Lobster marketing strategyIssues and options

Presentation toLobster Council of CanadaCharlottetown, July 6, 2010

By

Gardner Pinfold

Revenue Management Limited

Market Research Associates

Why we are here…

Gain common understanding of situation - factors affecting industry performance

Discuss marketing strategy -

opportunities and actions Examine marketability constraints -

challenges and options Identify next steps in the process -

what, how, when, where

Overall industry objectives

Build value throughout the value chain• Produce for highest valued markets &

market segments• Extract greater share of final product

value

The industry picture: not pretty

Revenue down by $200 million since 2006 Lobster supply up by 25% since 2003 US$ worth 40% less in 2010 vs. 2002 Global recession drives down lobster prices Wholesale prices down by 40% since 2003 Shore prices down by 35% since 2003 Industry engaged mainly in opportunistic selling Lobster has become price-volume business Industry working on narrow to negative margins

Industry revenues down 20%Atlantic Canada lobster industry revenues: 2000-2009

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Statistics Canada

CAN$

TotalLiveProcessed

Supply up 25% since 2003

Canada and U.S. lobster landings, 1990-2009

0

20,000

40,000

60,000

80,000

100,000

120,000

1990 1993 1996 1999 2002 2005 2008

Source: NMFS; DFO

tonnes

U.S.

Canada

Total

Foreign currency worth lessValue of foreign currencies vs. Canadian dollar (1997-100)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1997 1999 2001 2003 2005 2007 2009

Source: Bank of Canada

1997=100

USEUJapanUKS. Korea

U.S. $ down 40% since 2003

Export price of live lobster to U.S.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2002 2003 2004 2005 2006 2007 2008 2009

$/lbCAN$/lbUS$/lb

Source: U.S. Dept. of Commerce and Bank of Canada

Prices reflect currency shiftsLobster shore prices - Canada & U.S. (Can $)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: DFO, NMFS

$/lb

NS

NB

PEI

Maine

Harvester revenue 70-75% of export price

Harvester & shipper shares of U.S. wholesale price

0.001.002.003.004.005.006.007.008.009.00

10.00

1998199920002001200220032004200520062007200820092010

Source: DFO and Urner Barry

CDN$/lb for 1.25 lb lobster

Prepared by Gardner Pinfold

Harvester revenue

Shipper/distributor revenue

U.S. wholesale price

Harvesters share rises as industry revenue drops

Harvester & processor shares of U.S. wholesale price

0.00

5.00

10.00

15.00

20.00

25.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: DFO, Urner Barry, Bank of Canada, Industry

CAN$/lb wt avg for tail/CKL meat packShore price

Processor cost (shore price adjusted for 37% yield)

Processor gross margin

Distributor gross margin

U.S. wholesale price

Price sensitive to supply

Canada and U.S. lobster supply & price, 2007-2009

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jan May Sep Jan May Sep Jan May Sep

Source: DFO, NMFS, Urner Barry

tonnes of market lobster

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

U.S. $/lb

U.S. Canada U.S. wholesale

Price (right axis)

Supply (left axis)

Export value to US declinesCanada live lobster exports to U.S.

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

450,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CDN $

Canada frozen lobster exports to U.S.

200,000,000

250,000,000

300,000,000

350,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CDN $

Key markets retreat from liveCanada live lobster exports by country (excl U.S.)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Statistics Canada

CDN $

Belgium

Korea, South

France

Japan

Hong Kong

Netherlands

Spain

United Kingdom

Germany

Italy

China

United Arab Emirates

Sweden

Denmark

Wide fluctuations in frozen markets

Canada frozen lobster exports by country (excl U.S.)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Statistics Canada

CDN $

Japan

France

United Kingdom

Germany

Spain

Italy

Belgium

Korea, South

Sweden

Hong Kong

China

Netherlands

Industry structure: wasteful & destructive competition

Competitive fishing - excessive capacity/race to maximize catch/short season/gluts/poor quality

Port market - industry structure guarantees uniform shore price regardless of quantity & quality

Insecure supply - induces investment in capacity to meet seasonal peaks and volume-driven pricing to maximize capacity utilization. Difficult to plan when supply unstable & price unknown

Industry fragmentation - shippers/processors lack market power/knowledge and bargain away margins to larger and more powerful distributors/customers

Selling not marketing - many companies diminish the value of the product by selling opportunistically out of desperation. Very few have the size and resources to market effectively.

