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What's in store: Cost control

Supermarkets, wary of price points, predict seafood will get more expensive

By Christine Blank
February 05, 2011

Seafood department managers have one of the toughest retail jobs. They are tasked with ordering the correct amount of fresh seafood daily and keeping their department’s costs down, while posting profits. In the last two years of a tough economy, many developed new marketing programs and sourced different products to grow sales.
Among the most challenging responsibilities for retail seafood buyers is keeping seafood prices low for customers, even as grocers’ expenses — including labor and commodities — rise. Seafood managers recognize that, once prices hit a certain level, many shoppers cut back on seafood purchases or switch to other proteins altogether.
“With salmon, for example, if we break the $10-a-pound barrier, that will hurt our sales. For fresh tuna, we are scared to break the barrier of $20 a pound,” says Scott Nettles, meat and seafood director for United Supermarket of Lubbock, Texas.
Steady seafood pricing is necessary to keep long-term business, some grocers say. “Retailers must keep prices affordable: The business cannot grow long-term with unit decreases. At times you must sacrifice to maintain units and look at the business over the long term and not on an annual basis,” says Maria Brous, a spokesperson for Lakeland, Fla.-based Publix Super Markets.
Out of all the perishable departments in U.S. grocery stores, seafood prices remained the steadiest in 2010, falling 0.3 percent for the 52 weeks ending Sept. 25, according to The Perishables Group in Chicago. Prices in the deli, meat and produce departments also remained flat or decreased only slightly, while bakery department prices increased slightly at 0.9 percent.
Supermarket executives say they kept most seafood retail prices steady or lower in 2010 to spur sales and eliminate waste. “Seafood is one of our higher shrink departments. If you go up [in price] too much, there is too much shrink,” says Nettles.
United Supermarkets has also been able to keep prices on some fresh seafood steady by working closely with distributor Seattle Fish of Albuquerque, N.M. “They have developed a private label product for us, and they secure an amount for a period of time. They buy it and hold it frozen at their place,” says Nettles.
With other fresh, wild species, United’s suppliers work with the grocery chain to keep prices down as much as possible, says Nettles.
Columbus, Ohio-based The Hills Market kept seafood prices steady in 2010 and implemented a marketing program to grow sales. “We maintained prices on almost all of our fresh seafood by reducing waste, selling to our prepared-foods kitchen, and creating incentives for our customers,” says Jill Moorhead, marketing director for The Hills Market.
The retailer’s new Seafood Club program rewarded shoppers with discounts of $1, $2 or $3 off per pound on each of their seafood purchases, based on the frequency of seafood purchases. “Our staff actively promoted the Seafood Club to our customers, who seemed to love the program,” says Moorhead.
Shrimp — the biggest seafood seller in supermarkets — declined in price by 3.4 percent on average as of Sept. 25. “Shrimp was down compared to 2009, driven by low prices in the first half of the year, which led to aggressive retails,” says Brous.
However, prices did rise on certain fresh seafood items in 2010. Salmon prices for the 52 weeks ending Oct. 25 rose 10.4 percent on average, according to The Perishables Group. “My guess is that was, in large part, driven by availability issues on farmed product,” says Steve Lutz, executive VP of The Perishables Group.
“Across all seafood, we have seen slight increases, with the primary driver being fresh fish — primarily salmon,” adds Brous. Publix seafood managers also realized higher prices on king crab and snow crab, driven by “large price fluctuations compared to 2009,” says Brous of Publix.
Another big price gainer was prepared seafood meals, which rose 13 percent, led by lobster meals. “Lobster meals had a significant drop in volume at 90 percent, driven by an 80 percent increase in price,” says Lutz.
“Prepared seafood items have followed the same trend of the overall department, as the base of our prepared seafood is the same commodity item,” Brous adds.
Despite few major price fluctuations in 2010, seafood department managers say they will likely have to raise prices in 2011. The changes are led by higher feed costs for farmed fish producers, a weaker U.S. dollar and higher overall commodity expenses.
“From what I read, our costs are going to move up. With the price of feed remaining high, [farmed] fish is going to stay the same or move higher. Seafood prices are going to ride with the rest of the protein market, and there will be a point where we can no longer absorb price increases,” says Nettles.
“We expect prices to climb for 2011, as is the case with most commodities. Shrimp will see record-high prices in 2011,” says Brous. Publix executives have already seen higher wild and farmed shrimp prices for the first and second quarter of last year.
The Hills’ executives attribute this year’s rising seafood prices to foreign trade. “[Prices] will increase in 2011, due to stronger demand from restaurants and a weaker dollar. As the dollar gets weaker, it is more likely that domestic fish will be exported to other countries,” says Moorhead.

 

Contributing Editor Christine Blank lives in Lake Mary, Fla.

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