In the past couple of months, several news stories have highlighted the difficulty some restaurants are having coping with higher seafood prices.
“Very few products are not going up in price,” Santa Monica Seafood President and CEO Roger O’Brien told SeafoodSource recently.
The price inflation in the distributor, processor and food service operators’ sales to foodservice customers alone was a “whopping 29 per cent” in June, O’Brien said.
This surge was a result of a perfect storm hitting the industry all at once.
First, seafood demand has continued to be strong at retail, so retailers have continued with expanded seafood programs.
Secondly, restaurants have been inundated with more customers than staff can handle, as it appeared in the early part of the summer that the pandemic might be behind us. This has led to a surge in restaurant orders as operators geared up for robust reopening sales.
Third, logistics and labour problems resulting from the pandemic have not abated.
There are not enough truck drivers. Port congestion is still adding time and costs for every imported seafood container. In the current environment, many front-line workers have become pickier about what jobs they will take and at what pay. This is forcing business owners to pay higher costs or cut back on sales or both.
At the same time, the trucking industry has relied on independent drivers who get paid by the mile. If congestion and port problems double the time required for a job, a drivers’ pay is effectively cut in half. As a result, drivers quit for other work and there is a real shortage.
These logistical problems are not just in seafood.
In Nantucket, where I am this summer, the airport ran out of jet fuel last weekend because the fuel companies on the mainland could not get drivers. The fuel trucks must meet a ferry schedule and drivers were not available.
Fourth, as COVID-19 has re-emerged in Asia, new work restrictions and requirements that factory workers remain permanently on-site have cut capacity. For example, more than 100 seafood factories are closed in Vietnam due to a lockdown imposed by the government. Factories can continue to operate only if workers eat, sleep and work on site and only 82 seafood factories can meet this requirement. VASEP (Vietnam Association of Seafood Exporters) reports that even those that can do this can only operate at 30 to 50 per cent capacity.
Fifth and finally, demand for some seafood items has increased well over what can be supplied under normal circumstances from wild-caught fisheries, especially high-value marquee species like lobster, king crab and snow crab.
This perfect storm of price inflation has forced some restaurants to cut items from their menus.
Bloomberg reported on a number of restaurants that have pulled signature items off the menu, including crab meat and crab legs. Having an item dropped from the menu is a supplier’s worst fear, as it permanently cuts off a customer for that product and there is no guarantee that the item will get back on the menu.
In today’s environment, some distributors short on inventory may welcome the reduction in customers, but long-term it has traditionally been a flashing yellow light for the industry when major buyers give up on a category.
Menu development takes time and once an item is gone, there is no guarantee it will return. The pandemic was already forcing menu consolidation. Now labour, price and supply issues are pushing menu consolidation even further.
Previous price spikes that caused wholesale discontinuations of a menu item have had years’ long impacts.
For example, in 1986 McDonald’s decided to introduce a limited coldwater shrimp sandwich item, similar to the popular shrimp sandwiches in the U.K.
At the same time, there was a slight reduction in supply. The resulting price squeeze pushed up coldwater shrimp prices 50 per cent or so. McDonald’s dropped the promotion, distributors began convincing their customers that warm water salad shrimp was a good substitute and it was at least 10 years or more before coldwater shrimp prices ever rose to that level again.
Another example is Darden’s use of snow crab meat.
About 20 years ago, Darden purchased millions of pounds of snow crab meat from Newfoundland and Labrador every year, supporting a large factory workforce involved in picking crab meat. But as the price of sections rose, crabmeat prices went over $10/pound (seen as very expensive at the time).
Darden revamped its entire Red Lobster menu in response. From over 20 items with snow crabmeat, the new menu cut that down to two and no longer promised snow crab meat. The meat-picking industry in Newfoundland and Labrador collapsed. Today, the volume of snow crab meat is miniscule compared to what it used to be and companies that need it now for specialty orders will have it packed in China and reshipped to the U.S.
The point is that menu adjustments can sometimes lead to permanent changes.
However, this bout of seafood price inflation may be overblown. If it is the result of a perfect storm of individual factors, once some of those factors recede, so should sense that seafood can be sold at almost any price.
Right now, we are likely at the half-time of the pandemic, not the final quarter as many of us assumed. So, we have no visibility as to which special factors, from transportation, to labour, to consumer buying patterns, will become permanent and which will be temporary.
In researching this column, I did a comparison among the major seafood items to see if there was a bifurcation and whether only certain items were driving the headline price increases.
This very much proved to be the case.
Snow crab, lobster meat and tilapia all have increased in price at phenomenal rates compared to 2019. For tilapia, this is largely due to the pandemic supply and shipping disruption. For crab and lobster, it is due to excessive demand spurred by strong retail and foodservice sales.
But other seafood items are behaving more normally, even if they are up in price. Farmed salmon, for example, is very expensive right now, but has historically been volatile and when production comes back, prices will return to their historic averages.
Shrimp, meanwhile, is trading below its price in 2019, according to the UB white shrimp index. Again, production disruptions could change this, but after years of record shrimp imports, the U.S. market is well supplied to meet retail and foodservice needs.
Pollock has also increased in price, based on lower supplies from China. For example, the European Union only could buy 67 per cent of the pollock fillets it usually gets from China in the first half of 2021. So, prices continue to go up.
However, once the pandemic disruptions are accounted for, the permanent price increases are likely to come in at a much lower level.
The wildcard for any seafood price outlook is not what happens in the U.S., but the strength of demand for the same products in China and Europe. China’s demand for lobster year to date is double that of 2020 and is one-third higher than 2019. This has contributed to the overall demand for lobster.
In summary, this bout of price increases is very much a pandemic phenomenon, which means things may look different to seafood sellers in 12 to 18 months. Nevertheless, the real-world effects of price increases, in terms of menu adjustments, consumer change in tastes and total volume sold through foodservice all can have lasting impacts.
It’s just not possible to predict the strength of those impacts at this time.
This article was republished with permission of John Sackton and seafood.com.
