reLAKSation 249. Callander McDowell
Premier league?: A recent report in seafoodintelligence.com discussed the acquisition of Marine Harvest and Fjord Seafood by Pan Fish. Don Staniford of Pure Salmon has submitted a request to the Office of Fair Trading that they investigate the merger arguing that the new company will not only dominate production of farmed salmon in Scotland but that they will likely supply most of the farmed salmon consumed in the UK. Seafood intelligence.com says that according to a report by Ernst and Young, dated 23rd December 2005, the majority of salmon produced in Scotland is consumed in the UK.
We, at Callander McDowell believe that this is a revelation which should surprise no-one. Scottish salmon is produced in the UK so it would be expected that most Scottish salmon would find its way into the local British market. The main reason why it wouldn’t would be if British consumers didn’t actually like to eat salmon. In that case, much of the local production might be destined for export. This is exactly what happens to a lot of seafood caught in Scottish waters. It is readily bought and exported to Spain and France where high consumption ensures that there is a ready demand for Scottish seafood. Equally, more salmon would be exported if overseas consumers had such a high regard for Scottish salmon that they would be prepared to pay a price way above that which British consumers are willing to pay. To some extent, this does happen. Scottish salmon accredited with the French Label Rouge is reportedly able to command a 25% premium over prices in the UK. This is a major incentive to divert fish away from the local market. Unfortunately, as Ernst and Young have recorded, the market for Label Rouge salmon is currently only about 7,000 tonnes. It is unlikely that such demand will grow much more considering that it has taken over 15 years to grow the market to this size. In addition, Norwegian producers have now gained the same Label Rouge accreditation so will compete for a share of this high end market.
Ernst and Young suggest that whilst Norway supplies the majority of salmon consumed in the EU, Norwegian imports into Britain amount to only 16% of UK demand. Ernst and Young suggest that the reason why the ratio of Norwegian to Scottish salmon sold in the UK is different from other EU markets is because the proximity of the market gives advantage to local producers in terms of a more flexible service and the freshness of the salmon and, more importantly, that UK consumers are favourably disposed towards Scottish salmon and in most cases are prepared to pay a premium for a Scottish product.
We would disagree. As we have already suggested, the main reason that most Scottish salmon is consumed in the UK is simply because it is also produced in the UK. Clearly, this does confer an advantage in terms of flexibility and freshness, but the overriding factor must be due to the fact that the salmon is produced in the UK.
Ernst and Young suggest that most British consumers are favourably disposed towards salmon sourced in Scotland. Of course they are. It is their local salmon. Ask any British consumer to select their preference from a list of farmed salmon including Chilean, Norwegian, Irish and Scottish; then they will select home produced fish. The majority probably aren’t even aware that salmon can be obtained from other countries. Ask them for their preference without prompting them about other countries then they will still select Scottish because of the established association in the British market. Any preference for Scottish salmon is therefore not that surprising.
What is surprising is that Ernst and Young suggest that most British consumers are prepared to pay a premium for Scottish salmon. As we are unable to access their full report because it is deemed to be confidential, we are unable to establish whether there is any factual evidence provided on which this claim is based. The executive summary simply records that this claim is based on the information provided by retailers, processors and producers whom they interviewed. Clearly, producers, processors and retailers are at the hard face of the supply chain and must have the finger on the pulse of the market and if they say that most consumers are prepared to pay a premium for Scottish salmon then it must be true. However, we at Callander McDowell are not convinced that there is any evidence from the marketplace to persuade us that British consumers are willing to pay a premium price for Scottish salmon.
The majority of British supermarkets sell both Scottish and Norwegian salmon. In every single case, Norwegian salmon is sold at exactly the same price as Scottish. In many cases, the packs of salmon don’t even refer to Scotland using instead the correct labelling that the salmon is farmed in the UK.
Over the years, we have repeatedly requested examples from the British retail market where Scottish salmon is sold at a premium price over Norwegian (or Irish or Chilean). The usual response makes reference to the premium attained by Label Rouge salmon in France.
Three UK supermarkets do sell Scottish salmon exclusively, although at times all three have sold Irish salmon. Two of these supermarkets sell their salmon at a high price and it could be suggested that their customers are paying a premium through this higher price. However, if comparative pricing is made against other fish, then it is clear that the pricing of salmon in these supermarkets is simply in line with their overall pricing policy of their foods in general. Shoppers at these stores will be paying a much higher price for a similar basket of shopping than from other supermarkets.
