Learnings from a rotisserie fueled flywheel
Prime Future 99: the newsletter for innovators in livestock, meat, and dairy
The only things certain in life are death, taxes, and the $4.99 Costco rotisserie chicken.
Inflation in the US hit 8.5% in March 2022, the highest since 1981. Food prices up, gas prices up, energy prices up.
But the Costco rotisserie chicken? $4.99 for evaaaah.
This is similar to the Costco founder's now infamous conviction around the $1.50 hot dog. When new’ish CEO Craig Jelinek went to former CEO and Costco founder, Jim Sinegal, complaining that the hot dog price needed to increase because the company was losing money on it, the founder replied, “If you raise the <expletive> hot dog, I will kill you. Figure it out.”
To figure it out, aka manage costs, this behemoth retailer built their own hot dog factory to supply the more than 100 million hot dogs sold per year. They also moved upstream into the chicken business, building out an entire poultry complex just to supply their need for more than 85 million rotisserie chickens per year.
Even amidst the highest inflation in 40 years, Costco still hasn't raised prices on these two items. That is conviction.
That is conviction about a proven tactic in service of a larger strategy, one part of a system. The tendency of a Costco shopper is to do large infrequent trips so the rotisserie chicken is a bet on getting people in the door more often and when folks are in the door....well, you know how it goes at Costco. That $2-3 loss on the rotisserie chicken is more than made up for when the shopper walks out with a $100+ basket of other items.
This reminds me of the Amazon flywheel, a mega theme of the book ‘Amazon Unbound’. Bezos' core conviction was that customers want lower prices and more selection, and that those two expectations would not change over time. So the Amazon flywheel goes like this:
Offer low prices to get customers.
Having customers allows Amazon to bring on more sellers.
More sellers provide more selection which brings more customers.
More customers brings more revenue which Amazon can invest into systems to lower prices.
And the flywheel spins faster and faster. (Sure Amazon sales dropped 3% this last quarter but let's assume thats a blip as the pandemic impact winds down.)
Aside: I’ve read multiple books about Amazon the last couple of years because they are one of the most fascinating companies to study. I get it that not everyone loves Amazon, I’m working on finding other companies to use as examples though 😉
Jim Collins developed the flywheel concept in Good to Great:
Picture a huge, heavy flywheel—a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and long as possible. Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn. You keep pushing, and the flywheel begins to move a bit faster, and with continued great effort, you move it around a second rotation. You keep pushing in a consistent direction. Three turns ... four ... five ... six ... the flywheel builds up speed ... seven ... eight ... you keep pushing ... nine ... ten ... it builds momentum ... eleven ... twelve ... moving faster with each turn ... twenty ... thirty ... fifty ... a hundred.
Then, at some point—breakthrough! The momentum of the thing kicks in in your favor, hurling the flywheel forward, turn after turn ... whoosh! ... its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster.
Each turn of the flywheel builds upon work done earlier, compounding your investment of effort.A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.
All of this leads me to 3 takeaways:
(1) Enduring principles anchor dynamic systems.
It’s easy to look at these retail B2C businesses as something different than the B2B companies we find in production or processing. But every business is a system. Every business buys stuff to make stuff to sell stuff.
In production agriculture, the output is largely a commodity. But whether the output is commodity or differentiated, the system of how the output is produced matters as much as the output itself. The how determines the what.
Enduring principles about what will not change, like the conviction of both Costco & Amazon founders that consumers prefer lower prices. That’s why business model innovation gets so interesting.
So, what's not going to change in livestock, meat & dairy?
We’re talking about living creatures in complex biological systems. We understand more about the biology than ever before but there’s still a lot we don’t know. And even what is understood can’t always be controlled. There’s genetics, nutrition, health, the role of weather in feed & health & mgmt, etc.
Price matters. Which means efficiency matters, which generally means scale matters.
Quality matters. The obvious dimension of quality is product quality that impacts the eating experience. What is changing is the definition of quality, not just what the customers buys but how it was produced….and many definitions of quality means many high quality sub-markets.
Love it or hate it, price a-n-d quality are what consumers expect.
(2) Dynamic systems spin flywheels.
An old school example of a flywheel was when JR Simplot started feeding potato waste to cattle. Eventually his company invented frozen french fries which increased demand for potatoes so there were more potatoes grown, and more available potato waste for cattle feed. Not just a flywheel, an upcycling flywheel…<chef’s kiss>
A newer example is beef x dairy. Dairy adopts the use of genomics to identify high potential heifers, uses sexed semen to breed for replacement heifers, uses beef genetics for the rest of the herd. The beef x dairy calves are worth more when they hit the ground, and that value carries through to packer. Meanwhile the herd’s genetics improve faster, so all offspring are higher quality, so the dairy herd performs better and the beef x dairy offspring perform better….let that flywheel rolllll.
Dynamic systems spin flywheels creating outcomes like reduced costs, less waste, higher yield, higher value, lower risk, etc….whatever the system was optimized for, the flywheel will accelerate.
(3) Flywheels keep flying.
Each turn of the flywheel builds upon work done earlier, compounding your investment of effort.A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.
What is 1 flywheel in livestock, meat & dairy that you see?
One more Prime Future Book Chat
10 Prime Future readers recently joined in a book chat about Amazon Unbound and how some of the ideas that built Amazon might apply to the ag industry. It was a great discussion given the different views of an Australia sheep producer moving from commodity to value added production, a Canadian cattle feeder locked in on her feeder customers' needs, an academic asking how universities can keep a day 1 mentality, and tech founders in the process of building their own flywheels.
I'm now re-reading one of my favorite biographies on the man who practically invented upcycling, JR Simplot: A Billion The Hard Way. Sign up below if you're interested in joining a book chat on this book!
Details on time & date TBD. Just remember this isn't a high school group project - attendees should come ready to play (mental) ball😉