of the pandemic,
Speaker 3: the price of chicken wings soared after twenty twenty, jumping
Speaker 3: more than seventy percent between twenty twenty one and twenty
Speaker 3: twenty two alone. There were the usual supply chain disruptions.
Speaker 3: A lot of poultry processors had to curb production because
Speaker 3: of worker shortages. Labor costs went up, so did chipping
Speaker 3: and packaging costs.
Speaker 1: But there was higher demand too. Americans reacted to the
Speaker 1: trauma of the pandemic. In what I think is a
Speaker 1: very relatable way, they ordered wings, lots of them, and
Speaker 1: for chicken wings jumped when we were all isolating. After all,
Speaker 1: wings are both delicious and can be transported pretty easily.
Speaker 1: Anyone who's ever ordered a couple dozen at two am
Speaker 1: because they're the fastest and most delicious thing around probably
Speaker 1: knows this well.
Speaker 3: At the height of the price bike, some restaurants were
Speaker 3: even labeling chicken wings at quote market price, you know,
Speaker 3: like lobster. Some grocery stores put limits on the amount
Speaker 3: of drums and flats you could purchase. For a company
Speaker 3: like Wingstop, the soaring cost of its primary product proved
Speaker 3: to be an opportunity as well as a challenge.
Speaker 1: And for one analyst, chicken wings became key to understanding
Speaker 1: the entire economy.
Speaker 8: I'm Sam Rynes, and I'm a necro strategist with Wisdom Tree.
Speaker 3: Part of Sam's job is to predict winners and losers
Speaker 3: in the macroeconomy and in the years after the pandemic,
Speaker 3: if you wanted to understand who is winning, you needed
Speaker 3: to know chicken wings.
Speaker 1: According to Sam, wings are the perfect pandemic study of
Speaker 1: all those one off disruptions, it gave companies a reason
Speaker 1: to raise their price, a strategy he calls price over volume.
Speaker 8: Price over volume is the idea that companies coming out
Speaker 8: of the pandemic and through the Ukraine crisis used the
Speaker 8: excuses that they had to increase prices well beyond what
Speaker 8: they would have in the pre pandemic, pre Russia invasion
Speaker 8: of Ukraine period in order to maintain their margins in
Speaker 8: that environment. That came at the expensive volumes. So the
Speaker 8: idea of price over volume is companies found it much
Speaker 8: more interesting to increase prices than to attempt to maintain
Speaker 8: their volumes over time. So your Wingstops, your McDonald's, your
Speaker 8: Burger Kings, Taco Bell, KFC. A lot of these restaurants
Speaker 8: really figured out that, you know, you kind of have
Speaker 8: it out there, that labor's getting more expensive, that your
Speaker 8: protein is getting more expensive, so you can raise prices,
Speaker 8: and you can raise prices pretty dramatically relative to what
Speaker 8: you could previously. They learned very very quickly that it
Speaker 8: is much much cheaper to gain margin by changing a
Speaker 8: price tag than it is to invest in putting more
Speaker 8: volume out there. It flows straight to the bottom line
Speaker 8: and you don't have to move prices down anywhere near
Speaker 8: as quickly as anticipated, if at all.
Speaker 3: At a time when there were lots of shortages and
Speaker 3: higher costs, price over volume could be a pretty compelling
Speaker 3: strategy for businesses. In twenty twenty one, as chicken wing
Speaker 3: prices were nearing their height, when we Stop said it
Speaker 3: had increased menu prices by about ten percent.
Speaker 8: You know, they talked about how their suppliers had worked
Speaker 8: with them and so their realize costs were only up
Speaker 8: like seventy percent. Still, that's you know, you sell chicken
Speaker 8: wings and they're up seventy percent in pricing, that's a
Speaker 8: pretty big deal for you. What was intriguing about that
Speaker 8: was it gave them an excuse to raise prices, right
Speaker 8: so to Wingstop do. Wingstop raised prices, and they raised
Speaker 8: prices significantly.
Speaker 1: Those price increases didn't necessarily mean that Wingstop was suddenly
Speaker 1: making a bucket load of chicken money, but being able
Speaker 1: to charge more did help protect their profit margins at
Speaker 1: a difficult time. As Sam points out, Wingstop wasn't unique
Speaker 1: in this respect. A bunch of other companies like Pepsi,
Speaker 1: Home Depot, even Walmart arguably did something similar.
