“Price Not The Problem”
– Spiros Tourkakais
by Mike Crowe
Spiros Tourkakais, East Coast Lobster, (standing) talking with fishermen following a panel discussion of lobster pricing at the Mass. Lobstermen’s Assoc. meeting January 25, 2013. Seated right is Berie Feeney MLA member who moderated the panel discussion. Spiros summarized his view by saying, “this is our problem, dealers and fishermen. We have many ideas, but we have to organize to find solutions and lobby for changes.” Fishermen’s Voice Photo
The recent surge in lobster catches and the decline in prices has the industry on alert. At the Massachusetts Lobstermen’s Association Annual Event in Falmouth, MA, January 25, lobstermen and a panel of three major lobster dealers met to discuss lobster pricing.
The MLA invited Tom Collins, owner Sea Cliff Lobster Company, MA, Dave Delancy owner of The Lobster Trap Company, MA, and Spiros Tourkakais, owner of East Coast Lobster in Lynn, MA to sit on the panel. Tourkakais has been described as the world’s largest American lobster dealer. He is also a Canadian dealer and co-owner with Garbo Lobster of the lobster processing plant being built in Prospect Harbor, Maine.
Catches and prices are topics that easily draw conversation and opinions. But this year is different. Fishermen, scientists, managers and dealers are all at a heightened level of concern.
The age old question from lobstermen, “Where is the money” was on the minds of many lobstermen in the room at the Sea Crest Resort. Lobstermen asked how they can get a better price for the lobster they sell for $3.00 and the consumer pays $30.00 for in a restaurant.
In response to the financial difficulties lobstermen face, Tourkakais said the problem is complicated and simple.
The simple part said Tourkakais, is that there are too many lobsters being caught for the exiting markets. Some of this was known to most lobstermen, but Tourkakais added more observations of an industry he said has other problems. The complicated part includes four additional fundamentals.
In an interview with The Fishermen’s Voice Tourkakais talked about an industry that has compound problems that cannot be understood and therefore cannot be fixed by looking at only one factor. One of those factors is price, but “price is not the problem,” said Tourkakais. He listed five factors that must be considered - price, volume, quality, marketing and the exchange rate.
About the often referenced restaurant price, Tourkakais said restaurants use a three-thirds pricing formula. It’s simple. One third is the cost of the item. Another third is the cost of overheard - insurance, mortgage, wages, table set-ups, cleaning, etc. Another third is waste or shrinkage in the case of lobster.
The three-thirds math is also simple. “If a restaurant pays $7 for a lobster, and has $7 dollars of overhead, and calculate average waste at $7, that means lobster will be on the menu for $21.95,” Tourkakais said. If one of the two lobsters they bought didn’t make it, then there may be more than $7 of waste.
What about the $30 lobster in the restaurant a mile from the wharf it was landed on? “That accounts for a very small percentage. Most lobster, 99%, travels a long distance to the consumer,” said Tourkakais.
The profit margins of dealers can be estimated by breaking down the $4.00 difference between the $3.00 boat price and the $7.00 the restaurant paid. The $4.00 difference is shared by the number of buyers and dealers who may have traded that lobster. The total expenses and shrinkage of each dealer are deducted from each dealers share of the $4.00 to get the profit for each dealer.
“I make money from small mark-ups on very large quantities, millions of pounds of lobster,” said Tourkakais. “Fishermen and especially restaurants don’t handle that kind of volume,” he said. “Fishermen complain about the boat price, but the important thing is their gross income. Gross margins for me have changed since I started in the lobster business in 1981. Then gross margin, not profit, was 65 to 75 cents a pound. Now gross margin is 40 cents a pound. Profit is less than 1%, a figure that varies from company to company,” he said.
By the time a lobster gets to a restaurant it has been handled by many people who have bought and sold it, tossed it into crates, maybe left it on wharfs in August heat or November cold, dumped it’s crate into cold wharf-side water, hauled it up and onto a truck for rides of several hours. Maybe it has been loaded and unloaded onto trucks several times. Only the stronger lobsters can handle this and a percentage of the lobsters that get to restaurants are just not those.
This is where quality through proper handling effects the end user price and that ultimately effects the value of the industry. “This is not always apparent to the fisherman who leaves the lobster at the wharf and never sees it again,” said Tourkakais. But that lobster continues to effect his boat price long after it leaves the wharf. A lobster that breaks the surface as a top end hard shell that ends it’s days as a near discard at a processor carries financial consequences. On the other hand a gaff hook is as good as the day it was made after rumbling across the globe for months.
Organization is not one of the five factors but, Tourkakais thinks it is important. “The lobster dealers are very fragmented. The lobster dealers need to become organized to better serve the industry,” he said. “We compete with each other, steal each other’s sources and thereby create inefficiencies. Sometimes we sell too low, sometimes we sell high and sometimes we break even,”he said.
“Dealers need to form an association like real estate dealers or lawyers. The fishermen are more organized than the dealers. Stronger legal bodies in the form of associations would help to regulate both sides, fishermen and dealers, for the good of the industry as a whole. An association with a strong voice could represent the interests of dealers and buyers. It could negotiate with, and get together with the fishermen’s associations to advance each others interests and markets,” said Tourkakais. He said he has tried to organize dealers but there is a lot of mistrust among them.
Dave Delancy, owner The Lobster Trap Company referred to the scale of losses for some dealers in the 2012 glut. On one day his employees bought 162,000 lbs. They bought at $1.97 and had to sell at $1.60, which he said “was better than losing $1.97 a pound. “There was just no place to send 162,000 lbs. of lobster.” One Canadian dealer, bought 19,000 lbs. from one lobsterman in one day in 2012.
Tom Collins owner of Sea Crest Lobster in MA has been in the lobster business 55 years. He said the live lobster has given way to the frozen product markets. He too saw increased losses as result of having to sell at a loss because there were insufficient markets to absorb the glut.
Market development for frozen product would help absorb the large volume of seasonal soft shells and reduce the seasonal price swings, said Collins.
Collins said, “the frozen market is half the market now.” Collins cited other things that have changed in the industry, but eating habits may be the most influential. The large volume of lobster from the U.S. and Canada are driving down prices with slower relative market growth.
The rising demand for lower priced processing grade means more sold at lower prices. Market and frozen product development could bring demand in line with harvest levels.
The exchange rate doesn’t come up much in boat price discussions, but Tourkakais pointed out that it definitely influences markets and prices. If the value of the U.S. dollar is lower against the Euro then American lobster will look cheaper in European currency.
Likewise, if the U.S. dollar is high against the value of the Euro, or any other world currency, then the price of American lobster will look expensive in these countries. The exchange rate influences demand and therefore price. There are many forces influencing the exchange rate.
“We need new thinking. There’s a lot talk about price. But there is also a lot of competition from less expensive proteins like meat and chicken. Twenty years ago Maine harvested 22 million pounds of lobster. In 2012 the harvest was 123 million pounds, a six-fold increase. We need much better marketing and promotion,” he said. This was one important area in which he said dealer cooperation could increase lobster value.