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Top Story: Sales inertia

Restaurants, retailers struggle to sell more fish amid rising prices, Americans’ timid approach to the protein

By Steve Coomes
December 01, 2012

When the National Oceanic and Atmospheric Administration (NOAA) released its 2011 seafood consumption numbers in September, the information was largely sunny. As a whole, U.S. seafood consumption surpassed Japan’s, making this market second only to China’s, and exports were up as well, particularly of shellfish.

But of concern was NOAA’s finding that per-capita seafood consumption came in at 15 pounds, a decline of 0.8 pounds from 2010. The drop marks the third consecutive year of decline and the lowest number since 2002, when consumption averaged 15.6 pounds per person. The agency attributed the slide more to “significant export growth and population increase rather than American families eating less seafood,” but not everyone agrees with that conclusion.

Some believe retail price points for seafood are cost prohibitive to many consumers, who choose cheaper proteins. Others say Americans’ growing lack of cooking skills overall makes seafood preparation seem intimidating, if not mysterious. And yet others still, especially within the seafood industry itself, say current marketing efforts are too limited to win seafood a top-of-mind share at groceries or restaurants.

“Look in supermarkets today and you’ll see chicken at $1.99 a pound. That’s tough to beat when you look at frozen swai that, at a minimum, is $2.99,” says Joseph Sabbagh of Sax Maritime Associates, a Los Angeles retail seafood consulting firm. The seafood industry has few weapons to compete against lower alternative protein prices, Sabbagh adds, “especially when you have financially stressed consumers trying to feed families in a struggling economy.”

Steady increases in the number of vegetarians could be having an impact on seafood sales, adds Sabbagh, and while seemingly small, recent data shows growth in their ranks. According to the Vegetarian Resource Group, 3.4 percent of American adults consider themselves vegetarian, up from 1 percent in 1997.

“There’s a huge move toward people eating just vegetables, which is not a good thing for the seafood industry or other protein providers,” he says. “Even when you have an aging population that wants to eat fish, like we do, a move by others toward [vegetarianism] is not beneficial for sales. It’s just a challenge we face.”

Gavin Gibbons, spokesman for the National Fisheries Institute in McLean, Va., agrees that seafood faces stiffer-than-ever retail competition, yet he believes NOAA’s per-capita consumption findings point more to population growth than declines in seafood consumption.

“I think their number is correct, that NOAA’s data is good, but there are more things at play than people just not eating as much seafood,” Gibbons says. “That per-capita consumption number doesn’t account much for population growth. If our population grows even slightly, per-capita consumption will go down slightly.”

Sabbagh doesn’t agree with that analysis, however, citing consumption data to the contrary. In 1992, when the U.S. population was 253 million, per-capita consumption averaged 14.8 pounds. By 2004, when the census had swelled to 292 million, each American ate 16.66 pounds of seafood. By 2009, when the population was 305 million, that number sank to 16 pounds per person, a figure that slipped another 0.2 pounds the next year.

“So in 2011 we’re down to 15 pounds, which is a change of a whole pound with only 5 million more people than in 2009,” Sabbagh says. “Per-capita consumption is down and that needs to change.”  

‘In restaurants we trust’

Given many Americans’ timidity about cooking seafood at home, restaurants remain the go-to source for those who want to eat it. Yet even then, seafood restaurants as a whole are small players in the overall restaurant field. Red Lobster is the highest-grossing seafood chain in America, with annual revenues of $2.4 billion. The No. 2 company, Landry’s, made up of multiple seafood concepts (such as Landry’s, Joe’s Crab Shack, Bubba Gump and Chart House, to name a few) reports less than half that amount, $1.16 billion.

(Interestingly, Red Lobster just completed a two-year-long menu overhaul that saw it increase non-seafood offerings, such as pork and salads, from 8 percent of the menu to nearly 25 percent.)

By comparison, Applebee’s, the tenth largest broad-menu casual-dining chain, sells nearly double that amount at $4.43 billion in annual sales. And just for perspective, Starbucks, the No. 3 chain in the restaurant industry at $8.5 billion, logs more sales annually than all seafood restaurants combined.

For many years, Long John Silver’s ($800 million) and Captain D’s Seafood ($506 million), America’s two largest fast-food seafood chains, have endured flat unit growth. Both also have battled seesawing revenue as the restaurant marketplace has become increasingly competitive at every level.

Mike Kern, president and CEO of Louisville, Ky.-based Long John Silver’s, says NOAA’s declining per-capita consumption numbers are reflected in his chain’s long-term sales trends, especially during the recent recession.

“I believe a lot of that is driven by price: The average seafood entrée costs more than the average beef or poultry entrée,” Kern says. “Due to price sensitivity … seafood has gotten the short end of the stick.”

Aware that the drought of 2012 will drive up beef and poultry prices, Kern is optimistic seafood sales will benefit because protein price points will even out some.

“There are no underlying megatrends providing headwinds for us right now,” Kern says. “And we’re selling more whitefish and shellfish this year than last year by far. I feel that as the economy continues to recover, we’ll continue to do better.”

