Sitka direct marketing sales soaring
It could signal fundamental changes in the way seafood will be marketed for a century-old Alaska industry. Or it could be just another marketing niche, profitable for just a few.
Either way, Sitka Salmon Shares caught a lot of attention when it began direct sales of Alaska fish to Lower 48 consumers in 2012.
Direct marketing of Alaska fish to the Lower 48 is hardly a new idea. Years ago, Sitka harvester Sherry Tuttle drove around San Francisco with king salmon in the trunk of the car, begging chefs to try the product. They did, and liked it.
Nic Mink at Sitka Salmon Shares is taking this to a whole new level, however, moving and selling fish in large enough quantities to overcome economy of scale challenges that confront individual harvesters who do direct sales but not so large that the connection for the consumer of where the fish comes from, and who caught it, is lost.
That information goes along with a box of fish delivered to customers, and there’s even a link to a video tour of the fishing vessel, Mink says.
Sitka Salmon Shares will process and sell about 150,000 pounds of seafood this year with about $4 million in sales. This is no competition for big, traditional processors in Sitka like North Pacific Fisheries, which moves several million pounds of fish every year from its plants in Sitka.
But things can change fast these days in business, and the internet and e-commerce have unleashed whole new ways of marketing and business organization even if the seafood enterprises are, for now, small niches.
Sitka Salmon Shares had an unlikely beginning. Its startup in 2012 was a project of the Sitka Conservation Society, a conservation group, and was in fact a fund-raiser.
Mink, who has a Ph.D. in history and environmental studies, was teaching at Knox College, a liberal arts school in Galesburg, Ill. He was in Sitka in 2011 and helped the Sitka Conservation Society organize a fundraiser, selling fish to faculty at Knox College and friends of Mink’s in Galesburg.
“The Sitka Conservation Society’s interest was in creating more support for sustainable fisheries and raising consumers’ awareness of where their fish comes from,” Mink said.
The fundraiser was so successful Mink decided to start a business with some of the Sitka harvesters who had supported the effort.
This was also near the start of the national “local foods” movement, and with the growth of internet marketing the timing seemed good for new players, like Mink, to bring a different background and new ideas to the business.
“I was a professor of natural resource management. Now I’m a fish monger,” he jokes.
The first two years involved small steps and learning lessons, with fish purchased from harvesters processed with local custom processors who mainly dealt with sport charters.
The business quickly outgrew their capacity and Mink faced a dilemma. Sitka has several very small custom processors and its big, traditional seafood plants. There was no medium-scale processor in between.
Sitka Salmon Shares had to create one in 2014 by purchasing Big Blue Fisheries, a custom processor, along with a formal incorporation of the business and recruiting 13 local fishermen as investors (there are 25 who supply fish to the company including the 13 shareholders).
Sitka Salmon Shares spent a year updating equipment and installing a high-tech freezer and ice machine to ensure fish stays in top form during two to six weeks in surface shipping to customers.
Marsh Skeele, one of the first harvesters to supply Sitka Salmon Shares and a company founder, and who now works full-time in its management, said he was interested in the direct-selling concept.
“I want people who buy my fish to know the care that I put into handling them,” he said.
Skeele was fishing full-time in 2015, part-time in 2016 while also working in management at Sitka Salmon Shares, and is now full-time with the company among its 35 employees.
Mink credits Skeele, a second-generation fisherman, with being an early advocate for the company among harvesters in Sitka.
“He helped sell our idea to other fishermen. This was important because there are a lot of small, fly-by-night processors in this business who have left people burned,” Mink said.
“The big processors have been here 60 or 70 years and they are known to be reliable. It’s a big risk for a harvester to take a chance, selling to a small, new company,” he said. Skeele convinced fishermen to take the risk.
Skeele is recruiting more fishermen to sell to Sitka Salmon Shares but he won’t take just anyone.
“We want people who care about quality and who are willing to invest in chilling equipment and even take shorter trips,” to get fish back to Sitka faster, Skeele said. “We also want people who understand the direct connection to the consumer.”
Mink said that Sitka Salmon Shares’ distribution and marketing strategy is aimed at selling the product at retail, for salmon typically at about $15 per pound to $25 per pound.
That’s in the same general price range as Whole Foods, a national chain that touts its food quality, but Mink said his fish are of higher quality and handled better than Whole Foods. Repeat business from retail customers seems to affirm that, he said.
For harvesters, the company’s direct-to-the-customer business model means that Sitka Salmon Shares can typically pay 20 percent to 30 percent above the “dock price” for fish paid by large processors, but since this can’t be guaranteed the company will at least guarantee to match the dock price, Mink said.
The big advantage for harvesters, however, is that they know in advance what their prices will be, which gives them stability for planning, Mink said. The large processors’ dock prices can vary during the season.
A key part of the business strategy in direct selling is knocking out the middlemen. Some larger seafood companies have as many as four steps in the supply chain, various wholesalers and distributors before the fish arrives at the grocery counter.
Only Trident Seafoods and Ocean Beauty Seafoods, both large companies, sell their own branded products but even those go to large retail chains like Costco. Even these sales are a small share of the companies’ overall sales, but they are higher profit.
Sitka Salmon Shares goes a step further by selling directly to consumers. The company has 4,000 direct-sale customers in the U.S. Midwest — that’s up from 70 in 2012, the company’s first year — who are served out of three company-owned distribution centers in Galesburg, Ill.; Schaumburg, Ill., a suburb of Chicago, and Madison, Wis.
Sales span five states in the nation’s heartland, Minks said. It’s no coincidence that the distribution centers are in communities with colleges and a young demographic.
Frozen product is shipped by barge to Seattle and trucked east to the distribution centers. Final deliveries to customers from distribution centers are in vans owned by Sitka Salmon Shares, and marked with the company’s name.
Customers pay $79 to $109 per month to receive weekly boxes containing four to five pounds of the fish they request.
“Eighty percent of our volume moves through our own distribution chain,” to retail customers, Mink said.
Market promotion is mostly word-of-mouth through the growing networks of consumers interested in alternatives to the mass-market food supply chain.
A critical part of the business model is doing the final processing and packaging at the Midwest distribution centers where costs are far lower than in Sitka, Mink said.
“Electricity is almost 10 times more expensive in Sitka than in the Midwest; 15 cents a kilowatt hour here compared with 1.8 cents a kilowatt hour there,” he said.
Land in Sitka is expensive and scarce because the community is hemmed in by the Tongass National Forest. Getting good workers can be a challenge in Sitka, a problem shared by all businesses there.
Because of this, “we do as little with the fish as we can in Sitka and as much as we can in the Midwest where it’s cheaper,” particularly packaging, he said. There are other ways the company runs lean, such as using public docks to offload fish and load ice on fishing vessels.
The large processors, which operate at a much bigger scale, must operate and maintain their own docks.
Sitka Salmon Shares can’t be as competitive in wholesale as the big companies, Mink acknowledges.
“Still, the large seafood processors sense the market opportunities and some are testing the direct-sales market, but large companies don’t operate well at smaller scale. They’re set up to operate most efficiently at wholesale and in larger volumes,” Mink said.
Meanwhile, Sitka Salmon Shares is really into something, he believes.
“There’s a huge, untapped market out there,” Mink said, for creative marketing to a younger generation. “E-commerce is changing the relationships between food producers and consumers.”
As the nation’s appetite for seafood grows, the market share of consumers interested in the source of their fish, and the sustainability of fisheries, will also grow, he said.
Tim Bradner is co-publisher of Alaska Legislative Digest and a contributor to the Journal of Commerce. He can be reached at [email protected].