Salmon: consolidation moves industry from volume to market driven

Global farmed salmon production and price trends, 1990-2010

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

Source: FAO and IMF

$U.S./kg

0

200

400

600

800

1,000

1,200

1,400

1,600

thousands of tonnes

Tonnes $U.S./kg

Summary of Industry Strengths and Opportunities for Creating and Extracting Value

Resource Plentiful resource = dependable supply. Effective resource management by DFO ensures dependable supply. Canada dominates the world supply of lobster – the world superpower of lobster

The inherent quality of the resource has the potential to support higher prices/margins.

Seasonal alignment with Maine maintains price and volumes

Image Lobster continues to have a premium food image among consumers despite low price cues

Canada has a positive image among international markets. International image of US is less positive

Transport New Gateway refrigerated cargo facility is the largest north of Miami, and sits next to a runway to fill a void in the Atlantic Canada supply chain.

Aqualife seafreight is a transportation option that addresses carbon footprint issues and freight cost. Effectiveness and competitiveness remain to be determined

Location Proximity to large US market – offers existing market regions that are familiar with lobster and new markets for development

Access to US is easier than other countries: no tariffs, same language and business environment

Innovation PEI Processors are working with a product development expert to identify new products

PEI government is funding product development and process efficiencies for that province. This could form the basis for inter-provincial diffusion of innovation to assist the Atlantic industry if cooperation can be developed.

Exposure Selling activity increased in 2009 to decrease inventories. Low prices increased exposure to the product for more consumers

Barriers to Creating and Extracting Value Economy Recent and current recession fear is influencing purchasing and spending at all levels of the value chain

Exchange rates have declined relative to the Canadian dollar, stripping value out of exports

Conserver economies such as the emerging middle class in China have savings rates of 38% low incomes and no social safety net , while consumer economies such as the US have savings rates of 3.6% but are not spending on luxury items due to a focus on basics

Existing Markets

Destructive internal competition is placing Canada at an extreme disadvantage in existing markets which now know that they can wait for a lower price

Low prices of Canadian lobster products displayed beside lobster from other countries, such as South America and Australia, position Canadian product as lower quality

Over-reliance on US market - more diversification needed to spread risk and create opportunity

Emerging Markets

China prefers to control the purchase, so will be focused on achieving low prices. This places Canada in the position of committing/diverting supply to a lower margin, volume opportunity

There is a long time frame to develop consumption in the emerging middle class in these markets due to low incomes, entrenched traditions and lack of distribution systems.

Competition China is a low cost lobster processor that is flooding the EU with low priced product. Against these products, Canada can expect to struggle without a clear image for quality. Low quality popsicles in the EU and low prices in Japan due to Canadians undercutting each other are positioning Canada at a POS disadvantage.

Maine is aggressively promoting its lobster domestically and internationally. Maine lobster is known internationally. Maine will attain MSC before Canada. This will provide a quality cue that will further compete with Canada

France is creating an interdisciplinary coalition of supply chain participants to supermarkets to generate more value for the industry and a marketing campaign around Buy Local’ and quality local product

Australia is actively focusing on quality branding and supply management to build demand and to support prices.

Canada is not perceived to be promoting itself sufficiently – the greater focus is on price vs quality

Barriers to Creating and Extracting Value Consumers Middle income consumers are highly price –sensitive, with high unemployment and are trading down to lower

priced food items. Food security is a dominant concern which reduces demand for ‘luxury’ foods

Local foods movements are creating a preference for foods caught or produced locally – support for local producers as well as low carbon footprint and traceability/transparency are evident.

