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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

 

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