Scotian Pride

In December of 1989, Rick Fraser, a private consultant and former mussel grower, was preparing an analysis of the mussel industry for the Nova Scotia Aquaculture Association (NSAA). Local mussel growers were concerned because competition from Maine controlled the low end of the market and "Island Blue" mussels from Prince Edward Island had positioned themselves at the high end. Rick was searching for an industry-wide marketing strategy which could give the Nova Scotia mussel growers a profitable and defendable market position. The report was due in a month.

Rick's Experience in the Aquaculture Industry

Rick Fraser had been a "rough neck" welder on oil rigs in Calgary. In 1978, he was laid-off after a serious work accident. The accident, the slow down in the Calgary oil boom, and the impending end of Workers' Compensation benefits forced Rick to make some serious decisions about his livelihood and his future plans. In 1980, Rick decided to go to university. By 1986, he had successfully completed both a BSc and an MSc in


This case was prepared by Professor Julia Sagebien of Saint Mary's University for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management. The case is based on material gathered by Ian McLeod for his Master research project at Saint Marys University. Some elements of this case have been disguised.

Copyright 1992, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.


Biology at Acadia University, in Wolfville, Nova Scotia. As part of his thesis requirements Rick had conducted field research on aquaculture for two summers. During this time, he became convinced of the viability of an aquaculture business. In 1985, he and a partner, who had some previous entrepreneurial experience, bought some mussels and equipment and started Long-Line Farms (LLF) on the eastern shore of Nova Scotia.

Long-Line Farms was a modest operation. The partners knew they would need an increased sales volume to survive in the long run. They believed that a steady supply of high-grade mussels was key to gaining market power. A way to increase profitability would be to have a processing plant to clean, grade, and bag mussels, since this would allow them to go to market directly, rather than having to sell to other plant owners who had processing capabilities.

Since the growing cycle of mussels required two years before the product could go to market, LLF also faced a possible cash crunch. Rick's experience confirmed the sentiment among growers that banks rarely lent to small aquaculture operations and did not consider either equipment in the water or product inventory as collateral.

In 1987, the partners wrote a business plan and applied to the Atlantic Canada Opportunities Agency (ACOA), a regional economic development fund, for financial assistance. The partners' equity, and the loans and financial assistance they received allowed them to go into large volume production and marketing. LLF bought equipment (e.g. anchors and buoys) and set up a processing plant.

In 1988, LLF sold 150,000 pounds of mussels directly to supermarkets in Nova Scotia such as The Atlantic Superstore and IGA; local brokers such as Walker's Wharf and Fishermen's Market; and Montreal and Toronto brokers. The operation showed a modest profit and the partners made plans to increase production by 25 to 30% a year for the next two years.

In September of 1989, Rick attended a meeting of the Nova Scotia Aquaculture Association (NSAA). He had been a founding member of the organisation and had been active in developing "Scotian Pride," the label that the association's members could use if they qualified for certification. Rick and several members of the association had been discussing for some time the need to develop a marketing plan for the Nova Scotia mussel industry. At the meeting, the NSAA agreed to retain Rick as a consultant. Rick was quite certain that he would continue working in the industry, and he knew that any new venture he might get involved in would benefit from this plan. Even though the NSAA could only offer him a minimal fee, he decided that it was timely to undertake an industry analysis. His final report was due at the Association's next meeting, slated for late January 1990. In order to concentrate on this project, Rick decided to sell his share of Long-Line Farms to his previous partner.

The Mussel Industry - Rick's Research Findings

Rick had obtained several books, research reports and magazine articles on the mussel industry. Most of his sources came from the Department of Fisheries and Oceans (DFO), and Canadian Aquaculture Magazine. To supplement his secondary research, Rick conducted interviews with mussel growers, brokers and retailers in Canada and the United States, and government officials from Nova Scotia and Prince Edward Island.

Rick now had to analyse his research and develop a mussel industry marketing strategy for the Nova Scotia Aquaculture Association. This task was-somewhat complicated because the reports analysed were published in different years and the data was not always consistent.

World-wide Mussel Production Methods

In the 1990's three types of mussels were marketed world-wide: 1) long-line cultured; 2) bottom-cultivated; and 3) wild. Since the strategy for marketing each type of mussel was different, Rick had to pay special attention to growing methods and their strategy implications.

The majority of mussel farms in the Canadian maritime provinces used the long-line suspension method of growing cultured mussels. This method involved suspending mussel "seed," small mussels from inter-tidal zones, in plastic socks measuring three meters long. The socks were suspended on a line supported by buoys at the surface and attached to the bottom by weights. Before winter, sandbags were attached to the lines to submerge them below the ice line. Winter harvesting was difficult and costly.