Food Service Celebrity chefs in the US are rejecting Canadian seafood due to misinformation about the seal hunt. This issue has also arisen in the UK.

The raw lobster format is too expensive despite labor and storage advantages

Chefs see frozen lobster as lower quality than live/fresh - taste difference and image difference

Live lobster is time consuming, labor intensive and space – consuming. Mortality and shrink contribute to high margins on lobster menus. Aversion to shrink has caused potentially unsafe cooking of deads in both retail and food service

Issues among food service staff with killing lobsters

Retail Focus on margin growth vs volume - retail buyers are rewarded for increasing the margins - the related loss of volume/revenue is picked up elsewhere in the store.

Consolidation increases their power to set prices to a fragmented lobster industry

A greater focus on buying direct is causing underutilized importers to buy for re-export, with less emphasis on quality or origin.

Supermarket lobster is being used as a loss leader which entrenches a low price point - several instances where lobster is sold for less than cost during promotions

French packaging legislation is becoming more stringent with focused nutritional labeling on the front of the package and a minimum 3MM font = changes to current packaging. There is also expected to be an extension of allergy labeling+ place of origin+ major ingredients.

Possible CO2 environmental labeling data (package content, goods and impact on natural resources through lifecycle to recycling). ADEME calculations of CO2 footprints include GHG emissions at various stages - currently CO2 labeling is voluntary. Issue is that CO2 footprint can vary through seasons and storage

Barriers to Creating and Extracting Value Government Canadian governments are reluctant to propose changes, given disparate interests and the belief that change

needs to be initiated by industry. DFO takes narrow view: Industry=harvesting. Many industry participants believe the industry needs external regulation to create change. Creates a leadership vacuum and a potential stalemate to moving forward.

The value of funding for trade missions and initiatives with uncertain or unequal benefit are areas of disagreement within the industry.

Logistics Despite proximity to Halifax International Airport, Air Canada is not perceived as helpful to exporters in Canada and their foreign importers regarding scheduling, pricing or handling

Flight times out of Logan Airport (Boston) are more accommodating to the needs of food service suppliers who frequently need emergency shipments later in the day.

FedEx rates have almost doubled in the past 5 years and schedules are not flexible for emergency shipments. Pick-up from FedEx requires that all other shipments be loaded onto their trucks before lobster can be accessed, later in the morning of the following day.

Trucking lobster to USA airports requires extra time in transit as well as the time to season the lobster in water before loading them for air transit. Quality issues are a factor with the need to go through the US

Air freight rates in the US are lower than in Canada

Industry

Issues

A few large firms have the budgets to open markets and invest in product development and process development that raise the level of the industry. But, unequal cost structures cause the market leaders to be undermined, followed by the subsequent undermining of the Canadian industry in markets that force prices down due to low cost operators that enable this behavior.

The Canadian industry is fragmented creating a weakened and unbalanced trading position with powerful, consolidated customers. Low barriers to entry make make industry consolidation difficult.

Effects of fragmentation make the needed cooperation and collaboration difficult due to lack of trust, destructive competition that competes away the long term value for the industry, the perception that autonomy = control , quality inconsistencies.

Fragmentation, distrust and insecurity generate weakness and poor decision-making. “Panic to buy and panic to sell” forces prices to the bottom. Inability to plan

The industry believes it doesn’t have the ability to lead change due to real and perceived resistance to change.

Barriers to Creating and Extracting Value

Industry

Issues

Currently, an estimated 10-15% of global buyers are quality buyers. This leaves 85%-90% of buyers who are looking for the lowest price and are undermining the opportunity for higher margin sales. This erodes the focus on quality at each level of the value chain

Skepticism about the value of generic marketing

Variable provincial regulations and practices generate an uneven playing field

A price-setting mechanism will only be successful if all provinces agree to participate and a critical mass of participants is required.

