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What's in store: Pricing puzzle

Retailers weigh passing rising seafood costs on to customers

Some seafood retailers are wrestling with price points as costs increase.   - Photo courtesy of Dorothy Lane Market
By Christine Blank
August 05, 2011

Supermarkets have divergent ways of handling this year’s spike in wild and farmed seafood prices, which are driven by higher fuel and feed costs. Some have raised their prices slightly and shifted the type of seafood offered, while others are simply eating the higher costs and carrying the same fresh variety they always have.

Seafood department executives tell SeaFood Business that wholesale seafood prices have risen 8 to 20 percent over the past year. Across the country, as fresh seafood retail prices rise, sales are dropping, according to Chicago-based consulting firm the Perishables Group. For the 52 weeks ending May 1, U.S. retail seafood prices rose around 6.5 percent, while sales volume dropped by 4.5 percent. And, for the first quarter of 2011, average retail prices on seafood spiked 9 percent.

Prices of 13 of the top 15 categories of finfish increased during the year that ended May 1. Some of the most notable increases include fresh Atlantic salmon, which spiked by 16 percent in price and experienced a corresponding 21 percent drop in sales volume, says Steve Lutz, executive VP of the Perishables Group.

In addition, the volume for all crustaceans plummeted 26 percent for the year ending May 1, likely due to an average price increase of 15.7 percent across the category.

“Lobster and crab had been pretty cheap the previous few years. Now that those products are snapping back to historical pricing levels or higher, it is having a significant impact on volume,” says Lutz.
Meanwhile, the price of tilapia increased 7 percent while volume declined 2 percent. Catfish prices increased by 6 percent and experienced a corresponding 7.7 percent decrease in volume. Some retailers note a higher rate of increase in wholesale prices of farmed finfish compared to wild fish.

So, how are U.S. supermarkets handling the significant changes in pricing? Dayton, Ohio-based Dorothy Lane Market is paying around 8 percent more for seafood and has passed some of those higher prices along to its customers. The three-store operator has experienced steady seafood sales over the past year despite the increases.

“It has not been as detrimental to sales as the downturned economy was in 2008 and 2009. I think people understand it: They see that fuel prices are up, and understand the amount of fuel it takes to put a boat on the water,” says Jack Gridley, meat and seafood director for Dorothy Lane Market.

Meanwhile, executives with Tewksbury, Mass.-based Demoulas, a chain of more than 60 Market Basket stores, have opted to keep retail seafood prices level, even though their wholesale costs have risen between 15 and 20 percent over the past six months. “Our company has decided to keep [all] prices as low as we can, to maintain our business. We are going to take a little less until things are good again,” says Bob Hartman, seafood director for Demoulas.

For example, its current cost on previously frozen haddock is around $7 a pound, and the chain is retailing it for $8.99 a pound, on average. Demoulas was also retailing tilapia — one of its most popular items — for $5.99 a pound on average in early July when its average wholesale cost is $3.82 a pound.

As a result of its pricing philosophy, Demoulas’ seafood sales have risen 5 percent to 6 percent over the past six months, according to Hartman. Eating the costs on wholesale seafood price increases is worth the payoff, says Hartman. “Our customers are very confident with our seafood departments.”

As more fresh seafood retailers pass along their increased costs, they have to be wary of a long-term change in consumer buying habits. Seafood departments had one of the highest price hikes, compared to all other fresh departments, according to Lutz. “Food inflation has been a much more serious issue in 2011 across all fresh foods,” says Lutz.

Unfortunately, higher seafood prices could turn some shoppers off to the category. “You are already dealing with a product that many consumers perceive to be a more expensive center-plate item than all other items. When you get these price increases, you are talking about an increase on a price that is already higher,” says Lutz.

However, the retail price pass-along may be necessary to survive in the current market. Because grocery operators maintained fairly steady retail pricing on fresh seafood in 2008 and 2009, Lutz guesses that retailers are playing “catch up” and were finally forced to pass on their higher raw costs. “Costs that were absorbed by retailers and suppliers in the past may not be able to be absorbed anymore,” says Lutz.
 

Contributing Editor Christine Blank lives in Lake Mary, Fla.

August 2011 - SeaFood Business 

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