Speaker 3: For sam What really differentiates the price over volume idea
Speaker 3: is what happened when chicken wing prices started to come down,
Speaker 3: but Wingstop's menu prices didn't suddenly drop alongside them, so.
Speaker 8: They raised prices. Where it began to show through was
Speaker 8: on the other side of the chicken wing crisis. Chicken
Speaker 8: wing prices fell and they fell back to where they
Speaker 8: had been previously, and they fell back, you know, call it,
Speaker 8: from almost three dollars per pound back to around eighty
Speaker 8: five cents a pound, and those are peak to kind
Speaker 8: of try off pricing. But if you think about that,
Speaker 8: that's a pretty powerful thing. When you haven't moved your price,
Speaker 8: if your Wingstop, so you've got the chase up in price,
Speaker 8: you're not moving your price lower to kind of give
Speaker 8: back to the consumer. You're maintaining that price now. So
Speaker 8: all of a sudden, your margins have really begun to expand,
Speaker 8: and that's not going to go anywhere anytime fast.
Speaker 3: So the price increases of the past could still be
Speaker 3: a tailwind for a business like Wingstop Today. The company
Speaker 3: says it's increasing menu prices by a smaller amount, just
Speaker 3: one to two points, which is closer to the historical average,
Speaker 3: but they're still rising and from a higher starting point too.
Speaker 1: In an economy where consumers keep spending and entire industries
Speaker 1: are raising prices all together at the same time, prices
Speaker 1: can go up and stay there even when input prices
Speaker 1: the cost of actually making the stuff, start to fall.
Speaker 1: It's an added wrinkle in the way we think about prices,
Speaker 1: and one that could come back to rear its ugly
Speaker 1: head even as inflation has slowed.
Speaker 3: The Meg is a twenty eighteen science fiction film about
Speaker 3: a seventy five foot megalodon, a giant shark basically that
Speaker 3: terrorizes a group of scientists working in the Pacific Ocean.
Speaker 3: For Sam rhymes, though Meg is something different that could
Speaker 3: still be pretty scary.
Speaker 1: Is it a giant chicken?
Speaker 3: No, here's Sam.
Speaker 8: What companies learned was really that consumers pay attention to
Speaker 8: the Meg right and kind of the scary shark out there,
Speaker 8: which is milk, eggs, and gasoline.
Speaker 3: That's the Meg, milk, eggs and gasoline.
Speaker 8: And when you have egg prices that are going up
Speaker 8: dramatically and doing it very quickly, you better have an
Speaker 8: excuse to you for that price to be moving, and
Speaker 8: you better be able to explain why the cost of
Speaker 8: everything that includes eggs is also going up, whether it's mayonnaise,
Speaker 8: whether it's bread, et cetera. That's really going to have
Speaker 8: an effect on the consumer psyche. But at the same
Speaker 8: time they're not necessarily going to step back from consuming it.
Speaker 8: So a lot of the companies out there, whether it's Pepsi,
Speaker 8: whether it's Craft Hinds, ConAgra, they found that consumer demand
Speaker 8: is rather inelastic, that there is not anywhere near the
Speaker 8: sensitivity to price that they thought there was pre pandemic,
Speaker 8: pre invasion.
Speaker 1: People love chicken so much that even as prices go up,
Speaker 1: they keep buying. I gotta admit, Joe, my personal price
Speaker 1: elasticity for chicken wings is extremely anelastic. It is the
Speaker 1: opposite of a rubber band or a rubber chicken. If
Speaker 1: prices go up, I am definitely still buying.
Speaker 3: Point taken. But the idea that price is and by extension,
Speaker 3: inflation might act a little differently in extraordinary times is
Speaker 3: starting to gain some traction. And Sam isn't the only
Speaker 3: one who's thinking about this.
Speaker 9: My name is zabel A Viba. I'm an economists at
Speaker 9: the University of Massachusetts Amherst, and I've been working on
Speaker 9: inflation for a number of years, first in the context
Speaker 9: of China's transision to a market economy, which was all
Speaker 9: about structural ruptures, and then in the context of the
Speaker 9: overlapping emergencies of recent years.