Compared to other types of mussels, the long-line mussel was cleaner (no pearls or grit), had a prettier shell and a higher meat yield. Because the growing method was more labour-intensive, the cost of harvesting long-line mussels, and consequently the market price for them, was greater than the price for wild or bottom cultivated mussels (Exhibit 1). Rick had noticed that retailers usually made more margin on bottom-cultivated mussels than on long-line mussels, because the retailers were able to raise the price of the former and still have them look like a bargain when compared to the latter.

In 1989, the DFO conducted research on growing methods which Rick considered promising for long-line growers. New methods could improve growing yields and increase the industry margin of long-line cultured mussels by about 30 to 40% at current wholesale prices.

Prince Edward Island growers and provincial government officials had spent a considerable amount of time and money positioning their "Island Blue" mussels as the industry standard for high quality mussels. Many Canadian, and some United States, white tablecloth restaurants had featured them in their menus by name. In 1989, comparable cultured mussels from Nova Scotia commanded a lower wholesale and retail price than "Island Blues" (Exhibit 1). This meant that Prince Edward Island growers could realise substantially higher margins than Nova Scotia growers for essentially the same product, and that Nova Scotia growers had to be very careful with costs.

The Prince Edward Island government had made it easier for growers to obtain mussel licences and had thus encouraged the growth of the industry. The Nova Scotia Aquaculture Association members were not happy that the licensing procedure for growing sites was much more expedient in Prince Edward Island than in Nova Scotia, and that the Nova Scotia government had not been as supportive as the Prince Edward Island government in terms of marketing assistance.

Maine growers had traditionally harvested bottom-cultivated mussels. In the spring, the seed mussels were dragged up from inter-tidal beds, put in small boats and transferred to deeper water. Free from the over crowding of the inter-tidal bed which would stunt their growth, the mussels were able to grow to market size. After approximately 18 months, the mussels were harvested by dragging, and prepared for market.

Bottom-cultivated mussels dominate the United States market and a considerable portion of the Canadian market. Even though most Atlantic growers believed there was a shortage of growing areas for bottom-cultivated mussels, DFO research indicated that this was not true and that, in fact, bottom-cultivated mussels were a viable option for Atlantic growers.

Wild mussels were harvested from in-shore areas using bottom dredges. The dredge was pulled across the natural mussel beds by a Cape Island style fishing boat. The mussels were then hand-picked from the dredged material. Like bottom-cultivated mussels, wild mussels had a reduced meat yield and a higher content of sand and pearls than long-line cultured mussels. Quebec consumed a high proportion of wild mussels.

Once harvested, all mussel types had a shelf-life of seven to fourteen days if properly stored. They had to be processed for market (cleaning, sorting, etc) and handled carefully during transport. Mussel shipments usually constituted part of a mixed load of seafood products.

From his interviews with retailers, Rick discovered that even though its shell was cleaner and the meat yield higher, to the average consumer, the long-line cultured mussel was difficult to distinguish from the wild mussel and the bottom-cultivated mussel, whether in or out of the shell. Wholesalers and retailers, themselves, sometimes had a hard time differentiating the products and were, in some cases, completely unaware of the availability of three different products. According to retailers, only sophisticated mussel consumers, many of whom were of Mediterranean origin and living in major American and Canadian cities, were able to differentiate among them.

Markets

The information Rick gathered generally segmented the mussel market: geographically (United States and Canadian cities, Europe); by product type (wild, long-line cultured, and bottom-cultivated); and by sector (institutional or food service /restaurants vs consumer/ retail).

The volume. consumed by the food service sector versus that consumed by the retail sector varied considerably by city. According to one of the studies that Rick had reviewed, markets with a large retail sector volume offered good opportunities to long-line mussel growers because the retail sector catered to sophisticated consumers who could distinguish among the different types of mussels.

Another study suggested that the growth in North American demand for mussels in the 1980s could, in part, be traced to the dietary preferences of "yuppies": mussels are high in protein, low in calories and cholesterol, and were considered "chic" to eat. Even though these dietary trends were not expected to change radically, there was always the caveat that mussel consumption might be a fad. Mussel consumption was clustered around large North American cities (Exhibits 2 and 3). Growth was anticipated in the restaurant sector in these cities because mussels were trendy. And, the high mark-up of this menu item, particularly if bottom-cultivated mussels were used, made it attractive to restaurant managers. The retail trade, mostly supermarkets, was expected to grow much more slowly.

