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Staying on the shelf

Higher prices deter frugal consumers from choosing seafood over other proteins

By John Snyder
June 01, 2009

In the midst of an economic downturn, consumers find themselves in somewhat uncharted waters as they struggle to prioritize spending and adopt a new frugality. In light of lay-offs and cutbacks, discretionary spending seems to be at an all-time low as the global recession affects every strata of the economy. U.S. restaurant sales were down about 20 percent for the first quarter of 2009 and foodservice seafood distributors are feeling the pinch.

While many in the industry have assumed that consumers are buying seafood at retail instead of dining out, experts who sell to into retail channels say that's not necessarily the case.

As families work to trim their budget, many people agree that dining out is one of the first places to economize and higher-priced meals like seafood are usually the first to go.

The same seems to be true in the retail sector, where consumers' discretionary spending is taking a back seat to filling a household's basic needs. Supermarket seafood sales enjoyed a 7 percent increase between 2007 and 2008. But according to research by the Perishables Group, an independent consulting firm serving retail clients in the fresh food industry, fresh seafood sales fell in 2008 and even worse, seafood was the only fresh department posting negative sales numbers for the period. Fresh seafood sales declined 1.6 percent in the fourth quarter of 2008 while produce, meat, bakery and deli grew anywhere from 2.3 percent to 5.4 percent of store sales.

"There's an interesting psychological effect happening right now. It's permeating every consumer segment. People think that they have to hunker down, no matter what their socioeconomic status," says Tom DeMott, managing partner and COO of Encore Associates, a consumer-goods advisory firm in San Ramon, Calif.

Discretionary spending is taking the hit, whether it's eating out or in retail purchases of high-ticket seafood items.

"A seafood meal lost at a white tablecloth restaurant does not necessarily translate into a retail seafood sale - unfortunately it is probably a lost seafood meal," says DeMott.

Skimping on

shrimp, salmon

Richard Enna, a sales executive with Eastern Fish Co. in Teaneck, N.J., a global importer and supplier to foodservice and retail sectors says, "People are eating out less, and when they do they are opting for species like tilapia."

Enna, who specializes in retail accounts for Eastern, says shrimp drives sales in retail as it does in foodservice. In general, seafood is still perceived as a luxury food, even if the price tag is reasonable.

"It is something that is saved for weekends, holidays and special occasions," he says.

A year ago, largely due to the National Fisheries Institute's "Eat Fish Twice a Week" campaign, according to Enna, retail customers were buying shrimp on a more regular basis despite higher prices. Since January 2009, they have not, despite prices being down.

"Two years ago it was OK to eat shrimp twice a week, now people think twice," adds Enna.

Shrimp represents 60 percent of all retail seafood sales, and if shrimp is not selling, the margin has to be made up somewhere in the display case or elsewhere in the store.

Shrimp sales also slowed as retailers began this year with excessive inventories that had to be blown out because of the pressure from banks to reduce inventory, says Enna. Add to that the fact that overseas suppliers were not lowering their prices due to unfavorable exchange rates, and shrimp, especially the large sizes, did not move.

Many retailers make their money by "grabbing the shrimp margin," which can run between 48 to 52 percent (example: 31/40-count cooked shrimp purchased at $4 per pound and retailing at $9.99 per pound), says Enna. All the while, fresh fish are being sold at a 28 to 32 percent margin, so $9.99 will not translate into more sales.

Slow salmon sales due to the collapse of salmon farms in Chile has also contributed to retail seafood department problems, notes Enna.

"Salmon was a big seller, but when Chile collapsed, fish went to $7 per pound for fresh fillets (a year ago), slowing sales," says Enna, referring to the nation's salmon farms' ongoing struggles with infectious salmon anemia.

Since October 2008, seafood priced between $4.99 and $7.99 will sell, but above that sales fall flat, says Enna.

Despite all of the bad news, Enna adds that Lent and Easter were a bit of a turnaround for retail sales earlier this year. However, retail sales spiraled downward once again with the news of continued layoffs and reports of corporate downsizing.

"Who wants to treat themselves to shrimp when they face layoffs - again, perception and the psychological effect of the downturn - even if they have the money," says Enna.

"On the restaurant side, everything still seems to be on hold until consumers regain their confidence in the economy."

Easter sales rebound

Lenten retail sales were also good for Bristol Seafood, a primary processor of haddock, pollock, cod and scallops in Portland, Maine. Larry Lindgren, the newest member of Bristol's sales and marketing team and a veteran retail account manager, says sales flattened after Easter. Pollock prices shot up 50 cents to 60 cents a pound, to around $1.50 per pound, says Lindgren.

