reLAKSation 118.
Casualties
of perception! IntraFish recently spoke to
'Scottish salmon industry sources' who suggested that they soon expect to see
more Norwegian casualties as a 'price gloom continues to cast a pall over the
industry".
Certainly,
we at Callander McDowell, would not disagree. and we fully expect, not only the
Norwegian industry, but also that in Scotland, to exhibit a decline in the
number of salmon operating companies. We are not convinced that this will be
brought about by low
prices alone, but rather will be due to the many farming companies inability to
adapt to changes in both production and in the market.
It
is interesting to note that whilst many commentators bemoan the fact that prices
remain low, the reality is that prices are actually higher than at the same time
last year. Of course, they are still low relative to those realised during the
early years. As we have repeated many times, this price decline has been both
inevitable and predictable. It. should therefore not cast a 'pall over the
industry' unless its shadow is cast over those sections of the industry that
have refused to accept the inevitability of change.
Industries
evolve with time and the salmon industry is just another example of an evolving
industry. History is littered with the remains of companies,, which have fallen
by the wayside as others have moved on. Salmon
farming is no different.
Even
in the relatively short time since the pioneering companies put the first smolts
to sea, back in the 1960's, it is possible to see how the industry and the
market has evolved. Although, there are still remnants of the early industry in
operation, companies have moved on. Production is no longer considered in
isolation, but is moving towards full integration where companies have full
control from the egg to the retailer, including feed and total health
management. The market is also developing. The pioneers produced whole fish,
which they dispatched to market and then promptly forgot about. Today, the
market for whole fish is in decline as consumers demand skinless and boneless
portions, in ready to cook and ready to eat presentations. The market will
continue to evolve with consumers seeking more and more convenience products,
instead of raw salmon flesh. Clearly, the industry must adapt to such changes,
otherwise, farming companies will be unable to compete and will become nothing
but another statistic. However, it is not just Norwegian companies that will
become casualties. Those Scottish companies, who also fail to adapt, will also
fall by the wayside. This could
well be even more likely than for those farmers in Norway because many Scottish
companies have opted to invest in the quality option, despite consumers'
reluctance to reward the production of quality fish. This is because many
consumers expect the fish they buy to be of sufficient quality to meet their
needs and are unwilling to pay more for something that they neither want nor
need.
However,
it is not just farming companies which will need to adapt to the changing
market. IntraFish report that one Scottish commentator has suggested that the
Norwegian industry has far too many exporters; more than 130 supplying into the
European market. Most are competing directly against each other, but more
importantly they represent another drain on margins, as clearly, like the
farming companies, they too want to take a profit. This erodes the potential
profits available to the farming companies. To maximise any profit, farming
companies need to integrate export sales into their wider operation. The clear
message is that the industry must, and will, shrink in terms of operating
companies, taking more casualties on the way.
Lack
of Vision!:
AquaVision has announced the theme of
its 2004 conference. This will be seeking ways to sustain the 'Blue Revolution'
by switching the focus from production-led to consumer-led aquaculture.
As passionate advocates of market-led strategies, we would certainly
endorse this theme, yet however well intentioned to highlight how consumers will
dictate the future development of the market, we, at Callander McDowell, wonder
whether the actual content of the programme
will live up to expectation?
According
to IntraFish, the conference organisers have put together four key sessions to
tackle the key challenges on the road to sustainability.
The
first challenge is that the licence to operate should only be granted
when issues such as environmental impact, animal welfare, food safety and
sustainable consumption of resources have been resolved.
This is not really a contentious issue, since modern farming should
address all key issues, under current best practices.
However, whether these are consumer-led issues is extremely debatable.
After-all how many retail customers have gone up to the fish counter and
asked the question as to whether the fish that they intend to buy is
actually safe to eat? Issues such as environmental impact, food safety
and sustainable consumption are not so much consumer issues, but issues raised
by those who claim to speak on behalf of the consumer, but the reality is that
they are pursuing their own self interests, not those of the consumer.
The
second challenge is the management of risk and trying to attain a balance
between supply and demand throughout the value chain. Again, this has little to do with consumer-led production.
Any balance is only perceived since it bears little resemblance to the
diversity of products in the marketplace. This
simply highlights the urgent need to recognise that the market does not just
revolve around whole fish, but is one, which has developed into an extensive
range of non-competitive products.
The
third challenge is to separate fact from fiction and to present a positive image
of aquaculture to consumers, legislators, the media and society in general. This
has been an ongoing problem for aquaculture producers, but it is a production
issue, not a consumer one.
