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Processing Survey: Sales for sector finally show uptick

But government regulations and the high coast of shipping product sound a sour note

Fiona Robinson
September 01, 2005

Despite higher shipping and labor costs, seafood processors report their sales are on the uptick — for the first time since 1998, when SeaFood Business began surveying processors.

Sixty-two percent who responded to this year’s survey report their 2004 sales increased over 2003’s, while sales remained the same for 20 percent. Compared to 2003, when only 43 percent of processors reported their sales were up, it seems the market has been good for seafood processors over the past year.

The greatest gains among companies reporting increased sales were those with revenues over $50 million. Of the 15 percent of companies reporting 2004 sales down from 2003, one-third were small companies with sales under $1 million. And 70 percent of companies reporting increased sales are on the West Coast.

This is no surprise to Jim Caito, VP of Caito Fisheries in Fort Bragg, Calif. The Dungeness crab fishery had a banner year, which contributed to record sales for many West Coast processors.

“That had a lot to do with it. The Japanese market for our fish was better, and we paid more for it, so our sales [in 2004] were good,” says Caito.

Sales growth in 2004 was not limited to West Coast operations; 57 percent of seafood processors in the South also reported higher sales.

Kevin Voisin, director of sales and marketing at Gulf oyster processor Motivatit Seafoods in Houma, La., concurs that the business climate for seafood processors has been good in the past year. Viosin reports 2004 sales were up about 25 percent over 2003.

“Our profits have outpaced our sales. Our lines have changed, and now we’re in higher-end product lines [like the company’s signature Gold Band oysters],” he says.

While sales are up for many processors, profit margins remain the same. Almost 40 percent of processors say their 2004 profit margin was the same as it was in 2003.

Margins for most respondents are 6 to 10 percent, mostly for small and large companies (sales under $1 million or over $50 million).

Regulatory grip tightens
Complying with government-imposed regulations is part of the daily routine for all seafood processors. Since the Food and Drug Administration made hazard analysis and critical control point (HACCP) plans mandatory in 1998 and the U.S. Department of Agriculture put Country of Origin Labeling in place earlier this year, seafood processors have had to pay much more attention to product safety and traceability. The added costs of complying with these regulations tightens margins for some processors.

Starting with SFB’s first survey of this industry segment, processors have had both positive and negative comments about government’s increasing involvement in their business.

This year we changed several questions to reflect the increasing number of regulations that impact processors’ day-to-day operations. It doesn’t matter what size the company or what region of the United States it’s in, complying with government regulations is clearly the top challenge facing seafood processors.

Almost 60 percent of respondents listed this as their top challenge, followed by foreign competition (mentioned by about 43 percent of respondents) and sourcing/product availability (listed by 37 percent).

Environmental issues, consolidation and expanding sales were top challenges in 2001 and 2003, but processors consider shipping and labor costs more important challenges in today’s business climate.

The government regulations that have the greatest impact on processors’ operating expenses are HACCP, Country of Origin Labeling and, to a lesser extent, nutritional labeling, bioterrorism and immigration laws that affect their workforce.

And while HACCP plays an important role in processors’ day-to-day routine, processors we spoke to say it no longer gives them a headache.

The shellfish industry, particularly oysters, has been heavily regulated all along, says Motivatit’s Voisin.

“The vice grip is tightening on HACCP, which I think is great. It’s a good thing,” he says. As an example, he mentions a recent visit from a health inspector who told the company that new HACCP regulations will require refrigerator temperatures to drop from 45 to 40 degrees to address Listeria concerns. Considering live oysters die when stored below 35 degrees, the new regulations will be “interesting” for Motivatit, says Voisin.

HACCP compliance is no big problem for Caito Fisheries. The company’s biggest challenge is the quotas, gear restrictions and trip/landing limits placed on West Coast groundfish such as rockfish and flatfish, says Jim Caito.

“HACCP is a paper trail, but the main thing is getting product. The feds are just beating us down,” says Caito.

With the price of gasoline up to a national average of $2.55 a gallon in late August, shipping costs have been top-of-mind for many processors this summer.

“Shipping costs are nuts,” says Voisin. Gulf oysters, the company’s main product, are heavy, which makes shipping costly to begin with. Shipments from Louisiana to Virginia cost the company about $1,200 a few years ago; now the cost has doubled to $2,400.

Marketing products

This year marked the first time we asked processors whether they are co-branding products with another company. Of the almost 84 percent of processors who are branding products, 17 percent are co-branding. Fifty-eight percent of processors are producing private-label products, and 94 percent are marketing their own brand.

When it comes to marketing messages used on their product packaging or in marketing literature, half of the processors include harvest region and 43 percent highlight nutritional data. “All natural” is used as a marketing message by 40 percent of respondents, and just 8 percent market a product with eco-certification.

Around 14 percent of processors have no marketing message on their products.

Seafood processors will continue to face marketing and other issues that affect their bottom line as their customers become more knowledgeable about seafood.

Methodology
Diversified Business Communications’ Market Research Department conducted the 2005 seafood processor industry survey. The survey was mailed or faxed in early June to a random sample of 1,426 of the magazine’s processor readers, targeting buyers or those who influence their companies’ seafood buying decisions. A total of 221 surveys were returned, for a response rate of 15.5 percent.

Look for the results of our biennial distributor survey in the December issue.
 

September 2005 - SeaFood Business 

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