Egg Producer Vital Farms Hatches IPO Plan

The investor appeal of companies with sustainable business practices who adhere to conscious capitalism principles soon will be tested by egg producer Vital Farms.

The Austin, Texas-based company is planning to go public and capitalize on what it contends is a seismic shift in consumer behavior. With annual sales of $140.7 million and profits of $2.4 million in its most recent fiscal year, Vital Farms described itself in its registration statement with the Securities and Exchange as, “an ethical food company that is disrupting the U.S. food system. We have developed a framework that challenges the norms of the incumbent food model and allows us to bring high-quality products from our network of small family farms to a national audience.”

That framework has enabled the company to become the leading U.S. brand of pasture-raised eggs and butter and the second largest U.S. egg brand by retail dollar sales. The company defines “pasture-raised,” as products from animals that were raised for at least some portion of their lives on pasture or with access to a pasture, not continually confined indoors. These pasture-raised eggs accounted for approximately 90% of net revenue during the company’s most recent fiscal year.

“Our ethics are exemplified by our focus on the humane treatment of farm animals and sustainable farming practices. We believe these standards produce happy hens with varied diets, which produce better eggs,” according to Vital Farm’s registration statement. “There is a seismic shift in consumer demand for ethically produced, natural, traceable, clean-label, great-tasting and nutritious foods. Supported by a steadfast adherence to the values on which we were founded, we have designed our brand and products to appeal to this consumer movement.”

The company currently offers 20 products and sources it’s eggs from approximately 200 family farms. Those eggs are processed at a single 82,000-sq.-ft. facility in its hometown of Springfield that came online in 2017. That facility, known as Egg Central Station, is capable of processing three million eggs per day, according to the company.

In addition to the company’s reliance on a single processing facility, which was cited as a risk factor, the company’s sales are also concentrated among distributors such as United Natural Foods, KeHE and US Foods. Vital Farms said UNFI and KeHE accounted for 35% and 11% of sales, respectively, during the most recent fiscal year.

Since the distributors sell to retailers and Vital Farms also has direct relationships, it estimated that Whole Foods, Kroger and Sprouts Farmers Market accounted for 31%, 14% and 8% of sales, respectively, in the most recent fiscal year.

“The loss of Kroger, Whole Foods, Sprouts or any other large retail customer, the reduction of purchasing levels or the cancellation of any business from Kroger, Whole Foods, Sprouts or any other large retail customer for an extended length of time could negatively impact our sales and profitability,” according to Vital Farms.

As of March 2020, the company said its ethically produced pasture-raised products were sold in more than 13,000 stores nationwide.