The
final challenge is to secure sustainable
resources to ensure that aquaculture can continue to expand in order to fill the
gap left by a decline in the wild catch. This
implies that there will always be a consumer demand for fish, but this is not
guaranteed. If farmed fish prove to
be a much more expensive option than the wild catch, consumers may well be
deterred and instead look for alternatives, which are not even fish.
Consumer-led
aquaculture is not about the issues, which affect, or can be resolved, by the
farmer, but about what the consumer actually wants. Consumer-led aquaculture is about producing what the consumer
wants, not what the farmer thinks that the consumer wants. Consumer demand is
changing in relation to changes in lifestyle and the aquaculture industry must
reflect this. Consumers no longer
want food which requires time-consuming preparation, but instead is looking for
convenience and wide choice. Consumers
are increasingly moving away from raw
flesh and are now looking for instant meal solutions. Buying salmon is not necessarily about whether it is sold as
fillets or steaks, or whether it is farmed in Norway or Scotland, but rather it
is just part of another meal option. This can be illustrated by the fact that
the inner of the ready meal category of the 2003 quality food and drink awards
was Tesco's Finest seafood rosti bake. This is a dish made from salmon and
prawns in a creamy sauce topped with rosti potatoes. The salmon industry should
be happy that consumers are choosing to buy such dishes and recognise that they
represent the future of industry. It is such dishes which actually meet consumer
demand and the industry needs to develop the vision to recognise this.
More
reasons: It now seems certain that
supermarket group Morrison’s, is set to acquire the chain of Safeway stores.
This is quite a coup, since Morrison’s operate only 109 stores compared with
the 479 owned by Safeway. The Competition Commission has dictated that
Morrison’s must dispose of 53 stores which overlap.
The
business sector were quite keen on this acquisition, preferring it to a take
over by one of the big three, which they claim would give them a too dominant
position. They feel that the new Morrison’s would become one of the big four
and better able to compete.
The
Morrison’s bid was also preferred because it appears that the two companies
fit together better geographically, with Morrison’s strong in the North,
whilst Safeway has a strong presence in both the South and Scotland.
However,
we at Callander McDowell, wonder whether any of these commentators have actually
ever been in a Morrison’s store, because if they had, they might identify at
least one significant difficulty which Morrison’s will have to overcome, when
they come to merge these many Safeway stores in with their own.
Whilst, Morrison’s have a similar low cost strategy to other
supermarkets, they differ with a distinct store format.
If Safeway had been acquired by any of the other bid three, stores could
have been simply converted with a change of signage and a coat of paint. They
would have at least looked the part until a complete conversion was
undertaken. This will not be so easy for Morrison’s.
Morrison’s
stores have a very distinctive look. They have tried to create the impression of
a complete market street with separate fishmonger, butcher, fruit and vegetable,
bakery and pie shop. They trade
heavily on this identity but will find it extremely difficult to roll it out to
their new Safeway stores in the short term. They will therefore have to create a
different intermediate identity until all the new stores are absorbed. This will
impact on their suppliers and the products they can offer their customers. This
can be best illustrated by considering how they deal with salmon.
Most
supermarket groups supply their stores with salmon in different forms. Fresh
loose salmon is provided for sale on the fresh fish counter, whilst other salmon
products are brought in prepacked for sale from the chiller cabinets. By
comparison, Morrison’s buy all their fish in loose and then staff from the
fishmongers counter pack up the various cuts for display as prepacked chilled.
This means that the whole emphasis on supply will change for Safeway customers
as unless Morrison’s change their strategy, the form of their prepacks will
differ. This will also impact on the various suppliers who will lose this
business.
This
acquisition will also have major implications for some sections of the Scottish
industry. Morrison’s and Safeway are the only two British supermarket chains
to stock Tartan Quality Mark salmon. This acquisition means that there will now
be only one supermarket stockist for salmon carrying the TQM. However, unlike
Safeway, Morrison’s do not label their salmon as such, but rather use shelf
labels or posters to inform, even though how much this is highlighted can vary
from store to store
In addition, of all the British supermarkets, Morrison’s sell their salmon at the lowest price of all. Their standard price for whole fish is £3.99/kg as compared to £6.59/kg for Tesco and £6.99/kg for Sainsbury’s. At a time when the Scottish industry is concerned about low prices, the wider availability of lower priced salmon, must be of concern to producers, but will delight customers. As Morrison’s themselves point out in their advertising; "There's more reasons to shop at Morrison’s".