Uneven relationship with DFO - industry definition focuses on harvesting; fails to recognize and address constraints imposed on shippers and processors

Succession and exit strategies at all levels are uncertain

Access to capital is constrained due to industry instability. Reinvestment capability minimal due to low margins

Lack of industry confidence in the inherent value of the resource = low resistance to privateer pricing and trade demands. Volume-driven trumps value-driven decision making.

Lack of timely information entrenches the habit of looking backwards for guidance = a backward looking supply- driven industry vs a forward looking, market-driven industry where pre-sell enables market and industry planning, and improved cost/operating controls

Low barriers to entry into processing and shipping serve to reduce the value of businesses. Consolidation for greater power is undermined by new entrants, who may have previously caused industry damage through low balling price - no consequences for irresponsible actions

Unpredictable quality in Fall fishery – issues with quality consistency within the resource and among products

Early adoption of eco-certification and traceability are an opportunity to build an image of proactivity as these will be required to enter and remain in markets, but the Canadian lobster industry’s lack of a collective commitment, confusion and conflicting views, positions the Canadian industry as a follower vs a leader.

‘Supply-security’ with accounts receivable by shippers and processors, and cash sales on the wharf add costs and negative competition.

Loyalty sells for 10 cents a pound - unstable basis for building a sustainable business model

Barriers to Creating and Extracting Value Shippers Inability to provide a timely price to customers - lost business is the result based on customer interviews

The industry norm of matching the price generated by one buyer who may be buying low volume - the lack of confidence to refuse to match- fear of being ‘cut off’.

No guarantee of supply=can’t invest in equipment, build markets, when there is no assurance of product.

Processors Inability to provide a timely price to customers - lost business results based on customer interviews

The industry norm of matching the price generated by one buyer who may be buying low volume - the lack of confidence to refuse to match - fear of being ‘cut off’.

No guarantee of supply=can’t invest in equipment, build markets, when there is no assurance of product.

Increased labour costs resulting from having to process ‘gluts’ and associated low quality, crisis processing (e.g double freezing) in order to manage the volume

Fear that growth and increased margins will attract competition reinforces survival tactics vs strategic planning. Low margins prevent reinvestment in innovation, product development and process efficiencies

Rigorous food and plant safety standards are costly…but necessary

Buyers Low barriers to entry into the industry as buyers and inconsistent entry criteria across provinces

Not all buyers are aware of the market’s ability or inability to support prices - causing unsustainable price points and perceptions of collusion to keep prices low when shippers and processors are subsequently forced to match prices to access supply

Harvesters Unaware they are capturing the largest part of the export price

Holding lobster, to await higher prices, in water that is too warm reduces quality and price potential.

Strong resistance to the subject of supply management prevents consideration of the subject. Lack of understanding of supply/demand dynamics. New season gluts have a downward impact on the value of the full season

Harvesters who are investing in quality are paid the same as harvesters who are not investing in quality - reduces incentive to be quality-focused and to make investments in quality practices

MARKETING STRATEGY

INDUSTRY MARKET- ABILITY

Strategic Options

Status Quo Balanced System

Marketing6 P’s

Market Focus

MarketabilityRACE

Marketing Only

• Develop New Markets• Branding for Recognition • Generic Marketing for Demand • Uncertain basis for supporting brand claims and demand

Retain• Fragmentation• Lack of Control• Inability to Extract Value for the Industry

• Ability to Support and Sustain Demand• Ability to Extract More Value for the Industry

Where Are We on the Marketing Ladder?

PRODUCTION FOCUS= sell what you have

SALES FOCUS = volume is the measure of success4 p’s = product, price, place and promotion

CUSTOMER FOCUS =More competition - The customer has a choice. How can WE be that choice?