Canadian Market

The Canadian market, by industry sector, consisted of approximately 70% in the food service industry (mainly restaurants) and 30% in the retail trade (supermarkets, etc). The retail trade was directed mainly at Mediterranean populations residing in large cities. The type of mussel consumed varied from city to city (Exhibit 2). The percent breakdown accounted for by the food service industry versus the percent consumed by the retail sector also varied among cities. For example, Montreal had a 50% food service/50% retail split, while Toronto had an 80% food service/20% retail split.

Even though Quebec purchased some Prince Edward Island mussels, the "Buy Quebec" preferential purchase policies in the province limited the market potential. Other market segments Rick had considered were processed products and export markets to western United States and Canadian cities. Even though transportation costs limited the potential of these markets, Rick knew that "Island Blues" were being flown to Los Angeles. Government research indicated that Europe was a mature market with few prospects for export.

United States Market

In 1987, the United States' food service sector accounted for 80% of mussel demand, while the retail sector accounted for 20%. This breakdown also varied from city to city, with Los Angeles having the greatest variation from the national norm, with a 50% food service/50% retail split. The type of mussel consumed also varied from city to city (Exhibit 3).

Canadian Supply

In 1987, Canada supplied only between 1 to 2% of the world's mussels. In 1987, 2,885 tonnes of mussels (mostly long-line mussels) were produced in Canada. Exports represented 20% or 577 tonnes. In addition, 800 tonnes were imported from the United States. Almost all of the imported mussels were bottom-cultivated mussels. Most of the Canadian supply of mussels came from Atlantic Canada. Canadian west coast production still faced large technical difficulties.

Rick had seen the mussel industry grow at a considerably fast rate for a small cottage industry in Atlantic Canada. However, Rick also knew that the American and the Canadian markets were large and that Atlantic Canadians were missing out on many opportunities for export. In this context, Atlantic Canadian mussel production had grown in a somewhat slow and erratic way. A biologist's report stated that the environmental conditions in the Atlantic region, could sustain a long-line cultured mussel capacity of 50,000 tonnes a year. This capacity could double if bottom-cultivated methods were used.

Some reports indicated that the industry was poised for meteoric growth. In 1987, overall Canadian production was expected to grow at 75% a year, with some areas, like Prince Edward Island, growing at 112% a year. Since there were relatively few barriers to entry (particularly in Prince Edward Island) there was always a danger of oversupply of long-line cultured mussels relative to market demand. Greater export efforts to the United States would be required in this case.

In 1985, research conducted by government agencies revealed that the major perceptions of retailers and wholesalers in the United States and Canada regarding Canadian domestic suppliers were: a) price was the most important purchase requirement and long-line cultured products (most of which came from Atlantic Canada) were considered too expensive compared to United States imports, particularly since there was no perceived difference in quality; b) there were unreliable transportation systems in the Canadian east coast; and c) the consistency of quality and delivery had to be improved.

Characteristics of Atlantic Canadian Mussel Growers

In 1986, Atlantic Canada's mollusc (e.g., mussels, oysters, quahogs, dams, etc) production was valued at $16 million (2% of the landed value of all fisheries). Twenty percent of the dollar value of production was mussels, 20% oysters, 5% quahogs, 50% dams.

While the Atlantic mussel industry had focused on the production and marketing of high-quality products at a premium price (long-line cultured), it generally ignored the low to medium-quality market niches (bottom-cultivated). Ninety-five percent of the mussels landed were long-line cultured.

East coast distribution patterns in 1987 showed that 56% of Atlantic Canadian production was sold in the Atlantic region (some of this volume was, in turn, sold by local brokers to brokers in other cities), 27% was shipped to other parts of Canada and 17% exported to the United States.

Prince Edward Island and Nova Scotia were the major players in the Atlantic mussel industry. Newfoundland and New Brunswick played relatively minor roles. Newfoundland supplied local markets, while New Brunswick served both the local and the United States' markets.

Prince Edward Island Mussel Production

Prince Edward Island had been the most important mussel producer in Atlantic Canada. Landings in 1987 were 1,700 tonnes. The total investment in the industry in 1987 was $6.7 million. Virtually all production was long-line cultured.

Three large growers processed 80% of the landings. In 1982, Prince Edward Island producers organised a cooperative to process and market their products and to provide an effective lobbying group. Their efforts were successful, and in 1985 they incorporated under the name Atlantic Mussel Growers Corporation (AMG). The corporation had centralised processing capabilities where individual growers could have their mussels tagged (to trace original source), stored in tanks for up to two weeks, graded, cleaned, polished, boxed, and labelled with the "Island Blue" brand name. The inventory and storage system helped to smooth out demand and supply The individual grower retained ownership of the product until it was sold by the corporation, which then credited the grower for the mussels. Mussels were then trucked to Halifax to be flown out to US and Canadian markets. The plant was supplied by 15 growers, who had to provide AMG with 95% of their harvest. According to AMG sources, in 1989 the plant handled about 1,369 tonnes a year. AMG prided itself in being a reliable supplier of a superior quality product.