Speaker 1: The soaring price of chicken wings wasn't the result of
Speaker 1: a single thing. The events of twenty twenty clabberd supply
Speaker 1: chains and led to labor shortages. Russia invaded Ukraine in
Speaker 1: early twenty twenty two, which caused the price of grains,
Speaker 1: the basic building block of poultry feed, to go up.
Speaker 1: Then there was an outbreak of bird flu, which we'll
Speaker 1: talk more about in a second. Demand for wings spiked
Speaker 1: at that same time, and companies like Wingstop responded to
Speaker 1: that environment by raising their prices. Put it all together,
Speaker 1: and you had a recipe for record wingflation.
Speaker 3: Isabella says. The worry is that these types of inflationary events,
Speaker 3: which she calls overlapping emergencies, are becoming more common, and
Speaker 3: this isn't just a US phenomenon. Globally, priced for poultry
Speaker 3: are still up thirty three percent since the pandemic.
Speaker 9: When we talk about the overlapping emergencies of recent years,
Speaker 9: I would refer to a conjunction of different things that
Speaker 9: have been kind of in the making for a while,
Speaker 9: but that have been culminating in recent years, and that
Speaker 9: are also not really going away. The first is, of course,
Speaker 9: climate change. It's no longer an issue that kind of
Speaker 9: will bother our children or grandchildren, but it's an issue
Speaker 9: that is relevant in the here and now. Global warming
Speaker 9: is a reality. Extreme weather events have become very frequent
Speaker 9: pretty much anywhere in the world. If you ask people,
Speaker 9: can you think of an extreme weather event, they will
Speaker 9: probably be able to name one that is not very
Speaker 9: far away from them. And on top of this situation
Speaker 9: around climate and weather, we have mounting geopolitical tensions. We
Speaker 9: have an unstable global order that is as unstable as
Speaker 9: it hasn't been in many years, if not decades, which
Speaker 9: all of these things can have implications for the stability
Speaker 9: of production networks, for the stability of distribution, and therefore
Speaker 9: ultimately for the stability of economies, societies and democracies and
Speaker 9: states and so on, which then of course has again
Speaker 9: feedback dimensions into the degradation of the natural environment, into
Speaker 9: climate change, against climate change, and into the geopolitical environment.
Speaker 3: There's another thing playing out too. When all these different
Speaker 3: emergencies hit the headlines, consumers hear about it, they pay attention,
Speaker 3: and so when companies decide to respond to higher input
Speaker 3: prices by raising their prices, those price increases might seem
Speaker 3: reasonable to customers, especially if everyone is doing it at
Speaker 3: the same time.
Speaker 1: It's a different way of thinking about prices to the
Speaker 1: way we usually do in traditional economics. We tend to
Speaker 1: think about price as the result of the relationship between
Speaker 1: supply and demand. When demand is high and supply is low,
Speaker 1: prices go up, and the inverse happens too, prices go
Speaker 1: down when demand is low. Companies are supposed to compete
Speaker 1: on cost.
Speaker 3: But when there are all these emergencies and one off
Speaker 3: disruptions and the new use price stting starts to look
Speaker 3: a little bit more complicated. If everyone has an excuse
Speaker 3: to raise prices because there's a major emergency like a
Speaker 3: global pandemic, then maybe businesses don't really feel as much
Speaker 3: pressure to lower prices.
Speaker 9: In the context of these overlapping emergencies, and specifically in
Speaker 9: the context of tangible shocks that consumers see and listen
Speaker 9: to on the news watch on TV, such as climate
Speaker 9: disasses such as war such as supply chain blockages, like,
Speaker 9: for example, the images of the Port of la that
Speaker 9: so many consumers have seen. In that kind of context,
Speaker 9: when they walk into the store and they see that
Speaker 9: prices have gone up, they think that these price increases legitimate,
Speaker 9: or that these price increases make sense. They don't come
Speaker 9: out of thin air. This is to say that firms
Speaker 9: navigate prices also as social relationships, as part of the
Speaker 9: relationship with their customers. And on the demand side, this
Speaker 9: means that the elasticity of demand is not god given,
Speaker 9: but it's context dependent. The willing of people to pay
Speaker 9: its context dependent.
