Ruling the Roost

According to Chad Gregory of United Egg Producers, a Georgia-based industry group, the price producers get for a dozen eggs averaged 68 cents in 2005, down from 86 cents in 2004 and 92 cents in 2003. So far this year, the average price has been 69 cents. Meanwhile, the average cost to produce, process, package, and transport a dozen eggs has climbed from 70 cents in 2003 to 75 this year.

Another force in play in the market: avian flu. An outbreak in this country early in 2004 prompted restrictions on U.S. eggs and egg products in some export markets. Even under the best of circumstances, export levels are low—annually, only about 4 percent of eggs produced in this country. But Schnell says pricing is so sensitive to shifts in demand that even a change of 1 percent can “dramatically drive our pricing.”

Avian flu also struck in British Columbia in 2004, and Wayne Carlson, Sparboe’s vice president of procurement and logistics, got the company a tidy piece of business: sending 1,200 semi-loads of eggs—about 300,000 per truck—to Canada during the next 18 months. (In any given week, Carlson’s job is to find buyers for Sparboe’s surplus production, which can be 10 to 15 semi-loads of eggs.)

Bob Sparboe used to liken the egg business to a game of musical chairs, where price cycles force at least one producer to lose a chair—and exit the game—every year. According to Gregory, there were 10,000 egg producers in the United States in 1976, but only 2,500 in 1987. Today, there are just 250 major producers, and 64 of those account for 85 percent of total U.S. egg production.

Cal-Maine Foods, Inc., in Mississippi ranks as the largest producer of shell eggs in the

United States and currently has 24 million layers, about twice the number Sparboe has. Cal-Maine calls itself a “leader in industry consolidation,” and says that since 1989, it has completed 10 acquisitions of other producers who each had as many as 7.5 million layers. The company says it plans to keep buying other facilities to expand its market share.

“We’ve got to constantly be on our toes,” Schnell says, “because our competition is getting more and more fit. We need to be as cost effective as we can be in the production side, but also focus on value-added necessities for our customers, which are somewhat opposing in nature. Our great challenge is to pull both of these off—and still have a chair.”

One way to stay in the game is to offer more products. Sparboe sells fresh shell eggs in the usual array of sizes—from small to super jumbo—and by the usual dozen or in packages that hold anywhere from 6 to 60 eggs. But it also sells “specialty eggs.” Sparboe’s Egg-Sense Organic Eggs come from free-range hens that “eat a plentiful, all-natural, vegetarian diet, and are raised without antibiotics,” the company says, while its Egg-Sense Omega Plus eggs each contain 250 milligrams of Omega-3 fatty acids (there are 50 milligrams in a generic large, white egg) and higher-than-usual levels of lutein and vitamin E.

But imagine being the egg buyer for a grocery chain and needing to choose between Sparboe’s Egg-Sense Omega Plus eggs and its Egg-Sense Cage-Free Brown Plus eggs (which have almost the same nutrient profile)—not to mention comparing Sparboe’s specialty eggs with similar nutrient-enhanced, low-cholesterol, cage-free, and organic eggs from other producers, or even knowing how much of your refrigerated case to fill with jumbo versus large eggs. For retailers who feel overwhelmed, Schnell has a plan.

“Beth wants Sparboe to become more of a sales and marketing organization,” Carlson says. “Bob was excited about moving in that direction, too, but he didn’t have the commitment to it that Beth has. When it came right down to it, he had a tendency to fall back on the production side.”

Schnell’s strategy centers on “added value” for the customer. “People always like to say eggs are a commodity—that an egg is an egg,” she says. “And, admittedly, it is difficult to differentiate one egg from another. So I’m building a team that can differentiate Sparboe by the things we add to the customer relationship.”