The Prince Edward Island provincial government had been very supportive of aquaculture development activities. The "Island Blue" label was developed by the AMG with the cooperation of the Prince Edward Island Development Agency. Prince Edward Island growers and government agents had been active in developing value-added products such as mussels frozen in the shell and mussels in wine sauce which they perceived as a good outlet for undersized mussels.

Prince Edward Island directed its products to Quebec (50%), Ontario (15%), and the United States (18%). Mussels were flown to Vancouver and to some United States' cities or trucked to closer markets.

Nova Scotia Mussel Production

Government reports indicated that, in 1988, Nova Scotia mussel growers produced about 634 tonnes. Ninety-nine percent of the production was long-line. The total investment in the industry was $3.2 million. Even though the reports indicated that about 70% of the mussels were consumed in the province, Rick knew that a portion of these mussels were sold by local brokers to brokers in other provinces. Therefore, he would have a difficult time deciphering the exact size and characteristics of the Nova Scotia market.

In 1987, there were 62 active licensed growers. In 1989, many smaller growers were exiting the industry or were only part-time growers. Compared to Prince Edward Island growers, Nova Scotia growers were less organised and less informed about alternative growing methods, major markets and competition from other Atlantic Canadian and Maine growers. Growers still regarded each other with suspicion and were secretive about company information. Growers sold their mussels to wholesalers and directly to the restaurant industry.

The Nova Scotia Aquaculture Association served a group of about 200 growers, scientists and industry suppliers. "Scotian Pride," the label that the Association's members could use if they qualified for certification, was a seal of approval which guaranteed product quality through adherence to the strict standards and specifications developed by the Association. Standardisation, centralisation of ordering and strict inspection criteria and documentation were very positive aspects of the program. Unlike Prince Edward Island growers, Nova Scotia growers had no central association-sponsored processing plant. Product identification and labelling were carried out by the individual association members which met the standards. Nova Scotia growers were ahead of Prince Edward Island growers in setting industry standards.

Rick's research sources stated that Prince Edward Island growers were well on their way to realising the potential benefits of aquaculture. In Nova Scotia, growers would have to overcome many obstacles. The interviews he had conducted reinforced this assessment of the market. The Nova Scotian market had to contend with the following characteristics: 1) For the most part, growers were reactionary rather than visionary. They were disorganised and did not have a sophisticated understanding of their markets, industry trends, scientific advances, or business strategies; 2) Federal and provincial government support was slow and erratic; 3) Financing was difficult to obtain; and 4) Marketing channel members (brokers, wholesalers and retailers) and consumers were uneducated about the superior quality of long-line mussels.

United States Supply

Bottom-cultivated mussels grown by Maine companies dominated the US mussel market. Maine mussels also had a strong presence in the Canadian market. In 1987, United States' growers produced 17,000 tonnes of mussels. Recent developments in the Maine industry concerned Rick. Bottom-cultivating had been the prevalent growing method in the industry, but some growers were experimenting with long-line technology in anticipation of a more educated and demanding consumer.

Most of the 20 US producers were in the east coast. Four major operations (three of them in Maine) dominated the industry: Great Eastern Mussels, Maine; Blue Gold Seafarms, Maine; Abandoned Farm Inc, Maine; Penn Cove Mussel Farm Inc, Washington State.

Toxicity, Quality and Health Standards

In 1989, mussel farming was an industry plagued by inconsistent quality standards, seasonal supply, environmental hazards, and problems of mussel toxicity. Both the "wild" landed catches and the aquaculture harvested products were susceptible to the toxic effects of human sewage, farm fertiliser runoffs, and the excrement of the mussels themselves.

The efforts of most of the private growers and producers with whom Rick came in contact were directed toward preventing a repeat of the December 1987 crisis, when two deaths and 134 cases of illness were attributed to toxic molluscs from Prince Edward Island. On the United States' east coast, the "Red Tide" (a marine condition which makes mussels toxic) had created havoc in the mollusc industry there. Even though water temperature and other environmental conditions made the Red Tide a threat to Prince Edward Island waters, but not to Nova Scotian waters, consumers assumed that all Atlantic products were at risk.

