The 1998 Annual Report
                 On The United States Seafood Industry

                U.S. Seafood Consumption; Why is it Declining?

U.S. per capita seafood consumption declined in 1997 to 14.6 pounds, the third straight year consumption has fallen and the lowest per capita level since 1984. What is happening? With a strong economy, robust restaurant business and a powerful "health" message, Americans should be eating seafood in greater, rather than lower, numbers. Why is seafood consumption

 1. Supply. The most obvious reason U.S. seafood consumption is decline is lack of sufficient supply. Industry cannot get
 enough seafood, therefore less is consumed. Supply is a significant piece of the consumption puzzle, but not the whole
 answer. Domestic seafood landings peaked in 1993 at 8.2 billion pounds and have declined since. Imports set a record in
 1997 and now almost equal domestic landings. Total U.S. supply (landings plus imports) has been in the 13 billion-pound
 range for the past six years. The problem is that population has been increasing while supply has remained static. In fact, if
 supply remains at the 1995 level of 13.5 billion pounds, by 2010 per capita consumption will decline to 13.1 pounds per

 Those species that are not supply constrained, particularly salmon and catfish, have experienced consumption increases.
 Shrimp consumption, thanks in part to lessened demand in Asia, set a record in 1997 at 2.7 pounds per capita. If we want
 to increase consumption, we need additional supplies. Aquaculture is the most obvious solution.

 2. Price. While seafood prices, as measured by the Consumer Price Index, are significantly higher than competitive proteins
 (beef, poultry), they have moderated in recent years and, in some cases, declined. Seafood prices tend to find their own
 level. Shrimp appears to be income-elastic since prices in 1997 were at or near record levels and consumption still
 increased. Other species, more supply constrained, maintained product movement at higher prices but in lower volumes.
 There are two concerns regarding seafood prices: 1. If the economy slows, as it eventually will, restaurant business will fall
 and seafood sales will suffer. 2. At retail seafood competes against meal alternatives, other center-of-the-plate proteins and
 home meal replacement options. Price-wise many seafoods are perceived as too high priced when compared to other
 proteins. For example, skinless, boneless chicken breasts generally retail for $3.99-$5.99 per pound while fish fillets are
 usually $5.99-$7.99. Seafood has very limited inroads into value-added and home meal replacement, areas where innovative
 product development may provide significant opportunity.

 3. Availability. In the mid-1980's U.S. supermarkets began adding large, full-service seafood departments with
 European-style displays. This type of operation required a large volume of seafood just to fill the case. As a result, shoppers
 had a wider variety of seafoods to choose from and seafood consumption increased. Today, supermarkets are much more
 cautious when it comes to installing or retaining full-service seafood departments. This is because labor cost is high,
 contribution to store profits is usually low (when compared to other supermarket departments). Conversion from full-service
 to self-service results in fewer seafood selections and small sales volume. To date, declines in seafood departments are not
 being offset by increases in seafood sales via frozen, deli or "meal solutions" departments.

 4. Demographics. The U.S. seafood market is really a series of niche markets ranging from "live" markets catering to
 largely Asian consumers to white tablecloth restaurants offering limited-availability high cost products such as mahi-mahi,
 swordfish and large sea scallops. Research indicates that only about 50 percent of adults in the United States consume
 seafood on a regular basis. Of these adults, the heaviest consumers tend to be well educated, have higher incomes and fall in
 the 45-54-age range. This leaves a lot of people outside the loop. Younger Americans are less likely to eat seafood,
 according to studies, not only because they may not be as health conscious as older adults, but also because they do less
 cooking at home and find seafood preparation too intimidating. One confounding statistic is that older Americans tend to be
 the heaviest consumers of canned seafoods. Yet, as this population segment is increasing, canned seafood consumption is
 decreasing. Poor quality and lack of marketing are two likely reasons. In order to sell more seafood, at whatever price,
 sellers need to better understand who their ultimate customer is and what benefits they are after (taste? health? variety?).

 5. Marketing. Rather, lack of marketing. The canned tuna companies have finally realized that part of the reason
 consumption of their product has dropped is that they stopped investing in their respective brands. Canned tuna became a
 commodity and consumers bought on price. American consumers are bombarded with messages daily telling them what to
 eat and drink ("beef, its what's for dinner," "got milk?") and yet the seafood industry remains largely silent. We have a
 powerful health message, but with no generic marketing program consumers can't hear us. Failure to promote seafood
 generically has cost the industry consumers and margins. The "Eat Fish and Seafood Twice A Week" promotion from the
 1980's worked. Industry needs the "Sturgeon General."

 6. Convenience. While some segments of the U.S. seafood market prefer whole (or even live) fish, most consumers do not
 have the time or inclination to remove skin and bones before preparing a meal. When was the last time you plucked a
 chicken? Today's consumer is willing to pay extra for convenience and, more and more, this means products that are not just
 skinned or boned, but oven-ready. While much has been written about home meal replacement, the seafood industry is far
 behind others in product development.

 7. Perceived Value. Perceived value is the price a consumer finds acceptable for desired benefits. These benefits include
 taste, quality and convenience. Often a high-priced product sells well because the perceived value is also high. The reverse
 can also be true. Chicken sells well at moderate prices because it rarely dissapoints. Seafood, which often sells at much
 higher prices to alternative proteins, does not always deliver satisfaction. Product quality may be lacking or consumer
 mis-handling may lead to a bad experience. The seafood industry needs to develop products that consistently deliver
 acceptable shelf life, good taste and ease of preparation. Good packaging and promotion can also raise the value perception.
 When consumers see seafood as good perceived value, price will become a lesser issue.

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