reLAKSation 331. Callander McDowell
Upping the stakes: Congratulations to salmon farming company, Loch Duart, on the news, reported by IntraFish, that they have acquired a new investor in the form of California based Capricorn Investment Group which has taken a ‘meaningful’ minority stake in the business. Loch Duart have once again bucked the trend and achieved what other salmon companies have not. This time attracting outside investment when funding has been difficult to find. But then Loch Duart has always been an attractive proposition. In 2004, when independent salmon farming companies were complaining to Brussels that low cost imports from Norway were forcing them out of business, Loch Duart’s owners told the Financial Times that they had been profitable for three out of the four years since they had bought the company.
What therefore is the secret of their success, as they are clearly a successful company? Barry Uphoff of Capricorn said that he likes to find companies that can differentiate themselves from competitors. He added that Loch Duart is often branded and the product is exceptional. Certainly, Loch Duart have tried to differentiate themselves from other Scottish salmon companies in that they have promoted themselves as a sustainable producer and adopted the higher welfare standards set by the RSPCA but then, so have some other producers too.
Mr Uphoff suggests that Loch Duart is often branded but the reality is that Loch Duart salmon is more given an identity than a brand. Some restaurants for example include the name Loch Duart on their menu. Loch Fyne restaurants had ‘Pan Fried Loch Duart salmon with Shiitake mushrooms and lemon ginger dressing’ on their summer menu although interestingly the same dish on their current winter menu has been changed to ‘Loch Fyne’ salmon.
Perhaps demand for Loch Duart’s product means that supplies can no longer be guaranteed, especially since selected Sainsbury’s stores have been offering Loch Duart salmon fillets and steaks from their fish counters. When we asked at one fish counter what Loch Duart salmon was, we were told that it was the same as their other salmon but from a different supplier!
Mr Uphoff also suggests that Loch Duart is attractive because their product is exceptional. Despite eating Loch Duart salmon on a number of occasions, we are not quite sure what Mr Uphoff means. The salmon was good but so has been lots of other salmon we have eaten. It doesn’t stand out as being different. And that’s the rub.... In our view, Loch Duart is not particularly any different than other farming companies. Some companies produce just as good salmon; some adopt the same welfare standards and some may be equally concerned about sustainability. Where Loch Duart do stand out is that they have created a clear market image for their fish which comes with a good story and that is what the market wants to hear. Loch Duart is special because they have recognised the need for an image that distinguishes them from the rest. However, at the same time, any of the other companies farming salmon in Scotland, could have created their own image that makes them special. They too might have found an easier route to maintaining profitability and seeking investment.
Unfortunately as we discussed in the last issue of reLAKSation, much of the independent industry has been too busy seeking to regain profitability by trying to stifle the flow of Norwegian salmon into Europe to spend time on marketing. At the same time, the constant complaints of dumping must have had a negative effect on potential investors. Why would any investor want to put their money into an industry which is crippled by alleged dumping and poor profitability? The answer is that they wouldn’t, which is why the Scottish industry has failed to attract investment except for those companies like Loch Duart that have a good story to tell….
This US investment in Loch Duart has prompted IntraFish to raise the issue of ownership as Loch Duart, like some other members of the EUSPG, has staunchly promoted their Scottish ownership. IntrafIsh has suggested that the company has backtracked by allowing a foreign company to take a stake in the company, a claim which has been strongly denied.
Regular subscribers to reLAKSation will already know that we, at Callander McDowell, firmly believe that most consumers do not care about the origin of their salmon. They are just as happy to buy salmon, whether it comes from Norway, Ireland, Scotland or elsewhere. They are even less concerned, even uninterested, in the ownership of the company that produced the salmon. It makes no difference as to the nationality of the company. Consumers are only interested in whether the salmon is good to eat and represents the best value for money. Callander McDowell sometimes organises salmon tastings. Our tasters would be puzzled if we asked them to differentiate a Scottish owned Scottish salmon from a Norwegian owned Scottish salmon. What difference does it make? It is not ownership that matters but the salmon itself.
Interestingly, global car maker Nissan recently announced that it is to recruit 800 jobs at its Sunderland plant, bringing the total to over 5,000 and further consolidating their position as the UK’s leading car manufacturer. The news has been welcomed by local politicians who recognise the importance of Nissan’s investment in the North East.
By comparison, the Scottish Executive appears to believe that local ownership is more important than any investment from outside Scotland. This is why they have supported the independent salmon sector in pursuit of their dumping complaint even though the independent sector represents about 18% of Scottish production. The Executive have ignored the views of the remaining 82% of the industry due to their links with Norway even though their investment supports many hundred jobs and much of the economy of the Highlands & Islands region.
Perhaps this new investment has upped the stakes and brought to the fore the need that it is the market and the consumer that is really important whereas who has a stake in the company is not!
A load of cobblers?: The US catfish is in doldrums. According to IntraFish, consumption has fallen from 1.14 pounds per person to 0.97 pounds in 2006. The answer to this decline is Delacata, a new premium deep skinned catfish fillet. The name seemingly comes from an amalgamation of the words Delta Catfish.
