Costco is about to embark on a very dedicated vertical integration strategy for its chicken business. As reported by Fortune.com earlier this week, Costco is set to build its own processing facility, and will build its own chicken farms for one third of its supply. With plans to produce and slaughter 1.7 million chickens per week within its own facilities, one thing is for sure — this is a lot of chicken.
I discussed this announcement with RealAg’s go-to food retail specialist, John Scott. John is an economist and speaker specializing in global food retail trends and strategies.
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I asked John if Costco’s strategy is really that unique, will we see more of these announcements from competitors like WalMart and whether he could see this happening in the beef business.
To me there are some conflictive messages from this strategy. It seems that the consumer will have to deal with the outcome they are creating. As they demand standardization of products and changes to production practices, retailers are likely to consider vertical integration to assure that supply will meet consumer demands.
Consumers say that they want to know where their food comes from? Well, in this case, it actually is the grocery store from start to finish. Meanwhile, we’re likely going to hear farmers say there is no way the chain will be able to execute on this.
Time will tell.
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