In another example of retail seafood buyers switching to lower-cost product, chain supermarkets that were regular buyers of 10/20-count sea scallops between $7 and $9 per pound are now buying far less expensive bay scallops at between $3 and $4 per pound. Lindgren says retailers are still buying cod, but the variety of the overall mix has changed to include less expensive species like pangasius.

The outlook for the summer? Lindgren predicts plentiful haddock (a result of effective fisheries management) at attractive prices will bring news-weary consumers back to the retail case.

Retail sales 
strong in Europe

Cozy Harbor Seafoods, another primary processor in Portland, is also finding retail sales soft. The company is a major exporter of coldwater shrimp and lobster and finds the situation in the European marketplace not much different than here.

"The plant has been down, idle and waiting for the start of the lobster season," says Spencer Fuller, manager of Cozy Harbor's export sales. Foodservice sales are "dead" overseas, but European buyers are turning toward retail to satisfy their seafood needs, he says.

"In Europe, retail sales are up in a big way. Most of it is sold prepackaged and frozen. Retail customers think that there is value in buying frozen rather than fresh where the added cost of modified atmosphere packaging (MAP) adds to the cost . They are buying larger packages of frozen product much like they do in the club stores [in the United States]," says Fuller.

The economic slowdown has not just affected the larger chains and club stores. Specialty retailers like My Organic Markets (MOM's), a five-unit chain with stores in Maryland and Virginia, are also feeling the pain. MOM's Lisa DeLima says the chain's seafood sales were down 10 percent for the first quarter. Despite the lag in seafood sales, the economic downturn is less visible at MOM's overall since most of its customers are upscale and work for the government.

"Folks are still buying seafood on a regular basis and even requesting products that are harvested from sustainable fisheries," says DeLima, VP of grocery and marketing.

Things are a bit more challenging for large grocery and perishable distributors like C&S Wholesale grocers of Keene, N.H., the nation's second largest food distributor.

"In general, trading is down and seafood sales are not at the top of the [consumer's] list," according to Jim Wallace, VP of procurement. "For a long time, salmon has been the driving force in supermarket seafood sales, but if you can buy sirloin steak at $4 a pound, well retail customers will go for that instead of fish."

Retail seafood sales are down as a result of the economy, notes Wallace, but perishable sales at C&S are up, especially for fresh fish. The company's frozen seafood sales are hard to judge at this point because of their fiscal year. Wallace contends that so many seafood buys are impulsive; even in Wallace's own home, his family is less likely to make impulse purchases of 
any kind.

Quality, service build sales

Phil Walsh of Alfa Gamma Group in Miami sees uncompromising quality as the key to retail success in this challenging economic climate. Although some consumers are migrating over to club stores, traditional retail sales seem to be holding albeit with compressed margins, says Walsh.

"If it's on sale it sells, if not, it doesn't. Given the choice between a split chicken breast for $1.69 and catfish fillets for $4.69, customers will always go with the poultry," says Walsh.

On the bright side, he predicts sales growth for retailers that lead with high quality. Chains such as Kings Supermarkets, Fresh Market, Harris Teeter, Giant Eagle and others are actually showing growth, he notes, but things are not going so well for chains that are simply trying to "buy on the cheap."

For any retailer to succeed in seafood the customer's experience has got to be a "win" every time, and that means zero product returns, says Walsh. If chains build their seafood departments on consistent quality and service they will be able to survive and grow in tough economic times, he adds.

More good news comes from Giant Eagle Markets, a privately owned, 230-store supermarket chain with stores in Pennsylvania, Ohio, northwestern Virginia and western Maryland. The retail chain began bucking the negative seafood sales trend in January, when its seafood sales began an uptick, according to Richard Castle, Giant Eagle's seafood buyer.

With the arrival of summer and the grilling season, things should be looking up and the overall outlook for retail seafood is promising. A new report from PriceWaterhouse Coopers LLC and Retail Forward predicts that certain types of retail outlets will experience modest growth in 2009 and this will 
be especially true for supercenters and club stores. The two groups expect conventional supermarkets to be the weakest financial performers.

The supermarket landscape has changed and buyers must adjust their strategies if they are going to compete for the consumer's protein dollars. Today, as people dine out less and opt for less expensive retail items, seafood retailers are presented with an opportunity, but also a challenge as meat and poultry compete for sales within the store. An informed consumer, moderate pricing, a wide variety of choices and exceptional quality will be the keys to success, fresh or frozen.

John Snyder is a writer and

photographer in Fryeburg, Maine

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