reLAKSation 33.
Retail Price: David Sandison, General Manager of The Shetland Salmon Farmers Association has told IntraFish that the retail sector should be cutting prices to stimulate demand. He believes that whilst his members are losing money, retailers continue to take a significant margin.
Repeated observations of the retail market confirm that consumer demand is stimulated by lower salmon prices. The continuing fall in salmon prices since 1989 has in fact been the main driver of market growth. However, it is extremely questionable whether any further cut in the retail price would help Mr Sandison achieve his aims?
Mr Sandison believes that the retail sector should cut prices to help secure future supplies of salmon. He expects that many farms will be forced out of business if the current price levels are maintained.
It might be argued that lower prices should stimulate demand and thus soak up some of the salmon, which has been held back in the hope of higher Xmas prices. If this should happen, prices might eventually rise as supply falls off. However, there might be a penalty to pay for lower prices in that consumers, having become used to cheap salmon, would then expect prices to remain low. Once salmon prices have fallen, it may be extremely difficult to force them back up again, without affecting the customer base. Most consumers would simply turn to alternative lower cost proteins instead. Rising prices could be just as damaging as those that are falling.
The other problem with low prices is that it will further undermine the market image of salmon in the marketplace. Once lost, this will be very difficult to regain. Market image is clearly important, especially for both the Scottish and Shetland industries, and maintaining this may well be incompatible with any attempt to advocate further reductions in the retail price.
Despite this call for price reductions from Mr Sandison, supermarkets do have a dilemma. They are caught between the idea of promoting low priced salmon, but at the same time, they are aware that salmon still does have a perceived market image, even if it is not matched in the market place. They are therefore unlikely to make significant inroads into the retail price.
Mr Sandison also suggested that whilst the retail sector should cut prices, they should also be more willing to share the profits they make with the farmers. However, any reduction in price is also going to reduce retailers profits and decrease the amount available to share, even if the will was there to do so.
Mr Sandison's call for the retail sector to cut prices is actually a bit belated for one supermarket has already reduced all salmon prices by £1.00/kg. Whole salmon is now retailing at £3.38/kg and others are starting to follow suit, if not with direct prices cuts, then with special offers. In fact, such discounting is now standard practice at this time of year, as salmon becomes a supermarket loss leader.
The question is can farms improve margins at these low prices. We at Callander McDowell believe that they can, but to do so, they must start to adopt more market-led strategies.
Unfortunately, whilst the ideas of market-led strategies are now more widely discussed, they have never really been taken on board. Shetland farmers now need to respond to the market and by doing so, they should be able to control their own margins. After-all, it makes little difference to the supermarkets whether the salmon they buy is actually produced by production or market-led strategies.
Target Audience: The President of the International Salmon Farmers Association has recently made several statements stressing the importance of industry wide campaigns to help promote salmon to the end consumer.
Promotion is an integral part of the marketing mix, but just because a company or industry invests in promotion does not mean that it is guaranteed success. Even the most experienced companies can get it wrong.
The Financial Mail reports that the British supermarket group, Sainsburys is experiencing problems with its latest campaign. The TV adverts feature cheeky TV chef Jamie Oliver, but whilst shoppers in the south of England have responded well to the campaign, those in the north have not.
One retail analyst has said that the adverts simply re-enforce the idea in the North that people in London are cocky, have too much money to spend and, have too much time on their hands. As a result, sales in the Northern stores are stagnating, whilst those in the South are showing a healthy increase.
Jamie Oliver alone has been paid half a million pounds sterling to feature in the adverts and together with the production costs and TV space, this one campaign has proved expensive for little success.
This failure of the Sainsbury campaign illustrates how easy it is to send out the wrong message. This is why promotion must be considered in the context of the wider marketing mix. Even then, there is still no guarantee of success. The chance of failure can however be minimised by utilising all the proper marketing tools.
Unpopular Sizes: According to Nick Joy, MD of Loch Duart salmon, no-one has given any thought to the marketing implications resulting from an over-supply of large fish over 5 kg in weight.
According to IntraFish, Mr Joy believes that the price of unpopular sizes has crashed because of the widespread availability of smaller fish. However, if large fish are so unpopular in the marketplace, why produce them?
The issue of unpopular large sizes illustrates the difference between production and market-led strategies. Although some farms choose to produce larger fish because they have identified specific markets for them, many are the result of delayed harvesting in the hope of better prices at a later date.
Production-led strategies are those in which fish are produced irrespective of market conditions. The expectation is that when the fish reach a harvestable size, it will be possible to sell the fish at a reasonable price.
By comparison, market-led strategies are those where a market for the fish is identified before the fish are even produced. The farmer can then calculate whether he can produce them at the right time, in the right number and at a price which will allow him to make a profit. Clearly, if he is unable to achieve this aim, then the farmer must decide whether there is any point in producing the fish at all.