Speaker 3: And of course, even if prices for essentials like chicken
Speaker 3: go up, we can't just stop eating food.
Speaker 1: Although the intermittent fasting growers might try.
Speaker 3: We might consume less of it or try to find
Speaker 3: cheaper alternatives, but we can't stop buying it all together.
Speaker 3: And as Isabella points out, in an inflationary environment, it
Speaker 3: might even be that people spend more on basics.
Speaker 9: Generally speaking, the more essential or the more basic good is,
Speaker 9: the lower the price. Elyticity right, you can even get
Speaker 9: that kind of perverse effects where if inflation is high
Speaker 9: and consumers fee squeeze, they might end up spending more
Speaker 9: money on essentials than on less essential goods, and hence
Speaker 9: their price elyticity for these essentials might even be declining
Speaker 9: in an inflationary environment, and I would argue that firms
Speaker 9: are very much aware of that. If you, for example,
Speaker 9: look at the earnings costs of Tyson and the question
Speaker 9: of demand elyticity on chicken, then you see that they
Speaker 9: refer to chicken as a protein that is a staple
Speaker 9: that people have as part of their day to day diet,
Speaker 9: as their daily bread if you want so, so that
Speaker 9: the demand elasticity is relatively low. So yes, I would
Speaker 9: argue that in the context of food and agriculture, when
Speaker 9: we talk about basic food staples, the demand elthicity tends
Speaker 9: to be relatively low, which means that if price is
Speaker 9: showed up, you do not get a strong demand response
Speaker 9: and instead you basically get a very heavy cost burden
Speaker 9: carried by consumers that cannot do without this stuff.
Speaker 1: The meg strikes again. Not only do we pay more
Speaker 1: attention to the price of essentials like milk, eggs, and
Speaker 1: gas and chicken meat, but we don't have much of
Speaker 1: an option to stop buying them. Everything might taste like chicken,
Speaker 1: but that doesn't mean we'll all just stop buying the
Speaker 1: real deal. And speaking of essentials, let's talk eggs, the eggsentials.
Speaker 6: My name is Clein Hickman. I'm the president of our
Speaker 6: family business, Hickman's Egg Branch in Buckeye, Arizona. We have
Speaker 6: a few million chickens and we sell eggs around the Southwest.
Speaker 1: Glenn Hickman runs the biggest egg operation in Arizona. It's
Speaker 1: still family owned eighty years after Glenn's grandmother started the
Speaker 1: business with just a few egg laying hentons.
Speaker 6: This our eightieth year and there's a picture hanging in
Speaker 6: my office that my dad is still alive. He's ninety
Speaker 6: five years old and he's in kind of a baby
Speaker 6: stroller with his father who is feeding some chickens that
Speaker 6: are you know, you would call cage free or free range.
Speaker 3: Today Hickman Family Farms includes a feedmal on, a processing
Speaker 3: plant that's capable of shilling more than seven hundred and
Speaker 3: fifty thousand eggs per hour.
Speaker 6: Size Wise, you know, Hickman's is probably larger than some
Speaker 6: and smaller than the biggest ones, but the egg business
Speaker 6: is still pretty concentrated. There's not much more than twenty
Speaker 6: or twenty five producers that really produce probably eighty five
Speaker 6: percent of the product that's out there. So you know,
Speaker 6: we have a few million chickens.
Speaker 1: Hickman is on the supply side of the economy. He
Speaker 1: makes the things that other people are buying, in this
Speaker 1: case eggs, but his customers aren't really you and me. Instead,
Speaker 1: he's selling to the big grocery stores.
Speaker 6: Everyone knows who they are. They're the Walmarts of the world.
Speaker 6: They're the Krogers of the world, they're the safe Ways,
Speaker 6: the all these those are national customers. And then we
Speaker 6: also have, you know, regional retailers that operate in different areas.
Speaker 6: And then you also have the institutional grocers, the national
Speaker 6: ones such as Cisco and US food Service, and then
Speaker 6: you have regional retailers. Also beyond that, you have smaller
Speaker 6: distributors that tend to go into restaurants, you know, produce companies,
Speaker 6: meat companies, smaller institutional grocers.