Restaurateurs at the opposite end of the dining spectrum aren’t quite as upbeat. They know consumers who read menus carefully see that, save for prime beef, seafood options are the priciest. In many concepts, that leaves a broad range of customers clutching their wallets and scurrying to other parts of the menu, says Jeff Tunks, owner of six restaurants in and around Washington, D.C. At Passionfish, Tunks’ high-end seafood spot, the clientele is well heeled and doesn’t gasp at the sight of a $30 fillet. But at some of his other restaurants, spending that much and possibly more is only a special-occasion purchase.

“The Passionfish customer already shops at Wegman’s, where swordfish is $23 a pound. They know fish is expensive,” Tunks says. “We can let that [$30] piece of fish stand alone at the center of the plate with a particular sauce and garnish, but in some of our other concepts, we have to make adjustments.”

One such plate adjustment is using smaller cuts of seafood accompanied by vegetables and/or a starch. That seafood also might be encrusted in nuts or breaded to add size.

“No doubt the straight food cost of seafood is the hardest cost for my chefs to manage,” Tunks says. “When the wholesale price of halibut is $17 a pound, I’m still charging $23 to $24 an entrée to make a decent margin.”

Mixed messages for the masses 

Sabbagh strongly believes negative news coverage has harmed the seafood industry, and he cites recent events like 2010’s oil spill in the Gulf of Mexico as potential reasons for consumption declines.

“You look at all the talk about canned tuna and mercury levels, and you add in the work of activists who have their claims about sustainability,” Sabbagh began. “In the end, you’ve got canned tuna consumption down a half pound per person over the past six years.”

Sabbagh also says the seafood industry’s very makeup gives rise to intra-industry disputes that fracture its ability to act as a whole, something enjoyed by nearly all beef and poultry producers.

“You have people attacking farmed fish versus wild fish, domestic fish versus imported fish, and that brings everyone down,” he says. “I think that can leave a bad taste in the mouths of people who hear all that.”

The solution, he says, is a unified message that’s trumpeted with regularity and consistency — exactly Bruce Schactler’s goal. A commercial salmon and herring fisherman in Alaska, Schactler founded the National Seafood Marketing Coalition three years ago to heighten awareness of domestic seafood, its production, its sustainability and health benefits. U.S. pork producers were tremendously successful with their “other white meat” campaign, he says, so there’s no reason American seafood producers can’t increase awareness and grow sales with a similarly compelling message.

“We’ve seen many long-term, well-planned consistent marketing campaigns work for others (proteins) all over the world, but there’s nothing like that out there for seafood,” Schactler says. “Once you start talking about raising the consciousness of seafood, no one in the industry is against that, and we’ve gotten a lot of really good ideas on how to make it happen.”

But not a lot of funding to help those ideas materialize. The coalition’s membership now extends to 25 states, and it introduced a bill to Congress in September (HB 3516) to create a national seafood-marketing fund and give coalition initiatives the necessary support to become reality. Yet real dollars to develop marketing plans and strategies have to come mostly from within the industry, he says.

“Our funding source has not been identified completely yet, so we’re still doing some research and working toward figuring out exactly what will work best there,” Schactler says. “Right now we’re seeking a combination of both private and public funds.”

Every source interviewed for this article agrees that improved marketing could help reverse seafood consumption declines, yet as might be expected, all have different ideas on what points need publicity first.

Gibbons suggests starting by spreading readily available facts, such as those established by the U.S. Department of Agriculture, “that specifically suggest swapping out beef and poultry with fish because of its health benefits. It’s more than just a sales opportunity, it’s a public health opportunity.”

Kern, who was a Kentucky Fried Chicken executive many years before taking the helm at Long John Silver’s, finds the lack of group marketing frustrating.

“To not have a promotion that shows that interest in our industry — and it’s a great story — is a missed opportunity,” he says. “It’s very much on my top priority list to see this change, and I’ve already talked about it with some key suppliers.”

Tunks says promotion also must happen at the grassroots level.

“It starts with building trust with customers that what you say you’re feeding them is actually the fish you say it is, not some macadamia-nut encrusted version of something else,” Tunks says. 

Schactler agrees that heightened consumer awareness is essential to reversing the slide in U.S. seafood consumption. Compared to the arguably tame stories of how land proteins are raised in fields and barns, he says accounts of how seafood is harvested and produced are far more compelling. (The Emmy Award-winning reality show, “Deadliest Catch,” one of Discovery Channel’s most popular TV shows, began filming its ninth season this fall.)

“This really is an interesting business, a hard business, but one I think people would like to know more about,” Schactler says. As consumers become more familiar with the nuances of seafood, he says, misplaced concerns about it will inevitably fade. “We need to teach about where it comes from, why it tastes the way it does, how it’s harvested and how it’s prepared. That’s part of a long-term concerted effort that the industry has to follow if things are going to change.”

Contributing Editor Steve Coomes lives in Louisville, Ky.

 

December 2012 - SeaFood Business   

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