reLAKSation 89.
Discarding the blinkers: Following the presentation of Fjord Seafood’s first quarter figures, new Chief Executive Helge Midttun gave one of his first interviews to Intrafish. He revealed that he believes that the whole salmon industry is ‘too hung up’ on salmon prices, especially as they may remain low for a long time yet.
We, at Callander Mcdowell, would congratulate Mr Midttun for openly expressing this view. We too, have believed that the industry has focused too heavily on salmon prices for far too long instead of examining potential profitability. The salmon industry has undergone major change and so it is now necessary to look at salmon farming in a different way. The marketplace too has changed and the industry needs to re-examine its relationship with the markets.
This is why new leaders to the industry must be welcomed with open arms. Mr Midttum said that he brings industrial experience to what is still a novice industry. Some farmers may argue that there is wide divide between salmon farming and industry but there are clear parallels from which everyone can learn.
We certainly would hope that other companies start to recognise that salmon prices are not the ‘be all and end all’ to the future of the salmon industry. The salmon industry is still in its infancy and has a long way to develop. Unfortunately, there has been a previous readiness to place barriers to such development. We can only hope that such new blood to the industry, like Mr Midttum, can now help discard all the past baggage and take salmon production forward to the wider marketplace and most importantly, to do so profitably.
Bargain price or bargain offer? Europe cannot get enough of salmon just now, mainly due to the retail price in supermarkets. This follows several dormant years. Fish trader, Kim Broderson, used the price of smoked salmon as an example as to how the price has fallen. Four to five years ago, a 200g pack sold at Euro 4.14. Two years ago the price had fallen to Euro 2.58, whereas now the price is Euro 2.15. According to Mr Broderson, the lower price has meant that salmon is now available through even the smallest supermarket and grocer. He also suggests that the same applies to fresh and frozen portions of salmon, causing supermarket sales to skyrocket.
As regular observers of the retail sector, we at Callander McDowell, are not convinced that falling salmon prices are reflected by what the supermarket offers its customers. The reality is that many supermarkets have held their salmon price steady for quite some time. In fact, some farmers have complained that as farm gate prices have fallen, supermarkets have been increasing their own margins by indefinitely maintaining the same price.
So what is actually happening in the marketplace? Certainly, consumer demand for salmon is increasing and this is due to recognition that salmon represents real value for money, when compared with other fish species. Its low cost and widespread availability also mean that it can be easily transformed into the type of products that consumers actually want, further stimulating demand.
Evidence from the UK supermarket sector would suggest that salmon prices have remained relatively stable as have smoked salmon prices. At first, this would not seem to support the view that lower prices are fuelling increased demand, so any increased demand must result from elsewhere. Actually, Mr Broderson goes on to identify the real cause of this growth in consumer demand himself. He highlights the advertising leaflets, which pour through the letterbox of every European home every week. These all contain offers on smoked or marinated salmon. In the UK, they regularly include offers on fresh salmon portions as well.
Our observations of the retail sector indicate that it is these price-related promotions, which are responsible for stimulating significant growth in consumer demand, especially for fresh salmon products. Supermarkets recognise that reductions in the price of salmon will significantly increase consumer purchases, however, they also recognise that once salmon prices have been cut, it is almost impossible to increase them again, without harming sales. The way round this dilemma is to maintain prices at a constant level but then offer regular discounts over fixed periods after which the price returns to its original level. Supermarkets use a variety of promotional tools to reduce the price of salmon to their customers for short periods. These include BOGOF – Buy one get one free; Buy two get third free; Extra product free, such as 33% extra for the same price and direct price cuts, such as half price. Supermarkets can also link discounts into other products so that buy a pack of salmon and get a tub of hollandaise sauce free. These linked promotions are no longer as common as they used to be since many consumers often do not want the free product. Instead, they much prefer the price-related offers.
It is these promotions, which occur almost continuously in one store group or another that are really responsible for stimulating consumer demand for salmon. Of course, if the farm gate price were not so low, then many of these offers would not be possible. Those sections of the industry who are looking for a rise in prices should be reminded that lower prices stimulate demand, conversely, rising prices will have a detrimental effect on sales which may negate any real benefit.
Look elsewhere for quality!: Scottish Quality Salmon have warned retailers that they risk losing their quality conscious customers if they use catch-all descriptors on labels of their salmon products. The Food Standards Agency have pronounced that retailers can use a more generalised label to describe the origin of the fish they supply, when it comes from more than one country. This means that labels might describe the salmon as ‘Farmed in Scotland or Norway’. The FSA recommend that where suitable traceability systems are in place that can identify specific batches of fish, then the product should be labelled with that single country of origin.
The new labelling legislation has presented the supermarkets with new challenges and different supermarkets have responded in different ways. The challenges differ as to whether the salmon is sold in a pack from the chiller cabinet or loose from the fish counter. Clearly, it is simpler to label prepacks with the specific origin of each batch of fish as the label can be set up before each packing run. Some supermarkets have chosen to buy only from one origin, whilst others sometimes have salmon from three different origins on the same shelf. Only one of the major supermarkets has opted to use a preprinted label, which states that the salmon comes from one of two different origins.
The fish counter poses more of a challenge as the fish and the label are separate. Again most supermarkets have elected to specify the origin of the fish they buy. In the UK, four clearly state that they sell Scottish salmon, one changes the labels according to the fish they buy and the other uses the dual origin descriptor. The Scottish industry might argue that if the other supermarkets can run a single origin label successfully, then surely the other one can. Yet there is a significant difference between the supermarkets, which specify a single country of origin, and the one that does not and that is the amount of salmon they sell. Those supermarkets, which sell smaller volumes of salmon, can more easily buy from one source. By comparison, other supermarkets sell enormous volumes and are unable to buy from just one origin. In order to keep their customers supplied, they need to go to the open market and thus they buy salmon from only two different origins. This will change on a day to day basis and it would be an impossible task to keep changing the labels accurately. Instead, a simpler solution is to declare that the salmon comes from a choice of origins.
The Scottish industry implies that those consumers who prefer to buy Scottish salmon could be denied such an opportunity to do so. Yet clearly the supermarkets concerned do not consider this an issue, otherwise they would respond accordingly. If they were losing sales because consumers were unsure of the origin of the salmon offered, then they would look again at the way they labelled their fish. The fact that they have not done so implies that consumers are happy with the product and the way it is presented to them.
Observations from other supermarkets of packs, which are identified by different countries of origin, actually suggest that most consumers are largely indifferent to the origin simply picking up the first pack which comes to hand.
However, supermarkets are aware that some consumers are more quality conscious than others, and offer these customers the opportunity to buy packs of their premium salmon. These packs are not only identified as Scottish but also states the locality in which they are produced. This is even more information that is actually required.
The new labelling legislation may aim to provide consumers with more detailed information, but most consumers are proving indifferent to such knowledge preferring to focus on whether the salmon offers them real value for money instead.