The Chicken-Wing King 

Following the Domino’s Playbook 

Beating “Chickenflation” Through Economies of Scale

Welcome to Porter & Co.! If you’re new here, thank you for joining us… and we look forward to getting to know you better. You can email Lance James, our Director of Customer Care, at this address, with any questions you might have about your subscription… The Big Secret on Wall Street… how to navigate our website… or anything else. You can also email our “Mailbag” address at: [email protected]. Paid subscribers can also access this issue as a PDF on the “Issues & Updates” page here.

He didn’t plan on changing his industry forever. He just had a story to tell.

So he sat down at his kitchen table and hammered out a 10-page newsletter that he’d later distribute via a borrowed copy machine. He couldn’t predict the billion-dollar business… the controversy… or the high-profile legal battles headed his way over the next several decades.

We all know the story of Porter Stansberry.

This, however, is not that story.

Jim Cox – appropriately named for someone who built a career around chickens and roosters –  launched a newsletter business in the 1980s. And over time it grew into a massive, under-the-radar shadow cartel that today controls prices across the entire chicken industry.

Jim got into the price-fixing business by accident. As a chicken-feed salesman for an Indiana company called Central Soya, he spent the early 1980s criss-crossing farm country and taking notes on what feed mixes worked best for Central Soya’s clients.

At some point, he realized that this data was worth more than the chicken-scratch salary he was drawing. He figured that farmers would pay handsomely to see what other farmers were buying – and he was right.

In 1985, Jim quit Central Soya, hired a secretary, borrowed a copy machine – and started a newsletter business with the Acme-like name “Agri Stats.” (Doesn’t have the same ring as Pirate Investor, certainly.) And he struck a nerve with readers…

Before long, he was traveling around the country, pitching his product to major chicken producers for a hefty subscription fee, and mailing out a 500-page monthly report with inside stats of the poultry industry. 

The information Jim collected from his farmer connections was dense, detailed – and incredibly valuable. It showed which feed worked best for each farmer’s birds… which cuts of meat sold the best… what changes the farmers had made to their product lineup each month… and much more.

By paging through an Agri Stats report, a savvy chicken farmer could see exactly what the competition was doing, and make educated guesses about what would sell best, and how much to charge. Knowing that they’d get the full inside scoop on the industry, subscribing chicken farmers gladly turned over their own data to Jim for inclusion.

Before long, he started picking up industrial heavy-hitter clients like Tyson Foods and Pilgrim’s Pride. By the time he retired in 2013 and sold his business to the farm drugs division of Eli Lilly, the Agri Stats empire (now stored on secure data servers, rather than paper printouts) tracked stats for about 97% of the U.S. chicken industry in near real time.

Remarkably… this entire time… the enterprise remained largely off the radar of the U.S. Department of Agriculture, journalists, regulators, and retail chicken buyers. Over the years, officials heard rumors of a secretive poultry data-sharing service… but Agri Stats reports were jealously guarded and never made public.

And with good reason….

Turned out, the “big three” poultry farmers – Tyson, Sanderson Farms, and Pilgrim’s Pride, who by 2017, had cornered almost half of the U.S. chicken market – were using Agri Stats data to make themselves a lot richer… at the expense of chicken buyers.

Angry Birds

Jim Cox died peacefully in 2023, at age 87, maintaining to the end that there was nothing fishy about his chicken business. In a 2017 interview with ranch entrepreneur Mike Callicrate, Jim claimed that – way back in the ‘80s – a lawyer told him it was perfectly fine to aggregate and share “historical data.” He wouldn’t be violating any antitrust laws.

But Agri Stats didn’t just distribute hefty industry reports. It also told its clients exactly what to do with that information.

As the business expanded in the late 1990s and early 2000s, Cox’s firm began offering private consulting services to Big Chicken, Big Pork, and Big Beef – and, according to some customers, the advice it gave was, every time, a variation on the same theme: “Just raise your price.”

Even more damning… Agri Stats consistently refused to do business with the buy side – that is, the humble grocery stores and restaurant chains that wanted a look at the data. According to the Department of Justice’s (“DOJ”) 2024 antitrust suit against Agri Stats, “When meat purchasers and workers have sought Agri Stats reports, Agri Stats has refused. Asked why Agri Stats adopted this policy, Agri Stats’ President explained, “[O]ur customers are the producers. We don’t get in the way of the relationship between the producers and the buyers.”

Put simply, Agri Stats had become a price-fixing cartel. And if you weren’t part of the cartel, you were out of luck.

Big Chicken, of course, made out like a mafia boss. Primed with privileged insight about the entire chicken production industry – and, of course, aided by America’s bottomless appetite for chicken, which had become the #1 consumed meat in the U.S. by 2016 –  Tyson’s operating margin increased from 1.9% in 2009 to about 12% in 2016. Around the mid-1990s (when Tyson first sprang for its Agri Stats subscription) the price of chicken in the U.S. also began to climb. It was an unusual breed of price increase seemingly untethered to any real-world factors… and it just went on and on.

Throughout boom and bust – over the 26-year period that encompassed the dot-com bubble, the Global Financial Crisis, and the COVID crash and recovery – the price of the flightless bird has increased in price in 22 of those years, or 85% of the time. And in the last four years alone, chicken prices have risen by an average of over 13% per year. This, along with soaring costs of other food items, is wreaking havoc on American eateries. The Wall Street Journal recently reported that large U.S. restaurant chains are on track to “declare the most bankruptcies in decades” in 2024.

In 2016, after roughly a quarter century of chickenflation, bird buyers were fed up. By this time, a few years after Jim Cox’s retirement, Agri Stats’ involvement in poultry pricing was a less carefully guarded secret. 

That year, large restaurant and retail chains Buffalo Wild Wings, Chick-fil-A, McDonald’s, Target, Walmart, Hooters, Sonic, and Whataburger – to name just a few – filed a flurry of 90 lawsuits naming Agri Stats as a defendant in a price-fixing conspiracy. While some of Agri Stats’ clients – Pilgrim Foods, for one, Tyson for another – have had to pony up settlements ranging from $75 million to $200 million – the data company itself has remained untouched… for now.

Earlier this year, President Joe Biden’s antitrust department filed a DOJ suit against Agri Stats, alleging that the company “has organized several anticompetitive information exchanges, padding its own pockets while its subscribing processors earn millions by using information exchanged through Agri Stats to suppress competition.”

We’ll see where that goes. But in the meantime, Agri Stats keeps on selling data… and the price of your KFC bucket just keeps getting higher.

Interestingly, there’s one chicken restaurant that doesn’t have any beef with Agri Stats. You won’t find it on the list of litigants – but you will find it near the top of the list for the shareholder returns it has created over its lifetime. 

It’s a restaurant that – almost alone among its peers – has figured out how to beat persistent chickenflation, using a savvy mix of business strategies that have kept its revenue and earnings growing at over 20% per year, while those of its top competitor languished until it eventually delisted from the stock market in a take-private transaction in 2018. Since then, this company has not only risen to the top of its industry, but it has also delivered some of the best returns in the U.S. stock market along the way. 

Despite its rise to become the industry leader, this company has only grown stronger with its size. It recently reported its fastest pace of new store openings on record, while increasing the volumes sold in each store by over 20% per year. In this issue, we explain how this company can grow to 4x its current size in the years ahead, while delivering shareholder returns exceeding 20% per year. 

The Capital Efficient Chicken Franchisor