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Processing Survey: Profit margins are tight for seafood processors
Biennial survey shows processors’ sales are up, but numerous headwinds still pressuring margins
By Steve Coomes
September 01, 2013
For the most part, recessionary woes plaguing seafood processors in recent years have waned. But even as renewed demand spurs sales, processors still face a litany of challenges to succeeding in this hypercompetitive business.
When SeaFood Business conducted its last biennial processor survey in 2011, regulatory compliance ran second to rising food costs as the greatest hurdle faced by processors. In this year’s survey, regulatory compliance took the top spot as 46 percent of processors say it distracts them from their core business, especially when rules are enforced unequally.
“That’s a big problem for us, the uneven playing field,” says Robert Ryan, VP-marketing at L&L International in City of Industry, Calif. Selling frozen and “soaked” seafood by dry weight standards is a real problem, he adds. “It’s not fair when other companies don’t follow regulations and get away with it. I’m telling you, people are selling a lot of ice out there.”
But while others agree government regulation is burdensome, many say the hassle is worthwhile to ensure product integrity and long-term sustainability.
“I think that government regulations are perceived to be more difficult, but it’s really making things a lot more safe,” says Michael McNicholas, VP at Uoriki, a sushi-grade tuna supplier in Secaucus, N.J. “We actually seek more regulation and have gone out to get ourselves SQF (Safe Quality Food) certified. When you look at the [tuna] recalls that happened just last year alone, you see why it’s needed.”
As in 2011, 40 percent of processors report sourcing as an ongoing struggle they link partly to rigid end-user specs, partly to supply issues.
“When our customers need to get an exact item, that requires more planning and time on our part,” says Roger Riggs, CEO of Hygrade Ocean Products in New Bedford, Mass. Riggs says restaurant companies especially exact high demands on seafood portion size and moisture content. “I don’t think people were always tuned in to the fact of what they were buying and the quality before. That’s changed.”
Don Cynewski, general manager at smoked seafood provider Ducktrap River in Belfast, Maine, says it hasn’t been easy lately to find the mackerel, salmon and trout he needs for the company’s retail products.
“I would say a lot of products are in tight supply, wild and farmed,” Cynewski says. “But we’re thinking that also means the economy is recovering because seafood prices are also up.”
While just 35 percent of processors say foreign competition is a concern this year, it rose from the No. 5 challenge in 2011 to the No. 3 challenge this year. Some claim it’s next to impossible to make a profit when massive imports of cheap foreign seafood are allowed. Others blame surging global demand for seafood sourced by foreign competitors for tightening supplies for all.
“When [foreign companies] dumped so much here last year, it really drove prices down; no one made any money,” says Robert Finamore, director of sales and marketing at International Oceanic Enterprises in Bayou La Batre, Ala. Some processors say looser regulations and inexpensive labor also allows foreign competitors cost advantages not enjoyed by domestic processors. “I think all that most of these Chinese distributors care about is price. Quality isn’t always a big issue for them.”
A bright spot on processors’ radar screens is future growth: In 2011, only 25 percent of processors forecasted growth for their firms, but this year, 75 percent say they’re expanding to new markets.
Sixty-two percent (vs. 35 percent in 2011) are growing through line extensions, while 42 percent of those will increase value-added offerings (down 5 percent from 2011). In other cases, processors are growing through plant acquisitions, new joint ventures and capacity-boosting equipment modernization.
“We recently purchased a value-added company to form another division in our company,” says Steve Atkinson, national sales manager at Channel Fish Processing in Boston, which produces pre-cooked and raw breaded seafood. “That created two new [production] lines for this company, but not new [product] lines for the market.”
Cynewski says Ducktrap’s $4.5 million investment in a new facility and modernized refrigeration will boost production capacity and make the operation more environmentally friendly. “It was something that really needed doing because we couldn’t just add onto our old systems,” he says.
Increased traceability was this year’s top product innovation concern for 49 percent of those surveyed, and something all processors interviewed say is a concern they share with their customers — especially large supermarket chains that provide source information to shoppers. The smaller the retailer, some say, the less customers ask about traceability.
“We know people are interested in our products and the fact that they come from the USA,” says Alan Kahn, VP-marketing at Clear Springs Foods, a farmed trout producer in Buhl, Idaho. “They like knowing that it’s all grown and processed here, that we create our own eggs and grow out our trout here.”
To view the complete set of graphs and charts that accompany this article, please visit this section of our digital edition here.
The biennial processing survey, produced by SeaFood Business’ parent company Diversified Business Communications, was fielded in May and had a response rate of 7.7 percent.
Contributing Editor Steve Coomes lives in Louisville, Ky.
Find past SeaFood Business processing survey articles here.