Speaker 1: In early twenty twenty three, the structure of the egg
Speaker 1: market became exciting for all the wrong reasons.
Speaker 3: They're so bad tracing.
Speaker 1: Look, I'm just going to say, if you don't don't
Speaker 1: like egg and chicken puns. You should already have exited
Speaker 1: the podcast.
Speaker 3: Uh I remember this, Wholesale prices for eggs jumped. If
Speaker 3: you look at the consumer price index, egg inflation reached
Speaker 3: the stunning seventy percent year on air.
Speaker 1: A new emergency was raging avian flu. Fresh off the
Speaker 1: back of the COVID nineteen pandemic and all those snarled
Speaker 1: supply chains, there was something new to worry about. Bird
Speaker 1: flu is highly contagious. It spreads rapidly, especially among chickens
Speaker 1: that are crowded together in commercial poultry houses. They can
Speaker 1: die within days once it strikes, and it can quickly
Speaker 1: wipe out entire flocks.
Speaker 3: Yeah, and if there's any sign of it in a
Speaker 3: commercial bird or egg operation, chickens need to be culled.
Speaker 3: So the result of the most recent outbreak is that
Speaker 3: more than one hundred million birds have been lost in
Speaker 3: the US. That's an egg price is soaring and even
Speaker 3: turn them into a political movement, something chicken Sandwich has
Speaker 3: never really managed to achieve.
Speaker 6: You know, we're trying to do the best we can
Speaker 6: to get more eggs out there. I think it's unfair
Speaker 6: that when politicians squawk. They use a dozen eggs as
Speaker 6: a benchmark for higher egg prices than those kind of things.
Speaker 6: And I think that's just because people relate to eggs.
Speaker 6: They're like in ninety eight percent of all refrigerators, so
Speaker 6: they are staple. But believe me that the egg farmers
Speaker 6: in the United States are trying their ding to every
Speaker 6: single day to produce the maximum amount of eggs to
Speaker 6: satisfy the demand out there.
Speaker 3: Okay, so what is actually happening when the price of
Speaker 3: eggs goes up? How do prices hack? So to speak?
Speaker 1: Now you're getting into it, Joe. Okay, here's Glenn.
Speaker 6: The egg market is kind of an unusual animal. The
Speaker 6: Board of Trade that commodities tradeline, corn, soybeans, and those
Speaker 6: kind of things. That's actual cash pricing that's transacted during
Speaker 6: the day. The egg business tends to be a little
Speaker 6: bit different. There's a national market that's quoted by a
Speaker 6: third party that has no in in either retail or production,
Speaker 6: and they observe trades between unaffiliated parties. From there, they
Speaker 6: come up with an index that they quote each day,
Speaker 6: and the egg producers tend to sell off that index.
Speaker 6: So if the egg market is quoted up, then we
Speaker 6: go our prices go up, it quotes down and we
Speaker 6: go down. But we really don't have a lot of
Speaker 6: leverage to say, gee, I don't really care what the
Speaker 6: market is. This is what I'm going to sell my
Speaker 6: eggs for. So we tend to all follow the same
Speaker 6: market and we negotiate deals relative to that market with
Speaker 6: our major customers.
Speaker 1: So when Glenn is selling his eggs to a customer,
Speaker 1: a big grocery store or someone like that, he starts
Speaker 1: with an egg index price and negotiates a discount from there.
Speaker 3: And of course that raises the question of where the
Speaker 3: egg index price comes from.
Speaker 6: So the benchmark price is set by this third party
Speaker 6: and they collect data from many sources. Street owns a
Speaker 6: nonprofit called egg clearing House, and so it's blind trading.
Speaker 6: If I need to buy a load of eggs or
Speaker 6: I need to sell a load of eggs, I post
Speaker 6: it on this clearing house. They match buyers and sellers
Speaker 6: and that information is public. The blind trading that participants
Speaker 6: are not known, but the kind of egg is detailed,
Speaker 6: the area from which it shipped, the area from which
Speaker 6: it delivered, and those kind of things. Additionally, we may
Speaker 6: trade privately with another producer, and when we do that,
Speaker 6: it behooves us to have accurate market quotes. So it's
Speaker 6: better to provide that information to the market reporter, whether
Speaker 6: it comes from a public trading platform or a private transaction.
