COVID-19 could push integrated poultry companies toward direct to consumer sales.
COVID rules the day
The national pandemic is surging in July 2020. According to the U.S. Centers for Disease Control, there have been more than 3.4 million confirmed and suspected cases and more than 136,000 deaths attributed to the disease in 2020.
The disease is causing havoc for the U.S. economy and its society. Most notably for the poultry industry, demand for foodservice is extremely weak as dine-in restaurants and other customers remain either closed or scaled back. With the re-opening of schools and universities in question, foodservice demand will likely stay well below normal levels in 2020.
This problem could push integrators to try something new: direct-to-consumer sales online. At the end of June 2020, Wayne Farms LLC – the nation’s seventh-largest integrator – announced it would expand its chicken sales through online broker The Savory Butcher. The deal allows Wayne Farms to sell chicken breasts, thighs, tenders and drumsticks directly to customers in the southeastern U.S. through the online retailer.
Wayne Farms is not the first company to offer online direct to consumer sales however, Perdue Farms – the fourth largest integrator – launched its own direct-to-consumer channel in January 2020. At the time of the news, however, Wayne Farms said COVID played a role in its decision.
A new opportunity
One economic observer I spoke with recently, Will Sawyer, lead economist covering animal protein for CoBank’s Knowledge Exchange Division, said an increased push for direct-to-consumer sales could be a win-win for the consumer and the industry. The customer will pay a lower price, and integrators can move more product.
I agree with Sawyer’s assessment, especially given how the disease is changing consumer behaviors. Recent consumer data shows the number of buyers purchasing direct-to-consumer products was steadily rising – to 5.8% in 2018 from 1.4% of consumers in 2014 – before the pandemic. Now that once routine trips to the store are fraught with anxiety, interest in the shopping method will surely rise in coming months. The question, however, is if this behavior will last after the pandemic.
If you build it, will they come?
The biggest challenge with going to direct-to-consumer would be establishing the infrastructure to do it. While both traditional retailers, like grocers, and online retailers, like Amazon, already have systems in place to bring online orders to a shopper’s doorstep, integrators do not.
Before making a decision to adopt direct-to-consumer sales, a poultry company will need to perform its due diligence and see if the new operation would bring in enough revenue over the long-term to justify the significant start up expenses of building out a website, establishing a consumer brand and packaging the product for consumers. Whether or not integrators will strike off on their own, or if they will partner with an existing online retailer, remains to be seen.
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