SN Whole Health: Sunny Side Up

Healthful options are adding jumbo profits to the fresh egg category

THE EGG ISN'T INCREDIBLE just because it's edible. There are a lot of dollars packed into that small shell.

“The nice thing about eggs is you can carry very few SKUs and still generate a lot of sales,” said Dale Instefjord, general manager of Blue Goose Supermarket in St. Charles, Ill. “It's a pretty good sale, per linear foot, for that part of the case.”

Instefjord's sentiments are echoed by many retailers: Any way they're rolled, eggs are reliable sources of profit. High turns, strong margins and a small footprint more than offset processing, transportation and activity-based costs.

“Eggs are one of our top 20 grocery items,” said Michael Saccoccia, director of procurement for the nine-store Dave's Marketplace, Warwick, R.I. “When someone comes into the store they always buy eggs.”

Indeed, an analysis of this huge category by research firm Willard Bishop found that eggs take up 6% of the dairy department, yet deliver 8% of the volume, 8% of the dollars and 10% of the profits.

“Eggs offer retailers the highest true or net profit margin, 26.1%, of all the items in the dairy case,” Philip Bass, product account manager for Willard Bishop, said during a recent webinar on the category's winning ways.

It wasn't always this way. For a long stretch in the 1970s and '80s, eggs were banned from home refrigerators and ordered sparingly at diners after studies pinpointed them as being a major source of artery-clogging cholesterol. Consumption dropped by more than half — from more than 400 eggs per capita during the late '50s and early '60s to about 200 per capita in the mid '80s.

“Eggs were the face of dietary cholesterol,” said Kevin Burkum, senior vice president of the American Egg Board. “If you had high cholesterol, the first thing the doctor would tell you is to watch your egg consumption.”

Fortunately, the egg's reputation has been somewhat restored, thanks to the health and wellness movement. Consumer demand has created a market for organic varieties. There are also specialty eggs with added nutrients like omega-3 or lutein. Then there are eggs produced under conditions that meet standards for animal welfare. Like their shoppers, retailers love the variety, since these eggs command a bit of a premium over conventional white or brown eggs. Consumption is back up to about 250 per capita, said Burkum.

“Eggs have shifted from a food to avoid to a food that you should consume if you want to have a healthful diet,” he said.

It's a message consumers are hearing. Through September 2011, sales of fresh eggs were up an impressive 9% over the prior year, totaling $3.8 billion, according to the Nielsen Co. Additional statistics from Willard Bishop drill down to the store level: The average supermarket sells almost $4,900 of eggs every week, generating an adjusted gross profit of more than $1,800.

Schnuck Markets [4] exemplifies today's egg retailer. The St. Louis-based chain stocks two to four brands of eggs for a total of 12 to 15 SKUs, all merchandised in 4 to 8 feet of case, depending on the store size.

“The majority of eggs we offer to our customers are Schnucks' private brand,” said Justin Leazer, category manager, adding that there's also “a wide variety of eggs including conventional, organic, vegetarian, cage-free, omega-3-fortified and pasteurized.”

The count and variety are similar at Blue Goose Supermarket. The single-store independent packs its eggs into a 4-foot vertical set inside a five-deck case. Instefjord says the entire display takes up no more than 10% of the entire dairy case. A mix of jobbers and the retailer's wholesaler, Supervalu, deliver the cartons to the store. He is surprised to find that organic can outsell conventional eggs on many occasions.

“You can see it in other categories, like dry grocery — organic has flagged because the products are expensive and people are economizing,” Instefjord said. “But in eggs, for some reason, they're still buying organic and specialty.”

There's little doubt that eggs are seen as economical. But healthful? If the growing sales of organic and nutrient-enhanced specialty eggs are accurate, the answer is yes.

“There are many benefits to eating eggs, from the high-quality protein to the 13 vitamins and minerals to the fact that its nutrient-dense and only 70 calories,” said Burkum of the egg board. “Now the good news is that eggs have been found to be lower in cholesterol than originally thought, and higher in vitamin D than originally thought.”

The AEB is tracking a long-term shift to specialty eggs, those varieties that are leading the health push. On a unit basis, about 70% of sales currently belong in the private-label, classic egg arena. Specialty egg sales are upwards of 5% to 8%, depending on the data, and the number is increasing every year.

“Cholesterol is still a concern with consumers, so anytime you can reduce that, that's highly motivating for us,” said Burkum. “The finding that eggs are 14% lower in cholesterol and 64% higher in vitamin D, that was big news for the entire category.”

Armed with this most recent research, the egg industry is touting value and high-quality nutrition. Besides providing up to 10% of the daily value for vitamin D, one large egg also provides good-quality protein, vitamins A and B2, as well as iron.