Speaker 1: Joe, which came first, the chicken or the egg price index? Okay,
Speaker 1: So when avian flu starts hitting laying flocks in the
Speaker 1: US and farmers have to coal sick chickens, it takes
Speaker 1: a while to build back.
Speaker 6: Apply What mostly affects the price of eggs is whether
Speaker 6: or not we have enough production to meet the normal
Speaker 6: demand when you have to depopulate a flock or a farm.
Speaker 6: That's not normal in our business. Normally, if a typical
Speaker 6: farm has ten buildings and they each have one hundred
Speaker 6: thousand birds, you probably have a flock going in and
Speaker 6: out about every two months, and you have the replacement
Speaker 6: growing capacity to accommodate that. So when you have an
Speaker 6: entire farm that goes out of production, they're cold as
Speaker 6: you say, and now you have ten barns empty without
Speaker 6: any kind of outside help. If you will, you're going
Speaker 6: to grow a barn of replacement bullets every ten weeks.
Speaker 6: So it's going to take you an entire cycle.
Speaker 3: So supply is clearly a factor in the benchmark egg
Speaker 3: price going higher, but there's still an open question about
Speaker 3: what happens after that one t of eggs hit the
Speaker 3: shelves of grocery stores.
Speaker 1: The bigger the customer, the higher the discount they can
Speaker 1: potentially negotiate from egg farmers like Glenn, but there are
Speaker 1: only so many companies that egg farmers can actually sell to.
Speaker 6: The Consolidation and concentration of the grocery industry has obviously
Speaker 6: had an impact on how every industry responds to that.
Speaker 6: At one point in time, Higman's egg branch had one
Speaker 6: hundred thousand chickens, and we thought we had the bowl
Speaker 6: by the horns. We had plenty of customers that we
Speaker 6: could service. Now a large grocer can consume in a
Speaker 6: region easily the eggs from a million birds each week.
Speaker 6: So we have these relationships now that instead of having
Speaker 6: twenty customers each buying fifty cases of eggs, we have
Speaker 6: one large customer buying the production from a million birds.
Speaker 6: So that concentration is always concerning, and.
Speaker 1: A chicken occupies a unique position in the US diet.
Speaker 1: We eat a lot of it, whether it's eggs from
Speaker 1: the grocery store in sandwich form or takeout wings, and
Speaker 1: like many things, prices went up in recent years. Understanding
Speaker 1: what help do it can deepen the way we think
Speaker 1: about inflation in general.
Speaker 3: Yeah, there's no single thing at play here. There's a
Speaker 3: lot of demand for chickens. People love it, people need it.
Speaker 3: And when there's lots of demand and supply gets hit
Speaker 3: by overlapping emergencies, whether it's COVID or bird flu, prices
Speaker 3: go up.
Speaker 1: And when all those emergencies are hitting an industry all
Speaker 1: at once, when they're all in the news, companies have
Speaker 1: a reason and excuse even to raise their prices and
Speaker 1: potentially keep them there.
Speaker 3: But recent issues facing the poultry industry illustrate a wider
Speaker 3: point about America's economy and the decisions being made about
Speaker 3: how it should be structured and who benefits from it.
Speaker 1: Next up on Beat Capitalism, we are going from buying
Speaker 1: chicken sandwiches to the business of actually growing the birds.
Speaker 1: Welcome to the Thunderdome now with added chicken. Beat Capitalism
Speaker 1: is written by Tracy Alloway, Carmen Rodriguez, and Joe Wisenthal.
Speaker 3: Produced and edited by Carmen with the help of Kilbrooks
Speaker 3: and Dashel Bennett. Our Old Blots theme song and sound
Speaker 3: mixing was chickenized by our engineer Blake Maples.
Speaker 1: This meaty serving of chicken industry puns and information was
Speaker 1: fact checked by Dash and Kale.
Speaker 3: Brendan Newnham is our executive producer, and Sage Bauman is
Speaker 3: Bloomberg's head of Podcasts.
Speaker 1: If you enjoyed this three part deep dive into the
Speaker 1: chicken industry, please consider leaving a positive review on your
Speaker 1: favorite podcast platform. Thanks for listening.
Speaker 7: A