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Retail Survey: Seafood sales are up, but so are wholesale prices

For most retailers, profit margins stay the same

Big-box stores like Wal-Mart are giving traditional
    seafood retailers a run for their money. - Photo by Laura Lee Dobson
By Steven Hedlund
September 01, 2006

Rising wholesale prices, consumers' lack of knowledge and increased competition from big-box retailers like Wal-Mart are the three biggest challenges seafood retailers face, according to the results of SeaFood Business ' biennial retail survey.

Despite the obstacles, nearly two-thirds of survey respondents say their seafood sales are up from last year, and 23 percent say their sales are holding firm. Only 12 percent say their sales are down from 2005.

S ales alone never tell the entire profitability story at retail. Only 32 percent of the respondents say their seafood profit margins are up from last year, while 46 percent say their margins are about the same and 22 percent say their margins are down. That's a clear indication that wholesale prices are on the increase.

In fact, more than half the respondents cite rising wholesale prices as one of the three biggest challenges seafood retailers face.

"Prices have really jumped in a lot of areas - salmon, halibut, Dungeness crab," says Tim Caluya, co-owner of Tim's Seafood in the Seattle suburb of Kirkland, Wash.

Those three species are Caluya's best sellers.

Perhaps no fish exemplifies rising wholesale prices better than Copper River salmon, which hits the market in mid-May, marking the unofficial start of Alaska's summer salmon fishery.

At the onset of the harvest, Seattle-area retailers paid $15 to $16.50 a pound for fresh whole kings, up from around $13.50 a year ago.

Wild salmon prices are up from last year, especially kings, due mainly to this year's tightly restricted Oregon and northern California fishery, intended to protect Klamath Ri­ver kings from overfishing.

Halibut and Dun­geness crab prices are also higher than last year. By mid-August, wholesalers paid as much as $5.25 for fresh whole halibut, $1 more than a year ago, and up to $3.50 for whole cooked 2- to 2.5-pound Dun­geness, compared to $3 a year ago.

Rising wholesale prices are forcing Caluya to be as efficient as possible. "I watch my buying," says Caluya, who opened his store last summer. "I try not to buy too much. I try to be aware of what I'm ordering."

He minimizes shrink by using trim to make salmon, halibut and Dungeness crab cakes. He smokes the salmon collar, the rich triangle of flesh behind the gills that's usually discarded. And he vacuum-packed and froze his last two sizeable deliveries of Copper River sockeye to sell in the off-season.

Despite rising wholesale prices, "We're kicking the crap out of what we were doing last year [in sales]," says Caluya.

Not so for Jeff Grolig, owner of River Falls Seafood Co. in Potomac, Md. His seafood sales are essentially flat, "up maybe 3 or 4 percent from last year," he says.

Grolig, who opened his store in 1999, recently began selling other proteins, such as beef, to augment static seafood sales, though seafood remains the core of his business.

He also cites rising wholesale prices as a huge challenge; 75 to 80 percent of the seafood items in his case retail for more than $20 a pound. Farmed species like Atlantic salmon and rainbow trout are the exception.

"At $24 a pound for halibut," says Grolig, "people may think twice about buying it."

In mid-May, Grolig was retailing Copper River kings for $29.99, up from $24.99 a year ago.

"But our customers will pay for it," says Grolig. His best sellers are crab cakes, followed by Atlantic salmon and steak fish, such as halibut, tuna and swordfish.

It certainly helps that River Falls Seafood is in an affluent suburb of Washington, D.C. In fact, Potomac has the nation's highest median household income - nearly $129,000 - among communities with a population of more than 30,000, according to the 2000 census.

"I remember when I started, 7-inch [spiny] lobster tails were $4 a pound," quips Dirk Fucik, owner of Dirk's Fish & Gourmet Shop in the well-to-do Chicago neighborhood of Lincoln Park. Fucik has been in the seafood business for 30-plus years. "Now they cost more than $20 a pound.