5Ps- people, product, price place, positioning/promotion

STRATEGIC MARKETING FOCUS =Globalization increases competition 6Ps - people, product, price, place/channels, place/markets, positioning

What Challenges Is Marketing Facing Today?

Consumer shift driven by necessity Consumers are looking for ways to trade down without losing

quality Consumers are trading out of fresh and moving to frozen or

canned Consumers seeking value by

• Buying less per trip• Buying more frequently• Seeking deals/coupons/promotions

Consumers are buying select items to stock up on specials Consumers are changing retail formats Consumers are visiting restaurants less and supermarkets more

QuickTime™ and a decompressor

are needed to see this picture.

Source: Perishables Group 2009

Consumer Shifts Occur Over Time and Geographically Demographic Boom: 1946-1964

population explosion in Western world, increases consumption

needs and potential

Cultural Effect: 1970-2000=more freedom of choice, more

consumption, more options among more people=more

demand

Environmental Attitude Shift: 2000s,consideration of consumption effects=greater discrimination

Consumption Shifts: late 2000s, more meaning, more discrimination re

consumption in NA and EU (BUY LESS,BUY BETTER)

Economic-demographic shifts in China and India: 2000s, emerging

middle –class, more

consumption, similar to Western world 10-40 years ago (BUY MORE, BUY DIFFERENT

Global Economic Recession; late

2000s, new normal and new

normalizer for all countries (BUY LESS, BUY HIGHER VALUE)

There will be a need to BALANCE emerging Consumer economies with existing

Conserver economies

Marketing Objective: Balancing the Moving Parts That Connect the Industry and the Market

Supply

Demand

Quality

Price Generate Stability

Manage Consistency

Cooperation Competition

INDUSTRY MARKETABILITY

MARKETING STRATEGY

The Impacts of Unbalanced Marketing and Market-ability

AUSTRALIAN MARKETING STRATEGY

INDUSTRY MARKETABILITY

Australia focuses on brandingand supply management

Australian tails sell for $45.99 pound in

USA and Japan

MAINE MARKETING STRATEGY

INDUSTRY MARKETABILITY

Maine lobster is actively branded and meat is selling at $29.99/pound in USA.

But lack of consistency in India, for example, has eroded

their position. Domesticstrength and export

weakness.

CANADIAN MARKETING STRATEGY

INDUSTRY MARKETABILITY

Canadian lobster is selling in Japan lower than

wholesale. EU marketswait for lowest prices to be offered. US says Canada

is the world lobster Superpower………..

Marketing Strategy Building Blocks

People

Strategy

Product Strategy

Pricing

Strategy

PositioningStrategy

Place/Markets

Strategy Place/Channels

Strategy

Marketing is a System of Strategic Decisions and Priorities

Marketing Options

People

Strategy

Affluent 10% x 4+/year(premium, lower price Sensitivity)

Middle Class Mainstream X 1/year(price/commoditybuyers, high price sensitivity )

Product Strategy

Canners v Markets

% Live v Frozen v Prepared

% Same v New

Pricing

Strategy

% Marketing for a Premium v Selling for Volume

Positioning&

Communication Strategy

Place/Markets

Strategy

% Existing v Emerging Markets

% Effort on Rescue v New DevelopmentMarkets

% Retail v Food Service Messages•Canada Brand •Generic • Health•Portion Sizes•Convenience•News

Media •Social/digital•Print.•Electronic•POS•Packaging

Targets•Industry•Trade• Consumers

Value Chain Control

Place/Channels

Strategy

Multi-channeling

Logistics

Quality Grading

Relational v TransactionalSelling

Price maker vprice taker status

Long termv short term thinking

Innovation v Invention

Effective Marketing Strategystarts with Market-Ability

PRODUCT

PRICE

PEOPLE

POSITIONING

PLACE/MARKETS PLACE/CHANNELS

INDUSTRY MARKET-ABILITY R

AC

E

Marketing Actions= RACEActions that answer the Question:

What do we need to DO differentlyto leverage strengths, minimize weaknesses, create opportunities and eliminate barriers?

