Supermarket retail giant Woolworths (ASX: WOW) has announced that will phase out selling caged eggs by 2018.
The move has angered the egg industry, but is likely to please consumers and animal lovers. Woolworths has also committed to stop using caged eggs as an ingredient in their private label branded products, and to label the chicken stocking density on the company's range of home brand eggs.
Victorian Farmers' Federation egg group president Brian Ahmed has told the Australian Financial Review (AFR) that the move will be costly to farmers and is upsetting for the egg industry. "We have invested in new cage systems that meet industry requirements and now, five years later, they want to ban cages with no compensation for farmers," Mr Ahmed said. Still, farmers have up to five years to adapt to the new strategy, which does seem a fair amount of notice.
Mr Ahmed said farmers would be forced to change their systems to continue to be a part of the egg industry. "These cage farmers have not had enough time to get a return on their investment on upgrading their cage systems. It will be very costly for them," he said. Mr Ahmed also told the AFR that some consumers may not be able to afford paying a premium for free range eggs.
Another downside to the move according to Mr Ahmed is that free range chickens are more susceptible to disease and had higher mortality rates, because their environments could not be controlled.
The move comes on the back of a Woolworths' decision to only use Australian fruit for its private label fruit products, sourcing product from Coca-Cola Amatil's (ASX: CCL) subsidiary SPC Ardmona. Woolworths has reported a 38% sales spike, with local fruit growing regions seeing sales up as much as 124% in recent months. The company will be hoping the egg move will evoke a similar response.
It remains to be seen whether competitors Coles – owned by Wesfarmers (ASX: WES) and the Metcash (AS: MTS) backed IGA supermarkets will follow Woolworths' lead, but they may not have any choice.
Foolish takeaway
Giving consumers what they want is paying off for Woolworths. The company will be hoping this latest move doesn't leave it with egg on its face.
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Motley Fool writer/analyst Mike King owns shares in Woolworths and Coca-Cola Amatil.