"Sometimes you have to raise your prices," he says. "You don't want to, but you have no choice. Sure, there comes a point when you ask yourself, 'Where do I draw the line?' You can't just charge anything you want."

Second on the list of the three biggest challenges seafood retailers face is consumers' lack of knowledge, reported by 46 percent of survey respondents.

Some consumers are afraid to buy seafood at retail because they assume it's difficult to prepare and cook at home.

"A lot of seafood [retailers] don't take the time to educate people," says Caluya. "I try to educate people. In the Pacific Northwest, people are more aware of seafood. But some people still thaw frozen seafood [at room temperature], and I tell them not to do that" because it's unsafe.

Misinformation surrounding the presence of toxins, such as meth­ylmercury and PCBs (polychlorinated biphenyls), in seafood is also scaring some consumers away from the protein.

Fucik says methylmercury causes more confusion among his customers than any other issue. Methylmercury is a neurotoxin found in long-living predatory fish like tuna and swordfish; the Food and Drug Administration prohibits the sale of seafood containing more than 1 part per million of methylmercury.

"It's been hyped so much [in the media] that people take it with a grain of salt now," says Fucik.

"People trust us," he adds. "A big part of our business is education."

Fucik's staff is trained to field customers' questions about methylmercury. He also hosts cooking classes twice a month, except in the summer, and is constantly handing out seafood samples. Both opportunities are used to allay customers' concerns about methylmercury and other toxins.

"I still get inundated with questions about PCBs in farmed salmon," says Grolig.

The questions stem from the 2004 Hites et al. study that claimed farmed salmon contain higher levels of PCBs and dioxins than wild salmon; the study received a lot of press. Grolig explains to his customers that the PCB levels found in farmed and wild salmon are well below the Food and Drug Admini­stration's tolerance level of 2 parts per million. It must be working, because Atlantic salmon is his best-selling finfish.

Third on the list of the three biggest challenges seafood retailers face is increased competition from big-box retailers like Wal-Mart, cited by 38 percent of survey respondents. Wal-Mart's "everyday low prices" are forcing conventional supermarkets to either cut their seafood prices or reduce the size of their full-service seafood counter.

That's benefiting independent seafood retailers who are trying to get an edge on the competition.

"There's a QFC across the street," says Caluya. "Some people shop there, then they buy their fish here. It's cheaper there, but the quality is higher and the service is better here."

In fact, 61 percent of survey respondents cite freshness as their customers' No. 1 concern, followed by price at 11 percent, how to cook at 9 percent and convenience at 
4 percent.

Grolig isn't worried about conventional supermarkets (there's a Safeway in the same shopping center as his store and a Giant within 10 miles) nearly as much as high-end and natural-foods chains that offer quality seafood at reasonable prices.

There's a Whole Foods about 10 miles from Grolig's store that he says has "the best seafood department" of all Whole Foods locations in the Washington area.

"I wouldn't want to go up against a new Whole Foods or Wegmans," says Grolig. "I'd be terrified if a new Whole Foods or Wegmans opened near me."

 

Methodology

This was the 19th SeaFood Business retail survey, which is conducted biennially. The survey was mailed, faxed and e-mailed to 2,000 SFB retail readers, targeting managers and buyers of seafood at the store level.

A total of 189 surveys were returned for a response rate of 10 percent. Surveys were analyzed by Diversified Business Communi­cations' Market Research staff. Respondents consisted of a single store in a supermarket chain (46 percent), a seafood-only store (38 percent) and a single-unit grocery store (16 percent). They were located throughout the country, including the Northeast (30 percent), the Midwest (27 percent), South (22 percent), the West (18 percent) and outside the continental United States (3 percent).

Look for results of the SFB foodservice survey in the December issue.

 

Associate Editor Steven Hedlund can be e-mailed at shedlund@divcom.com

 

 

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