REDUCE•Redirect•Decrease •Minimize

Weaknesses

ADD•Expand

• Increase• Enhance

Strengths

CREATE •Re-create •Develop New•Start

Opportunities

ELIMINATE • Remove• Stop • Terminate

Barriers

Reduce Add Create Eliminate People

Positioning

Price

Product

Place

/Channels

Place

/Markets

Weaknesses Strengths Opportunities Barriers d d d

Putting It All Together

Reduce

Weaknesses

Add to Strengths

Create

Opportunities

Eliminate

Barriers

People•Harvesters•Buyers•Processors•Shippers•Customers•Consumers

Narrow the focus on the struggling middle class target market – the low

price, low margin market

Increase focus on High $ Target Market to take the focus

off price as a barrier.

Focus on informing all harvesters about costs in the

industry beyond the wharf and the connection between

controlling consistency of quality and supply, in order to

build stability of price and demand

Create effective and transparent industry

information dissemination channels (vertical and horizontal) to support

understanding, trust and cooperation.

Eliminate negative perceptions that undermine trust (such as conspiracy

theories) with transparency

Eliminate inconsistent lobster handling practices

with education

Positioning Reduce opportunities for misinformed news issues, such as sealing, that arise

in the absence of alternative imagery and knowledge of Canada.

Reverse the slide into commodity status with a

quality focus

Reduce the current quantity focus that

defines the Canadian lobster sales model

Add a strong quality focus that will redefine the Canadian

position and product in the marketplace

Add Quality options- Canada Gold and Silver (aspirational and accessible), to clarify the

difference between price points and to position for quality

pricing

Add new communication channels (social media) to

introduce and support branding.

Create generic consumer –focused marketing, to generate demand for

quality that ‘pulls’ quality through the industry from

wharf to shelf (Pull marketing)

Create a compelling value proposition that drives

more consumers to ask for and about quality

distinctions

Create an ‘open for business’ climate in the

industry

Eliminate Canada’s country/supplier anonymity with a clear commitment to

traceability

Reduce

Weaknesses

Add to

Strengths

Create

Opportunities

Eliminate

Barriers

Price Reduce focus on transactional, low margin

volume selling,

Reduce price volatility which causes retailers and

food service to de-list

Increase relational selling, marketing for a premium.

throughout the supply chain

This is a focus on increasing margins to enable re-

investment and build a sustainable ROI

Increase speed of price provision to buyers to

increase capacity to plan

Build and implement a price-setting mechanism focused on quality, stability, efficiency and

unity.

Include an industry- minimum price mechanism as a base for incremental quality to incent

harvesters

to uniform quality practices.

Eliminate price-taker status, Price Matching Undercutting,

Counter-productive competition,

Short term focus

Product Reduce supply to support higher prices and rebuild from commodity status –

then manage supply to the markets developed .

Reduce the supply of low quality products that are

negative cues for processed.

Reduce the tendency to oversupply a product that ‘works’ to avoid flooding

Reduce the incidence of inconsistent quality product

from Canada that

sets the stage for low pricing.

Match processing capacity to the catch through

consolidation (reduces OH and labor supply costs)

Increase consumer exposure with new lobster products to

increase choice and frequency.

Increase the distinction between canners and

markets to create two clear products and price points,

and to leverage that

Canners are uniquely Canadian- smaller, good

quality and taste.

Build an innovation vs invention focus - collaborate on value added

formats to diversify risks and costs.

Focus on both in-shell product development, and meat products,

such as claws /knuckles.

Work with McCains or other value-added companies to develop

the next ‘chicken wing’ product using lobster

Create a live and processed product deployment plan that

aligns with market goals•Less live to existing markets to increase price• divert live to new markets to generate interest (Asia)•develop processed, convenience formats for existing markets already familiar with lobster

Eliminate product –origin confusion with packaging and live product markings.

