« December 2007 Table of Contents 
Distributor Survey: Feeling the squeeze
Seafood distributors wrestle with increased costs, availability issues
By James Wright
December 01, 2007
Seafood consumption in 2006 was the second highest amount on
record, at 16.5 pounds per capita, according to the National
Fisheries Institute in McLean, Va. Despite seafood's increasing
popularity and well-publicized health benefits, many seafood
distributors find themselves stuck between a rock and a hard
place - paying more for product and more to get it to their
customers.
Because of high seafood prices and continually rising
operating costs such as labor and energy, distributors are left
with little wiggle room in which to serve their customers needs
and also turn a profit. More than half of the respondents to
SeaFood Business' seventh biennial distributor survey said that
rising fuel prices are one of their top challenges - but paying
more at the pump is only one of many.
"It changes every day in this business," says Tim Lycke,
general manager of IncredibleFresh, a distributor of a broad
range of seafood products.
In November, crude oil prices surpassed record highs,
nearing $100 per barrel, translating to a staggering
nation-
wide average of $3.36 per gallon for diesel fuel, as of
Nov. 7. The prospect of fuel costs going even higher has some
companies justifiably concerned.
"We haven't even seen what's going to happen when we
[exceed] $100 a barrel," says Joe Lasprogata, director of
purchasing at Samuels & Son Seafood Co., a specialty
seafood distributor in Philadelphia. "Everything is based on
logistics, from catching [seafood] to processing it to
distributing it in our vehicles.
"Fuel surcharges are upwards of 22 percent now," he adds.
"There's added expense in packaging; that's all petroleum
based. We have to pass it on to our customers. Every time
[fuel] goes up a dime it affects our bottom line."
Rising costs are cutting into distributors' profits; 63.8
percent of survey respondents said their total seafood sales
increased in 2006, yet only 26.5 percent said their profits had
increased.
And while only 12.1 percent said their seafood sales
decreased from 2005 to 2006, 31.9 percent reported that their
profits had fallen.
A lagging economy
When consumers have a little extra money to spend, they dine
out - and foodservice has traditionally been a driving force
behind seafood consumption. Because of the challenges of
preparing seafood at home, as well as the cost, many consumers
prefer to have their seafood prepared for them by a trained
professional. But with the economy in a downswing, consumers
may choose to save money by not eating out as often.
Many people simply have less disposable income, says
Lasprogata of Samuels & Son, whose customer base consists
largely of fine-dining establishments in Philadelphia and along
the East Coast.
"Consumers are looking more at middle-range restaurants
instead of the high-end restaurants," Lasprogata says, adding
that tight financial times are forcing chefs - even those at
white-tablecloth establishments - to become smarter at how and
what they buy.
Distributors are responding to chefs' needs by expanding
their product lines, according to the survey. Among broadline
distributors (distributors of multiple proteins and other
goods) that responded, 62 percent said that their seafood
product line had increased over the past year (45.6 percent of
overall respondents increased their seafood product lines).
"Chefs are evaluating products that might not have been
their first choice before, like pasteurized crabmeat,"
Lasprogata says. "Not lesser grades, necessarily, but maybe
less popular grades. Still high quality, just different
products for different menu items."
When restaurants tighten food costs, suppliers get squeezed.
An October report by the International Foodservice Distributors
Association in Falls Church, Va., detailed how foodservice
distributors' sales growth declined for the second straight
year in 2006. While high-profit firms grew at a rate of 6.8
percent, traditional distributors grew by 5 percent. IFDA says
the difference seems modest, but its influence on net profit is
significant be-
cause of the rising costs of fuel and
healthcare.
Even when the economy is healthy, consumer education about
seafood remains a roadblock to increasing sales. Consumers'
lack of knowledge about how to buy, handle and prepare seafood
hurts retailers especially, says Arnold Cohen, director of
Supreme Fine Foods, a foodservice and retail distributor in
Pembroke Pines, Fla.
"It seems no one wants to spend the time to train people
behind the counter," Cohen says. "If I had to buy seafood in a
store, I wouldn't buy seafood."
Dollars and sense
While sky-high energy costs are vexing distributors from
coast to coast, sourcing/product availability is a challenge
seafood distributors continually face.
That's largely because purchasing seafood has become a
global task. Domestic wild and farmed production isn't nearly
enough to meet U.S. consumer demand. In fact, more than 80
percent of all seafood consumed in the United States is
imported, according to Howard Johnson, president of H.M.
Johnson & Associates in Jacksonville, Ore.
Adding to the challenge of sourcing seafood abroad is the
diminishing value of the U.S. dollar, which in recent months
has fallen in comparison to currencies of major
seafood-exporting nations, especially Canada (see Top Story,
November SFB ). At press time in mid-November, the Canadian
dollar was worth approximately $1.04. Five years ago, it was
worth about 62 cents. Canadian suppliers, especially, are
losing money by selling seafood to U.S. buyers.
Johnson, who compiles annual per-capita consumption figures
for the National Fisheries Institute, says dependence on
imports and unfavorable currency exchange rates could hurt U.S.
seafood consumption.
"Shrimp is a good barometer, because it's the most popular
[species]," at 4.4 pounds per capita in 2006, says Johnson. But
predicting consumption trends, he adds, "is like explaining the
stock market."
"The currency is putting a squeeze on us," says Lasprogata.
"When the Canadian dollar is higher than the U.S. dollar you
know you're in trouble. Seafood used to be the food of the
poor, now it's the food
of the very wealthy. It's nuts. And I
don't see any relief in the near future."
Lycke, of IncredibleFresh in Miami, agrees.
"I haven't seen prices so high for so long since I've been
in the industry," says Lycke. "The economy, in general, is a
four-letter word. It's tough out there. Fish prices should be
down in order to drive up business, but there's not much
production so they're staying high."
In order to lower costs and assure availability of core
species, many distributors choose to buy from more and more
suppliers.
Cohen, of Supreme Fine Foods, purchases seafood from more
suppliers from more countries around the world, including
Indonesia, Thailand and Vietnam.
"But we're going to their plants and going out to check them
out," he says, referring to their food-safety practices. "We're
not just taking their word for it."
Having more suppliers is just good for business, others
say.
"As a buyer, more is better," says Lasprogata. "You can't
have enough high-quality suppliers looking out for you. We're
the proverbial middle man."
Methodology
Diversified Business Communications' Market Research
Department conducted the SFB 2007 seafood-distributor industry
survey. The survey was mailed or faxed in September to a random
sample of 1,578 of the magazine's distributor readers,
targeting buyers or those who influence their companies'
seafood buying decisions. A total of 244 surveys were returned,
for a response rate of 15.9 percent.
Assistant Editor James Wright can be e-mailed at
jwright@divcom.com; Editorial Assistant April Forristall
contributed to this report and can be e-mailed at
aforristall@divcom.com