A couple of British retailers do differentiate their product ranges with premium and standard ranges. For example, Tesco produce such products under the ‘Finest’ label, whilst Sainsbury label theirs ‘Taste the Difference’. When salmon is sold under these labels, they tend to be of Scottish origin however, customers are really paying the premium for the Finest or TTD label, not for the Scottish origin. If these supermarkets wish, they could probably use Norwegian salmon in these products and customers would still pay the higher price. They would do so because of the label. The same also applies to the premium supermarkets that trade on their name as the brand. For example, we believe that if a retailer such as Marks & Spencer were to identify a source of Norwegian salmon that met all their quality and price criteria and use it to replace Scottish fish in their packs of salmon, then their customers would still buy their salmon, not because it was Norwegian salmon, but because they were shopping at Marks & Spencer, a retailer who they trust to supply the best products on their behalf.
As the report remains confidential, we don’t know what the retailers told Ernst and Young about British consumer preference. However, we do know something of their views because they were also interviewed for the Competition Commission investigation into the then takeover of Hydro Seafood by Marine Harvest. Although this was some time ago, we don’t think their positions have changed significantly since then.
Asda (Walmart) told the Competition Commission that until 1999, they only bought Scottish salmon but following an increase in prices, they decided to change to an open sourcing policy depending on availability and price. They then bought salmon from both Scotland and Norway in roughly equal proportions. They also said that they believed that Scottish salmon was perceived by consumers as being of a higher quality but in their own view, Scottish and Norwegian salmon were no different in size colour or texture. Blind tastings by staff and consumer panels were unable to detect any difference between the two.
Marks & Spencer told the Competition Commission that they only bought salmon from Scotland because they always preferred to buy domestically even if there was a difference in price. They only bought from farms which had approved as complying with the M&S code of practice. M&S said that tastings had shown that Scottish salmon was of a better quality.
Safeway (now part of Morrisons) told the Commission that they only bought from Scotland but had regularly bought salmon from Norway. They said that they did not believe that there were any overtly distinguishable differences between Scottish and Norwegian salmon although their customers did perceive Scottish salmon was of a superior quality. Safeway said that this did not guarantee a retail price premium.
Sainsbury’s told the Commission that it sourced most of its fish from Scotland but also bought fish from Norway. Sainsbury said that its customers seemed to perceive that Scottish salmon was better than Norwegian although they found no difference between the two.
Finally, Somerfield told the Commission that the only difference between Scottish salmon and that from elsewhere was how it was perceived rather than in any actual variation. Somerfield said that most of its salmon was sourced from Scotland but the remainder was brought in from Norway.
At the time of the Competition Commission investigation, the new labelling regulations were not in place. This meant that when asked about origin, Somerfield said that their customers were price focused and even though the salmon was labelled with country of origin, customers had not raised origin as an issue for the previous 18 months.
These supermarket interviews seem to confirm that the favourable disposition towards Scottish salmon is more perceived than real. This is apparent from the fact that whilst the perception suggests that consumers are prepared to pay more for Scottish fish, the reality is that they are not.
As long ago as 1996, the then Scottish Salmon Board commissioned AGB/GFK independent research to elicit consumer preference for Scottish salmon. They found that 76% of consumers preferred Scottish salmon to any other and 72% were willing to pay more for it. These 72% of consumers may be happy to say that they will pay more for Scottish salmon but as we have already highlighted, there is absolutely no evidence to show that they do. If they did, then the Scottish industry would have never needed to pursue their dumping case since many of these consumers would have refused to buy Norwegian salmon and instead paid more for Scottish fish. Unfortunately, many consumers have also tried Norwegian fish and found, like many of the supermarkets, that there is no discernable difference between Scottish and Norwegian salmon and therefore they have asked themselves why they should pay more for what appears to be an identical piece of salmon?
Yet, the perception that Scottish salmon is superior remains? The reason why is complicated. We believe that it developed from the days when there was a large influx of Eastern European immigrants into London’s East End. They brought their customs and culture which included a love of smoked salmon. They established a network of smoke houses in London and sourced wild caught Pacific salmon from Canada because of the cost. This meant that there was a clear differentiation between Scottish Atlantic and imported Pacific salmon and it was the Scottish fish that was judged to be superior. The reality was that it was just different but the perception remained.
It seems that some retailers do respond to their customers perceptions. Many British consumers do perceive Scottish salmon to be superior and this is probably based on historic perceptions and the fact that Scottish salmon is produced in the UK. In order to guarantee supplies of Scottish fish of the right quality, the supermarkets (or their suppliers) are willing to pay a slight premium to the producers. Yet, as the fish pass down the supply chain, this premium disappears so that when the fish finally reach the stores, it no longer exists.
As the salmon market develops, we, at Callander McDowell believe that any consumer perceptions about Scottish salmon will further diminish leaving consumers to focus on important factors such as whether the salmon represents value for money and whether it is good to eat. The origin of salmon they buy is relatively unimportant to most European consumers. The reason why British consumers maintain a different perception is simply down to the fact that Britain can produce its own salmon.