Seafood departments have had a great story to tell during the past half-decade. Study after study has confirmed the health benefits of eating fish, the consumer media and nutritionists have made “omega-3s” a household word, and retailers and suppliers have more or less begun to rally around the common cause of sustainable fisheries management.
The balance sheets haven’t looked so shabby, either. From 2005 through the end of 2010, dollar sales of seafood rose almost 30% in supermarket seafood departments, from an average of $4,770 per store, per week, to $6,188 per store, per week, according to data from the Perishables Group, West Dundee, Ill.
Lately, however, those gains are being driven primarily by price inflation. Price inflation has been a problem throughout the industry this year, and fresh proteins have borne much of the brunt. The U.S. Department of Agriculture’s Economic Research Service recently reported that rising feed costs, among other factors, have driven beef prices up more than 10% since last September. Pork prices are up 7.5%, while poultry has risen 3%.
The seafood industry is facing similar pressures. About 80% of the seafood consumed in the U.S. is imported, so rising fuel costs have an added impact. And, while supplies of many seafood species have remained relatively constant, the emerging middle class in China, India and other Asian countries has generated a lot of new demand, noted Chuck Anderson, a former supermarket executive and current director of new business and retail for Boston-based Sousa Seafood.
As a result, average retail prices for fin fish were up 8% for the 52 weeks ending Aug. 27, shrimp prices were up 8.4%, mollusks were up 4%, and crustaceans, including lobsters and crabs, were up more than 17%, according to the Perishables Group.
With the notable exception of salmon, seafood prices have been rising across the board this year, and unfortunately, seafood was already one of the priciest protein options in the store. With many shoppers still focused on value and savings, these price increases have led to a sharp decline in volume. Fin fish volume is down more than 4%, volume sales of shrimp and mollusks were each down more than 11%, and sales of crustaceans have plummeted by almost 27%. Clearly, until prices stabilize or the economy improves, this situation will pose a unique challenge for seafood departments.
One strategy that retailers are beginning to employ involves tailoring a store or a market area’s planograms and promotions to the demographic it serves, according to Anderson.
“It’s becoming more and more of a have and have not society,” he explained. “A lot of seafood customers are [wealthy], and whether the price of flounder is $10 per pound or $12, they’re still going to buy it. Some retailers are realizing that, they’re still promoting fresh seafood options to those customers, and they’re still buying.”
On the other hand, there are many, many shoppers who are intently focused on price.
“We’re seeing retailers trying to segment [their promotional efforts],” Anderson said. “They’re trying to figure out what stores or what markets have more value customers. And they’re promoting more of the cheaper farm-raised products.” Expanding and tweaking SKUs to offer a range of price points can help maintain sales for value shoppers as well, particularly in the frozen section. And, Anderson said that he expects to see heavy promotions on salmon this winter, since the popular species has been swimming against the current of rising prices.
Expanding and tweaking SKUs to offer a range of price points can help maintain sales for value shoppers as well, particularly in the frozen section. And, Anderson said that he expects to see heavy promotions on salmon this winter, since the popular species has been swimming against the current of rising prices.
“Salmon has been a very good opportunity,” he said. “There’s been a crash in salmon prices over the past six months. So, retailers are definitely going after salmon. I think it’s a great opportunity to promote through winter.”
However, in this environment, a problem can emerge when seafood departments run a chainwide promotion on a relatively inexpensive item, such as farm-raised tilapia filets. The wealthier seafood shoppers tend to buy those items in their stores as well, Anderson said, citing conversations with retailers who have been studying the issue.
“What they’re finding is that if they promote [less expensive items] too heavily in their up-end stores, a lot of their up-end customers — instead of buying Chilean sea bass, red snapper or some other high-dollar item — will opt for that tilapia or salmon as well, and it really hurts [the department’s] total sales,” he explained.
Value-added seafood could be another opportunity for retailers. Although these prepared products account for only about 15% of department sales, they have been a bright spot for growth, according to data from the Perishables Group. During the 52 weeks ending Aug. 27, total dollar sales of prepared seafood were up almost 7%, reaching $1,030 per store, per week. And, unlike most other seafood categories, these gains were not entirely driven by inflation. Volume sales of these items rose 5.4% as well.
The convenience of these items appeals to wealthier shoppers, and seafood departments could market them to value shoppers as a less-expensive alternative to restaurant meals. Seventy percent of seafood sold in the U.S. is consumed in a restaurant, Anderson noted, and many shoppers who like to eat seafood when dining out are unsure of how to prepare it at home.
So, “there’s a lot of opportunities for retailers to take that business from the restaurant folks. The way to do it is with shellfish products, which are their best sellers, and with value added products … if you can come out with a salmon burger or a marinated product or a pinwheel, you’re appealing to that customer who normally would go to Red Lobster and spend $25.”
As another benefit, many value added treatments, such as stuffing or pinwheel fillings, will lower a retailer’s cost per pound, he said.
Another unfortunate consequence of these rising prices has been the continuance of labeling fraud. Retailers swap out vendors to try to find the best deals, and some respond with tactics like short-weighting or species substitution to keep their bids as low as possible. In late October, three separate DNA testing investigations by Consumers Union, The Boston Globe and Oceana revealed widespread labeling fraud. This type of fraud has long been a problem, but Anderson said that the falling price of DNA tests has made these investigations easier to conduct. Big price gaps between species like red snapper and tilapia have also motivated unscrupulous operators to trick their customers.
“All three groups went to sushi bars and tested red snapper, and I don’t think anybody found red snapper. Nineteen out of 22 samples turned out to be tilapia. It’s not just substituting a lane snapper for a red snapper, which might be a $1 or $2 [per pound] difference. You’re talking about tilapia — a $3 per pound filet versus a $15 per pound [red snapper] filet, which is just blatant fraud.”
