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Rally time

Economy, seafood sales primed for upswing in 2010

Margins on all species, including salmon, have plagued
    seafood distributors.
By James Wright
December 01, 2009

Just before the clocks fell back at the end of October, the news everyone wanted to hear finally came: The economy is recovering. Following four consecutive quarters of declining economic activity, the gross domestic product needle spun in the right direction. Consumers are slowly starting to spend again, but does it mean good times ahead for seafood?

Difficult to tell, but judging by the results of the seventh biennial SeaFood Business distributor's survey, an economic upswing is just what the doctor ordered because 2008 profits took it on the chin. The average profit margin among survey respondents was just 13.9 percent last year, down from 19.9 percent in 2006. A sluggish global economy is largely to blame for increased consumer cautiousness and cutbacks.

When seafood distributors were polled two years ago, more than 50 percent of the survey respondents said they were troubled by rising fuel costs, a hurdle that many seem to have since cleared; this time, only 38.3 percent listed fuel prices as a major challenge.

Instead, distributors' focus is where it belongs - on increasing sales and improving the diversity of their product lines. Nearly every distributor category (seafood only, broadline, protein and other) had increased the number of items in their product lines in the past year, including 58.4 percent of broadliners - anecdotal proof that consumers want more variety in seafood display cases and that seafood buyers are trying hard to drive sales. To drive consumption, seafood buyers are constantly seeking innovative ways to present seafood on dinner plates and to add value to retail offerings.

However, it appears that the condition of the economy will still have the greatest influence on consumer behavior in 2010.

"The mom-and-pop, single-operator [restaurant] is struggling. They don't have the money behind them to do the marketing like the chains. 
And even some of the white tablecloths - their check totals are way down," says Bob Kirschbaum, executive chef and culinary advisor for Sysco South Florida in Miami, who counts foodservice sales among his responsibilities.

Despite dipping restaurant traffic over the past year, foodservice is still an artery for seafood sales; 82.7 percent of all survey respondents serve foodservice customers, with nearly half of those catering to the casual-dining sector (77 percent of respondents serve retailers). People still love seafood; they just want someone else to cook it for them - and without emptying their wallets.

"What we are seeing is a lot of people trading down from higher-cost items to lower-cost items," says Logan Kock, director of purchasing for Santa Monica Seafood in Rancho Dominguez, Calif. "For instance, frozen tilapia is more affordable and we actually get a higher-percent margin," but earn less money, he adds. "You can get the same margin percentage from a $10 item as 
with a $2 item."

This year's survey sought responses to the rising amount of seafood in the U.S. supply chain that is from overseas and how it 
is affecting distributors; according to the National Marine Fisheries Service, imports account for about 84 percent of the seafood Americans consume.

Forty-six percent of survey respondents agreed that seafood from Asia was helping their business, with 15 percent claiming that it was harming it; one-third of respondents were neutral on the matter. It's been nearly two and a half years since the U.S. Food and Drug Administration placed five species of farmed seafood from China on import alert, setting off a food-safety scare. The level of trust is slowly being built back up, sources say.

Yet several age-old issues that seafood distributors face hardly ever change. Aside from the economy and collecting unpaid invoices, the pitfalls listed by survey respondents paint a telling picture of the daily challenges distributors must meet: economic integrity, carbon monoxide treatment, mercury, consumer education, federal fishing regulations, food-safety inspections, shipping, tight credit availability, traceability and trade restrictions were 
all mentioned. I t's enough to make a distrib utor's head spin.

"There's a shortage of grouper down here in Florida, so people are cheating, big time," Kirschbaum says of fraudulent scams like species substitution. "We send stuff out for testing constantly. We try to be as careful as we can for labeling and country of origin. But some customers don't care. It's just, 'What's cheap? Put it in the box.'"

Methodology

SeaFood Business parent company Diversified Business Communications commissioned Tradeshow Week Custom Research to conduct its seventh biennial distributor's survey, which was e-mailed in June to 3,581 subscribers identified as distributing companies. A total of 440 surveys were returned, for a response rate of 12.3 percent. Respondents who do not purchase or influence the purchase of seafood for their businesses were eliminated from the results, bringing the total to 384. Sixty-one percent of the survey respondents identified themselves as seafood-only distributors; 26.4 percent were broadliners. Fifty-four percent of respondents serve the South region; 52 percent serve the Northeast; 47.5 percent serve the West/Pacific; and 40.1 percent serve the Midwest.

Associate Editor James Wright can be e-mailed at jwright@divcom.com

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