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What Costco's entry in chicken production business means

Gainesville’s renown as the “Poultry Capital of the World” is well established, but corporate retail chains are increasingly finding ways to skirt the largest chicken producers, such as Pilgrim’s Pride, Tyson and Perdue.

Costco announced this fall that it plans to open a $400 million chicken farm in Nebraska next year that will produce 100 million birds annually – or 40 percent of the company’s product needs – largely circumventing traditional producers and suppliers in its operations west of the Mississippi River.

The warehouse retailer is getting into the production and processing business to support its line of rotisserie chickens.

It’s also seen as a way to better compete with other major brands.

For example, Amazon has moved into the marketplace with its ownership of Whole Foods, and Walmart competes with its Sam’s Club brand, as well as Neighborhood Markets.

The importance for Costco was highlighted Dec. 14 when its public trading shares dipped 6.8 percent in one day after the company reported earnings below expectations.

Costco says the Nebraska plant (it also operates a farm in Iowa, both of which analysts say create cheap access to grain and feed) will produce more than 2 million chickens each week.

Costco’s attempt to bring down costs and streamline its logistics should keep its rotisseries priced at $4.99, according to company officials.

And larger chickens will be sold as parts, such as breasts and legs.

Mike Giles, president of the Georgia Poultry Federation in Gainesville, said Costco’s move is the “ultimate vertical integration.”

However, “I don’t see it as a major trend,” he said.

That’s because Costco remains in a unique position in the market. 

“There’s a limited number of retailers that have the volume (of chicken sales) that would make an investment like this make sense,” Giles added. “That’s quite an investment.”