The name was conceived by ‘The Ramey Agency’, an advertising and public relations firm, which believes that the new name and presentation represents an opportunity to move away from the commodity market. The fillets will be larger than standard catfish fillets and are expected to appeal to the white table cloth market selling for $20 a portion rather than the usual $9 for standard catfish.
The Ramey Agency have been working on this new concept for three years but we can only wonder what they have been doing for all this time since this new concept appears to be largely ill-conceived.
There is no doubt that catfish is not the most appealing name for a fish but it is something that many consumers are used to, otherwise consumption would not have grown to 1.14 pounds per person. Yet, other species with less attractive names have been made more appealing with a change of identity although the change of many of these names has been lost in history. For example, dogfish is usually sold as ‘Rock Salmon’ in the UK but how the fish acquired the name has long been forgotten. More recently, Tesco have opted to rename pangasius or basa as River Cobbler after an Australian name for similar species. The idea is to make the fish more appealing to consumers. However changing the name, when the fish is already well- known, presents a totally different challenge, which we, at Callander McDowell, believe is not guaranteed to succeed.
Firstly, the name itself. Delacata doesn’t immediately jump out as a name for a fish. Instead it is more reminiscent of the Italian dessert pannacotta, especially as Delacata is supposed to be pronounced as della-Cot-ah.
Secondly, the fact that the only difference is a larger fillet size does not make the new product stand out from the standard catfish fillet. It is just large catfish.
Thirdly, we believe that most consumers will be confused, especially in the restaurant sector. Some form of explanation will be required if something like ‘golden fried Delacata’ appears on the menu. Consumers will want to know what the fish is and if the name catfish appears alongside Delacata then whatever is deterring consumers from eating catfish will still deter them, irrespective of the presence of the Delacata name.
One of the correspondents to IntraFish has suggested that the real problem is that the catfish industry has created such a negative image of imported catfish that it has also backfired onto the local industry. Changing the name will not make much difference. It is akin to sweeping the dirt under the carpet. It is still there. This reminds us again about diverting resources that should be used in marketing and promotion towards trying to damage potential competitors. Raising quality and safety issues is just as damaging as complaining about dumping.
There is no easy solution but the catfish industry would be better served by rebuilding their own image and so regaining consumer confidence. This should be based on their own locality using well known celebrity chefs to promote the wholesome and sustainable nature of farm raised catfish on cookery programmes and the like. Alternatively, the industry needs to consider producing more added value products which appear to have little resemblance to catfish fillets. Such added value products can be then branded with a new identity which differentiates it from standard catfish.
Regaining consumer confidence is not going to happen overnight but changing the name is unlikely to produce any faster response. The problem is changing the name now is nothing more than a load of cobblers.
Swinging to another tune: Aslak Berge, an analyst with First Securities, has told IntraFish that one of the most popular arguments for industry consolidation was the need to stabilise the enormous price fluctuations experienced by the salmon industry. We, from Callander McDowell, must be moving in the wrong circles because despite its apparent popularity, this is an argument that we have not previously come across and certainly it is not one to which we would subscribe. This is because the only way that price swings can be minimised through industry consolidation is if the few companies agree on some form of arrangement in which prices are managed but this would be akin to a form of price cartel.
Prices vary primarily due to differences between supply and demand. FHL statistics show that price swung between NOK 44/kg and NOK 19/kg since 2006 despite the wave of consolidation within the industry. However, this period has also been struck with uncertainty due to the EU imposed MIP which has undermined confidence in the market. At the same time, there was a strong demand from the Russian market which had not previously influenced prices. This strong demand pushed up prices and at the same time dampened demand in the traditional European markets. How industry consolidation could have influenced these market forces is unclear?
The real advantages of consolidation are the economies of scale which help keep costs down and the increased volume of production which allows access to the largest buyers. This is however nothing new and consolidation was always going to be a feature of the industry from when prices first collapsed in 1989. Before then, salmon farming was a small industry producing a luxury food. Prices fell in 1989 because production had expanded beyond the demands for this luxury product. The industry were faced with a choice. They could either put a brake on production, keeping production low in line with demand for the top end of the market, or they could expand production, reduce production costs and try to capitalise on the wider commodity style market. What happened was the industry divided and they tried to do both with one part seeking production controls and the other seeking production cost reduction. The continued anti dumping complaints show that this division still exists but the expansion and consolidation route has prevailed. The view was continued expansion would actually keep prices low, stimulating demand but at the same time maintaining profitability through lower production costs.
As yet, the salmon industry has not really taken advantage of the next stage of consolidation which would move companies away from a dependence on the production of raw flesh. Without such diversification, analysts such as Mr Berge can only focus on salmon prices as a guide to industry viability and this is why share prices are so inextricably linked to the movements in salmon prices.
Industry consolidation will not break this link. Instead, it is industry diversification that will but until this happens, the way to minimise the price troughs and peaks is to ensure that demand outstrips supply. We have written about the difference between over-production and under-marketing enough times, not to have to repeat what action is needed yet again.
Aquaculture initiative: It was encouraging to read that the EU Fisheries Commissioner has recently spoken about the need to increase initiatives for aquaculture development, especially in light of declining fisheries. This week we heard about another one such initiative taking place on the other side of the world, details of which can be found at http://finfish.org . Our industry should support such initiatives in whatever way they can.
