Saturday, October 12, 2013

The Price of Lobster

I have a bone to pick. Or should I say, I have shell to pick? The media, who is all of a sudden an expert on lobsters, is making my job very difficult.

All summer long local and national news has been reporting on the "prices" of lobster and while they think they might be helping the industry by bringing awareness, I say they are doing more harm than good. Yes, lobster prices are the lowest they have ever been, but it is more complex than that and the reporters NEVER take the time to discuss the nuances of the lobster price.

I am going to take a moment now to point out a few of the oft overlooked points and statements I have to contend with as lobster retailer.

A. "The price of lobster is $3.00 per pound." 

The media likes to announce the price of lobster, but rarely do they explain that the price they are announcing is the "boat price."

Boat Price is the price that is paid to the fishermen. In general it contains four categories of variable costs:

1. The costs to set traps

2. The costs to haul traps

3. The cost to transport the catch to a wholesale buyer

4. Profit

In a nutshell, boat price is the cost of getting lobsters from the ocean floor to a lobster wharf. In the case of Gurnet Trading Co., it gets the lobsters to Mill Cove, Harpswell.

B. "How come you are charging me $6.00 when the reporter said lobsters are $3.00 per pound?"

Remember how I said that $3.00 gets the lobster as far as the wharf? Let's talk about what happens next. The buyer costs can be described in five general categories:

1. Boat Price (The price paid to the fishermen.)

2. Fishermen Subsidies (It is not uncommon for buyers to subsidize their fishermen in the form of free dockage, bait storage, equipment loans, and pre-payment. These costs are expensive and represent significant risk on the part of the buyer, but the incentives are necessary to maintain a reliable supply source.)

3. Product Loss (Lobsters are a living creature and if not properly cared for, they will die. Even if they are cared for, they still might die. The lobster buyer must be able to absorb the cost of every dead lobster).

4. Wharf Expenses (A commercial wharf is expensive. You have to cover costs for dock hands, water aeration pumps, coolers to keep the bait from rotting, loss from bait rotting, parking and access for fishermen).

5. Profit

So let's say the wholesale buyer can jam all those components into an extra $1.00 a pound. So now our lobster price is at $4.00 but it is still sitting at a wharf in Harpswell. Maybe the lobster dealer will offer to deliver the lobsters locally for an extra $ .20.

Our "$3.00" lobsters are now sitting in Brunswick and the retailer has paid $4.20 to get them there. So let's talk about the retailer's costs.

1. Wholesale Price (The price paid to the wholesale dealer.)

2. Product Loss (The risk of product loss is now even higher. The lobsters have been transported at least once, significantly increasing stress on the creature. And now they are being stored in a holding tank that is crowded, away from the ocean, and water quality is more difficult to maintain.)

3. Store Expenses (The operating costs of a retail location are significant. There will be more employees, generally higher rents and location costs, more regulation and consumer protections required, and other expenses to absorb such as theft and grounds maintenance for safe  public use.)

4. Profit

If our retailer adds $2.00 a pound to cover these costs, she is already at $6.20 a pound. And that my friends is why you do not pay $3.00 for lobster when you walk into a seafood market in Maine.

Since Gurnet Trading Co. is both a wholesaler and retailer, we are able to consolidate some of our costs and profit. Often we will pass the savings onto the fishermen and pay them above the local Boat Price.

Now, at the other end of the spectrum, if you walk into a seafood market outside of Maine you can expect to double that price. As a rule of thumb, there is a 1:1 relationship between the price of a lobster and the cost to ship it overnight.

If a retailer in Colorado has a direct connection to a wholesaler, in this example, he could get a salable lobster in store for maybe $8.40 (the $4.00 wholesale price plus $.20 for packing the lobsters, multiplied by 2 to for UPS or Fedex shipping charges. He then has to account for his own profit and a significantly higher rate of product loss.

If our Colorado retailer does not have a wholesale connection, he will be paying retail price and just to get his lobsters to his store will cost him more than $13.00 a pound.

C. Shedders or Hardshell?

The prices quoted by the media are always for a softshell lobster. A softshell lobster can not be reliably shipped and expected to remain alive. Generally, if we are shipping a softshell lobster it will be cooked first.

Hardshell lobsters, particularly when lobsters are cheapest, are caught less frequently than shedders. Due the lack of supply, they command a premium; further increasing the price you may see in your local fish market.

Shedders can survive the transport to a local market, but markets more than a day's drive will be selling hardshells.

D. Truck or Plane?

The media also neglects to mention transport costs. Lobsters are hardy creatures, but they do not like to be out of the water for more than a day. To get to destinations outside the "one day ground" region, lobbies have to hop a plane.

E. "Lobster is cheaper than ground beef."

Gah! I hate this statement. It makes me so angry. It is bold faced lie and only shows how little someone knows about the food they eat.

The top grade 91% lean ground Angus beef at my local Hannaford is currently priced online at $5.29 per pound. Gurnet Trading Co's current in-store price for chick lobsters is $4.99 per pound.

Yes, at first blush the price of ground beef is more expensive than the price of a whole and live lobster.

But, not withstanding the whole "Pink Slime Controversy", that pound of ground beef for $5.29 is 100% edible. It does not contain hooves, horn, hair, bone, cartilage, innards or any other inedible part of the cow. The $4.99 lobster, on the other hand, includes all of the above. $4.99 buys you about 3/4 of a pound of cartilage, shell, water, and organs.

It takes between 5 and 7 pounds of live lobsters to make 1 pound of 100% edible meat. Do the math boys and girls. That makes lobster meat worth $25.00 per pound before you have even paid anyone to actually pick, package, and store the meat. Still want to say lobster is cheaper than ground beef?

Are you trying to scare us away from eating lobster? 

Absolutely not. I want you to eat lobster for your every meal, if you can stomach it. I am, however, trying to inform you. I am trying to help you understand the true cost of a lobster. I am trying to repair the damage done to the lobster industry by the media, who only tell half the story.

I'm trying to help you understand why you might walk into our market and pay $10 for a lobster roll or $30 for a pound of lobster meat. It is not because we are raping the fishermen and realizing huge profits instead of passing on the cost savings to the customer, it is because lobster prices are more complex and much higher than people are led to believe.

One last thought.

Besides the fact that the media has made consumers think retailers are overcharging for our products, they have also harmed the wholesaler's bargaining power. Boat Price is highly proprietary. In an industry where a single nickle can make or break you, keeping your prices private is critical to making profit and being able to maintain both a customer and supplier base. We have seen fishermen leave our wharf for less than a 10 cent price difference, while we have also seen them stay for free hot dogs and soda. It is a tough business and it is not made any easier by armchair analysts and reporters.

So the next time you balk at a price in front of you, think about why you feel it should be less and consider carefully what it took to get it to the store shelf.