Eliminate gluts that affect prices through out the

season, increase costs and threaten quality

Eliminate competitive fishing that drives up

harvesting costs and results in unpredictable supply

Reduce

Weaknesses

Add to Strengths

Create

Opportunities

Eliminate

Barriers Place

/Channels

Reduce reliance on powerful buyers by

expanding the customer network

Add new value chain strategies to increase control,

generate new growth areas and options for extracting

more value :

Digital channels

Value chain control, work-arounds

Multi—channeling

Commit to disciplined cooperation to create a dominant market presence consistent with

Canada’s dominant supply status.

Another term for this is ‘connected autonomy’ that recognizes

separate entities working together on selected initiatives

Eliminate channel weakness resulting from industry

fragmentation and negative competition

Place

/Markets

Temporarily redirect supply from low value markets to rebuild quality image and

demand

Add emerging markets

Add new regions in existing markets (second tier) for a balanced market portfolio

Focus on selected markets to build depth

Eliminate jumping from market to market

Where To Start?

Marketing Options

People

Strategy

Affluent 10% x 4+/year(premium, lower price Sensitivity)

Middle Class Mainstream X 1/year(price/commoditybuyers, high price sensitivity )

Product Strategy

Canners v Markets

% Live v Frozen v Prepared

% Same v New Products

Pricing

Strategy

% Marketing for a Premium v Selling for Volume

Positioning&

Communication Strategy

Place/Markets

Strategy

% Existing v Emerging Markets

% Effort on Rescue v New DevelopmentMarkets

% Retail v Food Service Messages•Canada Brand •Generic • Health•Portion Sizes•Convenience•News

Media •Social/digital•Print.•Electronic•POS•Packaging

Targets•Industry•Trade• Consumers

Value Chain Control

Place/Channels

Strategy

Multi-channeling

Logistics

Quality Grading

Relational v TransactionalSelling

Price maker vprice taker status

Long termv short term thinking

Innovation v Invention

Barrier #1 - nothing that matters is predictable Supply

• Size, timing and quality of landings are unknown and impossible to predict with current management

• Competitive fishing creates pressure to maximize catch leading to short seasons, gluts, poor quality

• Shippers/processors have no supply security; difficult to develop production plans to respond to customer needs

Price• Shore price set after season starts reflects market power of

distributors & customers • Industry structure results in race to the top at the wharf and race to

the bottom in the market• Price rules in the market because lobster is a commodity and

players are volume sellers

Barrier #2: Industry structure creates/reinforces Barrier #1

Harvesting: excess capacity & competitive fishing result in high volumes & short seasons

Shipping: ease of entry intensifies shore competition & nullifies effectiveness of price to influence quality & quantity

Processing: over-capacity creates pressure to cover overheads, driving volume buying and forcing up shore prices

Shippers and processors: volume-driven sellers prone to undercutting to meet cash flow needs

Volume focus intensifies competitive environment and undermines investment in market development

Industry fragmentation: many sellers with volume focus and limited knowledge mean distributors and customers rule the market and extract the value

Where to start? Marketability is the foundation of marketing

Barrier 1 options Supply (quantity/quality)

• Lower trap limits• Trip limits• Quotas (IQ)• Fleet rationalization (ITQ)• Adjust season (quality)

Price (shore)• Negotiate (CB)• Arbitrate (FO)• Collaborate • Formula (PM)• Auction

Barrier 2 options Harvesting capacity: provide fleets

with the tools to adjust Shipping: develop/impose stringent

quality standards. Regulate entry. Processing: eliminate all direct &

indirect financial support to plants. Restrict entry.

Industry fragmentation: allow vertical integration; provide a basis for consolidation; collaborative/joint marketing to limit destructive competition.

Do nothing: let the Barrier 1 options take effect.