Some of the newspaper clippings Rick had collected chronicled the events. Mollusc sales fell by 100% nation-wide and sales of other shellfish and fish also fell considerably. Prices deteriorated severely and it took considerable time and effort to return them to their pre-December 1987 level. A quick and effective public relations campaign by the federal government, Prince Edward Island growers, and their provincial government helped restore confidence in the mind of consumers. After that incident, the federal government dedicated $2 million for a promotional campaign using television and point-of-sale materials. Some experts believed that the publicity might have actually helped the industry in the long run by creating awareness of the product and by showing that authorities were responsive to health problems.

Still, Rick and other growers felt anxious about the industry's susceptibility to bad publicity. For example, in April 1989, a headline in the Saint John, New Brunswick daily, Evening Times-Globe, printed a story with the headline, "Mussels Kill Quebec Man." The man had in fact died from a heart attack and not from bad mussels. However, prices immediately dropped and quantity demand lowered.

Industry self-regulation and government authorities had made improvements in quality control. The federal government had revamped its Shellfish Monitoring Program. This included testing of water quality by Environment Canada, testing of the product by the Department of Fisheries and Oceans, and policing of growing areas by various agencies in order to prevent harvesting in closed areas. Rick's plan had to develop tactics to support these activities.

A Strategic Marketing Plan for the Nova Scotia Mussel Industry

Rick had spent two months gathering and analysing information. He knew that a strategic marketing plan for the industry would need to address several key issues:

  • Should growers use a cultured or cultivated method of production? Which markets were more attractive? Could Nova Scotia growers be the overall cost leaders (over Maine) or should they concentrate their efforts on differentiating their product (from Prince Edward Island's)?
  • If Nova Scotia growers wanted to grow long-line mussels, could some of the lines be located in Prince Edward Island in order to command a higher price? Would they have to be marketed through Prince Edward Island's Atlantic Mussel Growers Association in order to be considered true "Blues"?

  • Could they adopt the new reduced-cost growing methods being developed by government scientists for long-line mussels and offer a lower priced but high-margin substitute for Prince Edward Island "Island Blues"? Was this advantage sustainable? Would Prince Edward Island soon follow?

  • If a few growers switched to bottom-cultivating, how would local growers react to a competitor with a price advantage? Could these growers be persuaded to direct their production solely to the export market? Could they compete effectively with Maine?

  • How could they take advantage of the Nova Scotia Aquaculture Association? "Scotian Pride" might allow them to brand all their products. It could help educate consumers on the difference between Maine's products and Nova Scotia's products. The label could perhaps even serve as a basis for competition with Prince Edward Island "Island Blue's".

  • Could Rick encourage industry members to cooperate further in processing, grading, and marketing all their products? Should the Nova Scotia Aquaculture Association buy some of the smaller mussel farms which might be going out of business?

  • Should the Nova Scotia Aquaculture Association work with the Atlantic Mussel Growers Association in an effort to compete effectively against Maine growers? Would growers be willing to cooperate at all? Would they think strategically? Should they set up a region-wide mussel marketing board?

  • Could specific cities or market sectors be targeted for intensive marketing?

  • How could stronger government regulation be encouraged in order to protect the market from unsafe products and unscrupulous practices? Would one more poisoning incident ruin the whole industry?

  • How would Free Trade, and the 1990 Atlantic fishing industry crisis affect the local growers?

 


Exhibit 1

PRICE CHART' - Price per Pound
March 1990

Bottom-
Wild Cultivated Long-line Cultured
PEI/NS PEI NS
Wholesale n/a 0.35 1.20 0.95
Retail n/a 0.49 1.49 1.29
1 All prices in Canadian dollars

Source: Prices obtained from a survey of Halifax wholesalers and retailers. Seasonal price fluctuations were wide.

Exhibit 2

1987 Canadian Market - Institutional and Retail Combined
Selected Cities - Percent Breakdown by City

Bottom- Long-line
city Tonnage Other Cultivated Cultured
(Year) (%) (%) (%)
Montreal 750 50 15 35
Quebec City 200 n/a n/a n/a
Ottawa 120 25 50 25
Toronto 710 10 75 15
Vancouver 120 n/a n/a n/a
Total 1,900
Source: Market Analysis Group (1988), Department of Fisheries and Oceans.

Exhibit 3

1987 U.S. - Institutional and Retail Combined Selected Cities - Percent Breakdown by City

Bottom- Long-line
city Tonnage Other Cultivated Cultured
(Year) (%) (%) (%)
New York 2,600 7 88 5
LA 350 2 95 3
Chicago 350 n/a n/a n/a
Atlanta 140 n/a n/a n/a
Seattle 165 n/a 50 50
Total 3,604
Source: Market Analysis Group (1988), Department of Fisheries and Oceans.