Costco is a household name in the United States and around the world, renowned for its wide range of products offered at competitive prices. However, recently, shoppers have noticed a shortage of one of the store’s most iconic items – the rotisserie chicken. In this article, we delve into the reasons behind the chicken shortage at Costco and its implications.
The chicken shortage at Costco is primarily due to two reasons: a bird flu outbreak that has affected the company’s chicken supply, resulting in the culling of over 500,000 chickens in Nebraska, and ongoing supply chain disruptions caused by the COVID-19 pandemic which have led to temporary closures of some of the biggest slaughterhouses in the United States. These factors have made it difficult for Costco to maintain its regular supply of rotisserie chicken.
The Chicken Shortage – Key Reasons
There are two main reasons for the chicken shortage at Costco. First, a bird flu outbreak has significantly impacted the company’s chicken supply. The pathogenic avian influenza (HPAI), or bird flu, outbreak has reached some of Costco’s chicken houses, leading to the culling of over 500,000 chickens in Nebraska facilities to try and stop the spread. Around 25% of Costco’s rotisserie chicken supply comes from Nebraska farms.
Second, ongoing supply chain disruptions have led to shortages in various products, including chicken. The COVID-19 pandemic has caused disruptions in meat processing facilities, where large groups of employees often work in close proximity, leading to temporary closures of some of the biggest slaughterhouses in the United States.
Costco’s Supply Chain for Poultry Products
Costco’s supply chain for poultry products is vertically integrated, meaning the company controls various stages of the supply chain, from farming to processing and retail. In 2019, Costco opened a $450 million chicken facility in Fremont, Nebraska, which produces around 2 million chickens per week, fulfilling 43% of its rotisserie supply and 33% of its raw chicken supply. The facility, managed by Lincoln Premium Poultry, a company started by Costco, works with local farmers in Nebraska and Iowa to raise the chickens.
Impact on Costco’s Customers
Due to the shortage of chicken, Costco’s customers are experiencing difficulties in finding the popular rotisserie chicken at the retailer’s stores. The shortage is primarily attributed to the H5N1 avian flu outbreak that affected a Tyson Food plant in Kentucky. Costco’s rotisserie chicken is a highly popular item, with the company selling over 106 million of its Kirkland Signature broilers every year. The shortage has led to customer dissatisfaction, as evidenced by social media posts expressing frustration over the unavailability of the product.
Alternative Products and Options
During the chicken shortage, Costco has been offering alternative products and options to its customers. Some customers have been opting for cheaper meats such as pork instead of pricier beef products. Additionally, Costco has introduced Kirkland Signature Lightly Breaded Chicken Breast Chunks, which are frozen chicken nuggets that some customers have compared to Chick-fil-A’s famous nuggets. Furthermore, plant-based meat substitutes have gained popularity in response to both chicken shortages and price increases.
Economic Implications for Costco
The economic implications of the chicken shortage for Costco are multifaceted. First, there is a potential decrease in the supply of rotisserie chickens, which could lead to out-of-stock situations in stores. This may result in customer dissatisfaction and a negative impact on Costco’s brand image, as rotisserie chickens are one of the company’s most iconic products.
Second, the chicken shortage could lead to economic pain for farmers involved in Costco’s chicken supply chain, even those not directly associated with the company. This may result in financial losses for these farmers and could potentially disrupt Costco’s vertically integrated chicken operation in the long run.
However, despite these challenges, Costco has shown resilience in maintaining its rotisserie chicken prices even during previous supply chain disruptions, such as the bird flu outbreak in March 2022.
Lessons for Other Retailers
Costco’s chicken shortage provides several lessons for other retailers. It underscores the importance of vertical integration, adaptability, and brand loyalty. Retailers can also learn from Costco’s loss leader strategy, where popular items are offered at low prices to attract customers. Additionally, the importance of ethical considerations in supply chains has been highlighted, with Costco facing a lawsuit over animal mistreatment in its chicken supply chain.
Conclusion
Costco’s chicken shortage is a complex issue, influenced by various factors including bird flu outbreaks and supply chain disruptions. However, the company’s vertical integration strategy has helped it maintain a steady supply of chicken for its customers. As the situation evolves, Costco is likely to continue finding ways to ensure customer satisfaction and uphold its reputation for offering quality products at competitive prices.
Frequently Asked Questions
What is a vertically integrated supply chain?
A vertically integrated supply chain refers to a model where a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain. It allows the company to reduce costs and improve efficiency by eliminating the need for negotiations and dealing with external organizations.
What is the bird flu, and how does it impact chicken supplies?
Bird flu, or avian influenza, is a viral infection that can spread among birds and can sometimes affect humans and other animals. It can lead to significant losses in chicken supplies if an outbreak occurs, as infected birds have to be culled to prevent the spread of the disease.
What is Costco’s loss leader strategy?
A loss leader strategy involves selling a product at a price that is not profitable, but it’s designed to attract customers to the store. In Costco’s case, the rotisserie chicken is often seen as a loss leader, as it’s priced competitively to attract customers who may then purchase other items during their visit.
How has Costco managed to maintain its chicken prices during supply chain disruptions?
Through its vertically integrated supply chain, Costco has been able to control costs and maintain steady chicken prices during disruptions. By owning parts of its supply chain, from farming to processing and retail, the company can better manage and absorb costs associated with disruptions.
What are some of the alternative products offered by Costco during the chicken shortage?
During the chicken shortage, Costco has introduced alternative products such as Kirkland Signature Lightly Breaded Chicken Breast Chunks, which are frozen chicken nuggets. The company has also seen an increase in the popularity of plant-based meat substitutes and cheaper meats like pork.