These nutrients are chiefly found in the yolk, and that's the same part that contains all the cholesterol. Luckily, studies now show lower levels of the substance than originally thought. Analysis reveals the average amount of cholesterol in a single large egg is 185 milligrams, less than previously recorded in previous studies. The American Heart Association endorses consumption of up to one egg per day, provided total cholesterol levels don't exceed 300 milligrams during that period.

It helps that eggs now have added nutrients such as omega-3 or eyesight-enhancing lutein, the result of special feed that supplies the nutrient to the egg. Feed can also be altered to produce organic eggs (certified by the USDA), vegetarian eggs (no animal by-products) and soy-free eggs. At Dave's, cases are stocked with up to four brands and multiple SKUs. Saccoccia says sales of conventional eggs have steadily given way to specialty varieties.

“It was probably 70/30 back then, and now it's very close to 50/50, with people buying the specialty eggs because they think they're healthier,” he said.

Some shoppers aren't as concerned about the nutrients so much as the treatment of hens and their living conditions. Egg production has been at the center of the animal welfare movement, with many retailers and manufacturers adopting cage-free policies in the face of public pressure campaigns from groups like the Humane Society of the United States and Humane Farm Animal Care.

“I've been here for 16 years and we've had cage-free eggs for better than that, so we've been out in front of this issue,” said Intefjord of Blue Goose's approach. “It's never been a case of someone coming in and nagging us to do the right thing, you might say.”

Egg producers say that consumer polls often show welfare issues trailing those focused on economics and nutrition. However, retailers note that enough of their shoppers are concerned and actively seek out specialty eggs.

“Some customers do express that interest, and we have responded by offering cage-free or pasture-grazed eggs,” said Leazer.

The entire industry took note earlier this year when the United Egg Producers and the Humane Society historically agreed to push for federal regulations eliminating battery cages and doubling the size of conventional cages, adding scratch pads, perches and nesting that promote natural behaviors, and creating a labeling system that identifies the environment hens were raised in. If enacted, such rules would go a long way to finally resolving one of the sorest points that have overshadowed the egg business.

Until that time, retailers say they plan to remain focused on providing variety in the egg case, with something for everyone.

Cracking Other Dayparts

Eggs are nutrient-dense and ideal sources of protein, yet they can't quite break free of their own success as a breakfast staple and favorite of Sunday brunches. Even here, it seems they're not in command.

“We're still only about 13% in share of at-home breakfast,” said Kevin Burkum, senior vice president of the American Egg Board. “It's a daypart dominated by cereal.”

Efforts to land on the plate at other meals has met with limited success. Many retailers use eggs in their deli salads and promote the brands used. That's the case at Blue Goose Supermarket, St. Charles, Ill.

“We're using [Eggland's Best] hard-boiled eggs in the deli for our egg salad and tuna salad, for instance,” said the store's general manager, Dale Instefjord. “We've got big signs in the deli about that.”

Eggs got a bit of a boost during the depths of the recession as consumers sought less expensive proteins and more versatility.

“We have seen people replace other proteins with eggs for meals like dinner because it is more economical,” said Burkum.

Whether that trend will stick remains to be seen. In the meantime, there is one category that has potential. Many retailers now stock prepackaged, peeled hard-boiled eggs as a portable snack. One store in the Dave's Marketplace chain in Rhode Island is next to a gym, and Michael Saccoccia, director of procurement, says hard-boiled eggs fly off the shelf there as energy snacks for body builders.

“People also buy them and use them to make salads and sandwiches,” he added. “They love convenience, and as long as you can keep the price reasonable on them, you can drive the sales pretty good.”

Selling hard-boiled eggs might raise eyebrows with some, since they are easy to make at home. But there is a big demand for them among Americans for whom cooking is a mystery, Burkum said.

“‘Hard boil’ is by far the top Google search term for eggs,” he said.

What's in the Egg Basket?

The egg industry has become more sophisticated in the types of eggs they offer, reflecting consumer demand for products that meet their dietary or ethical needs. Most retail egg sets only measure 6 to 12 feet, but they can crowd a lot of choice into that space. Here are the top choices:

Organic: USDA-certified to come from hens fed a diet free of pesticides, fungicides and herbicides, as well as antibiotics and genetically modified grains.

Vegetarian: Hens are fed a diet free of animal by-products.

Pasteurized: Ideal for using in recipes calling for raw eggs, like egg nog, these are heat-processed to kill pathogens.

Free-range: Hens have ready access to the outdoors. Federal regulations only require hens have access; they may actually live in large barns or similar housing.

Cage-free: Often interchangeable with free-range; hens are allowed to roam inside facilities, may have outdoor access, and are allowed to engage in natural behaviors.

Nutrient-enhanced: Hens are raised on a diet of special feed enhanced with specific nutrients. For instance, the feed for omega-3 eggs might include flax, marine algae or fish oils.

Soy-free: Eggs from hens fed a diet free from any soy.