E-commerce growing business for US seafood distributors

February 7, 2014, 4:32 pm

Unfettered by the multiple hurdles to selling online – from tough food safety challenges to high shipping costs – distributor Seattle Fish Company is dedicating an entire employees’ job to a new e-commerce website.

Online fishmonger Rachel Nobrega, formerly in sales and marketing for the company, got to work marketing the company’s newly launched Chef’s Fresh Fish website online just in time for the holiday season.

“We’ve seen a steady increase in sales and awareness,” she told Undercurrent News, reflecting on the company’s holiday sales.

Time will tell how much room there is for growth, as very few players have launched such ventures. More and more companies are entering into this space, however, and statistics show market opportunities for more.

Last year’s third quarter marked the 12th consecutive quarter of double digit growth for US e-commerce sales, with an increase of 16%. While that’s based less on the food and beverage category than books and electronics, food e-commerce is projected to grow at a quick clip in the next few years.

According to an October 2013 study by eMarketer, US retail e-commerce sales will experience a compound annual growth rate of 17% from 2012 to 2017 — a higher rate than any other retail e-commerce category except apparel and accessories. This would bring food and beverage up to a more normal level in comparison to other categories, considering that food and beverage sales are currently the lowest grossing category in e-commerce.

Farm-2-Market, an online seafood site that has been in the business for 12 years, can testify to the sector’s potential for growth. The company’s sales — which are based solely on e-commerce — have grown 10% per year in recent years, with the exception of the tough economic times in 2008 and 2009, when the US economy dipped into what many refer to as the Great Recession.

At this point, “every month we grow”, Joe Costarella, who runs Farm-2-Market, owned by the family company Costarella Seafoods, said. This year, the California-based company projects 10% growth.

ILoveBlueSea, a website that launched in 2009, is also seeing strong growth as it attracts interest from investors around the company.

“Every December, we’ve more than doubled our sales,” CEO Martin Reed told Undercurrent.

Having won the Fish 2.0 competition at Stanford University last year, ILoveBlueSea received an $40,000 investment to help its expansion efforts, and investor interest has grown.

Meanwhile, Amazon.com’s launch of its online grocery delivery service Amazon Fresh, which launched in Los Angeles last June, is another example of online seafood sales beginning to take off. Since launching with Santa Monica Seafoods as the sole supplier, its seafood sales have “probably tripled”, Bob Vogel, director of the retail and commissary for Santa Monica Seafoods, told Undercurrent. 

While Vogel notes there are signs the online sales business may be cannibalizing some of the company’s existing business, he said sales were up in 2013, with sales from Amazon Fresh being a part of the growth. He also credits the company’s longstanding history and ever-growing reputation in the area. Yet that too is something Amazon Fresh is helping spread.

“It puts our brand out there in front of many more folks,” he said.

For Amazon.com, which which is widely credited with putting bookstore behemoth Borders out of business from its wild success in online book sales, a foray into seafood sales comes with little risk, considering the company’s large capital cushion. Yet for seafood companies – who have small margins and an ever changing supply and demand climate to tend to – it’s a bit more risky.

So why are seafood distributors bothering to throw their hat in the ring? After all, Seattle Fish Company, has an already-expanding core business and plenty of species to keep it busy; and Costarella Seafoods has built its business on customer relationships, which clearly do not depend upon the internet. The reason is these companies are responding, clear and simple, to market opportunity.

Customers want it

Seattle Fish launched its e-commerce site in response to continual customer requests, and demand was also the reason Costarella Seafoods got its Farm-2-Market site off the ground.

“We actually do get calls weekly from individuals wanting to purchase seafood from us online,” Nobrega told Undercurrent. “In the past, we just said, sorry we do not offer that at this time.”

For IloveBlueSea, the site grew out of the upsurge in interest from customers who want to know where their food comes from. Because a website can easily show customers who they’re buying the fish from – using pictures and stories about the fishermen that caught it — it is a logical platform to address this new-found customer desire.

Bob Costarella, who owns Farm-2-Market under the umbrella of his 22-year-old distribution company Costarella Seafoods, said buying the website from New York investors a little over a decade ago was a no-brainer.

“The e-commerce trade is growing, so we plugged our fish business into e-commerce,” he told Undercurrent. “The internet opens up [sales] to everybody, everywhere.”

Although Farm-2-Market is not growing any faster than the rest of Costarella Seafoods, it is responding to demand for a different type of service, and the customers that use it are statistically quite happy with their choice, considering that 85% of Farm-2-Market’s customers are returning customers.

“A lot of it is word of mouth,” Farm-2-Market’s Joe Costarella, Bob Costarella’s son, said.

The company has hundreds of vendors, so providing a website that could showcase them offers clear benefits to consumers.

