“For the super-elite, a sense of meritocratic achievement can inspire high self-regard, and that self-regard—especially when compounded by their isolation among like-minded peers—can lead to obliviousness and indifference to the suffering of others.”
Upon surveying 45 willing participants that passed the screening criteria of having at least 15 years of entrepreneurial companies, having started multiple businesses (both successful and unsuccessful ones), and having taken at least one of them public, she concluded that master entrepreneurs rely upon effectual reasoning vs. causal reasoning. Effectual: choosing goals based upon the assets at your disposal; causal: choosing goals, and then seeking/building the assets required to complete said goals.
“Costco was willing to sacrifice “$30 million, $40 million a year on gross margin by keeping [their chicken] at $4.99,” Galanti said the following year. “That is what we do for a living.“
U.S. chicken production is large and has seen strong and steady growth for half a century; ~60% of the American production is dominated by 5 companies with ever-increasing bargaining power over retailers. In addition, while customers want entire rotisserie chickens at CostCo, only 15% of chicken is produced in full-bird form (down from 50% in the ’80s), since companies like Tyson Foods can earn higher margins on selling individual parts of chicken instead of as a whole. That has led Tyson and others to produce heavier, larger chickens, to the point that the now seven-to-eight pound chickens are too large for CostCo’s rotisserie lines, and place higher pressures on even the slimmest of margins when selling for $5/chicken.
Following their insourcing of hot dog production in 2009, CostCo is bringing their chicken production in-house, building a facility in Nebraska where the primary cost drivers of chicken production (grain, water and labor) are in the cheapest supply. Nebraska is the third largest state by corn production; however, corn prices have fallen in recent years and, compounded by the Chinese trade war, farmers are looking to diversify and answered CostCo’s call.
This could be interesting for many retailers, following other vertical integrations such as Walmart’s Angus beef production, and insourced milk supplies for both Walmart and Kroger.