Joe, who runs Farm-2-Market, said he tries to operate the website like a virtual seafood counter, offering both the convenience of online with the fishmonger interaction of a seafood counter. For customers that call in, he is prepared to give them up-to-the minute information about the quality of that season’s kumamoto oysters or whether the dungeness crab will be available by a certain date.

But while giving customers a personalized experience is important, Joe says the real business potential is the company’s ability to improve its search engine optimization (SEO) — the process of improving a website’s visibility in online searches such as Google.

The specialty item effect

A market study by the Hartman Group shows that 2/3 of online shoppers live within walking distance of a grocery store, leaving the group to conclude that, “for the online grocery shopper, accessibility to a store or a car is not an issue”.

Shoppers look online not because they don’t have easy access to the store but rather that they are looking for something special, the study suggests. Experiences from Farm-2-Market and Seattle Fish Company affirms the idea.

“You have Jimmy who visits his brother in San Francisco from Philadelphia, and he eats dungeness crab and says, ‘I’ve got to have this, I’ve got to have this’,” Joe said. “So then he sends it to his brother because he knows they had such a good time.”

There are also customers in the middle of the country – where a lot of Farm-2-Market’s shipments go – that can’t buy fresh oysters to eat at home unless they order online, he said. This sort of situation makes the Midwest a key region for Farm-2-Market, Joe said.

At Seattle Fish Company, offering specialty items that provide something different for customers has been key to success so far.

“Our most popular items have been the oyster of the month clubs,” Nobrega said. The company has three, six and 12 month options, and it has found success through its full service approach. Instead of just shipping out oysters as a commodity, the first order comes with a shucking glove and custom shucking knife.

“We found that some customers were giving these as gifts for the holidays, which is exactly what we were hoping for,” Nobrega said.

Now, she’s looking at launching other types of seafood clubs.

B2B online sales the way of the future, study says

In addition to direct-to-consumer e-commerce, the importance of business to business (B2B) e-commerce should not be overlooked, a study published in October of last year by Forrester Research shows.

Not only are B2B sales are moving online, but those that do not implement them are going to be left in the dust, said the study.

“B2B companies that wait too long to implement e-commerce assume a big risk,” Forrester Research concluded from its study, which surveyed 717 businesses in North America, Europe, the Middle East and Africa. All respondents were from companies with at least $250 million in annual sales; and all were deeply involved with their company’s online sales.

Many business to business customers have become accustom to performing consumer product research online, a habit that “has transformed how they expect to research business purchases as well”, the study said.

In the study, nearly 50% of the companies said they were currently selling direct to business partners online.

Shaky track record at large scale tempers promising signs

The seafood industry has a long way to go before seafood sales online begin to make up an significant amount of overall sales.

Even retailers that have tried it – including big names such as Safeway – have yet to crack the code of selling online.

“I can tell you that online purchases through Safeway.com when I was there were extremely extremely small,” Phil Gibson, senior vice president of Encore Associates, told Undercurrent.

In addition to Safeway’s general online sales website, the company used to have a website devoted to Rancher’s Reserve meat, which also sold seafood; but “it didn’t work”, Gibson said.

“It wasn’t really advertised much,” he said. “It suffered from a lack of exposure as much as anything else.”

In Los Angeles — the newest Amazon Fresh launch city — there have already been two failed attempt at online home delivery grocery ventures: HomeGrocer and Webvan, Santa Monica Seafood’s Vogel pointed out.

“There’s a lot of dead soldiers on the side of the road where Amazon is leaving their tracks,” he said.

HomeGrocer found itself with too high of costs to stay in business in 2000. It sold out to Webvan, which proceeded to go bankrupt the following July, according to the Wall Street Journal.

However, some strong players have emerged since, including New York-based online grocer Fresh Direct, which is so keen on sustainable seafood that it was one of the first companies to sell AquaChile’s premium sustainable salmon brand Verlasso. Chicago-based startup online grocer Peapod, meanwhile, is in the process of contemplating an expansion, reports the Chicago Tribune.

Some promising numbers

Statistics vary depending on which data set one chooses, but all show e-commerce growing steadily for the past few years.

In terms of food sales, statistics are mixed, with some data services showing flat growth while others report modest growth.

Emerging from the pile of studies on e-commerce sales in the food arena is study by Willard Bishop, an information provider on the best innovative approaches to the retail universe. According to Bishop, e-commerce sales for food and consumables increased 16.9%, from $13.6 billion in 2011 to $15.9bn in 2012.

“Changing consumers, Amazon’s recent expansion announcement [with Amazon Fresh in Los Angeles] and new click and collect pick-up models will help ensure future success,” Willard Bishop managing partner Jim Hertel told FoodNavigatorUSA

While these general online food launches do not target seafood specifically, they do highlight changes in retail that would give consumers one more way to buy seafood.

Referring to the Bishop report, Forbes said, “This space is still very much the ‘wild west,’ but the report’s findings indicate that it should be an interesting couple of years.”

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