Focus on costs steers seafood exporter into calmer waters

Lowering costs, putting sales people on the ground in key markets and developing new product has turned the Errigal Seafood ship around, writes JOANNE HUNT

THAT ERRIGAL Seafood is thriving in a recession shouldn’t come as a surprise. Established in 1962 by industrious local priest Fr James McDyer, the company was born out of hard times.

Arriving in the Donegal Gaeltacht area of Glencolmcille in 1951 – where there was no electricity, public water supply or employment and only a few tarred roads – Fr McDyer saw young people emigrating in droves. Set up against all odds, initially as a vegetable factory, that Errigal Seafood now has a turnover of €26 million is a miracle on par with the loaves and the fishes.

“We’re 100 per cent export,” explains finance director Alan Mitchell. “That’s amazing because our distance from market is so phenomenal. Even our distance from some of our raw material catches is as well, given that a lot of it is caught in the UK.”

A fish factory since the early 1970s, Errigal Seafood processes premium shellfish such as crab, whelks, scallops and lobster at its base in Carrick, about 20 minutes from Killybegs. Cooked on site, the seafood is then exported either fresh or frozen to wholesalers and premium retailers such as Carrefour in France and El Corte Inglés, Spain.

Joining the company in 2007, Mitchell says Errigal had gone through “difficult trading conditions” the year before. With new shareholders entering the business in 2007 and a turnaround strategy put in place to lead it back to profitability, he says the company was in fact “a step ahead of the recession”.

The economic downturn did bring a dip in sales, however, with fewer orders coming from both the wholesale and retail segments, though the effect varied by country. “France is our strongest market and it hasn’t felt recession as strongly as other countries. But in countries like Portugal and Spain, we noticed a slowdown,” says Mitchell.

He says a strategy of strengthening the management team, investing in plant and equipment to bring greater efficiency and lower costs, putting sales people on the ground in France, Spain and Portugal and new product development have all brought shelter from the storm.

Having sold few scallops before, they changed the production line to create a new retail pack. And with more people eating at home, they’ve developed smaller, more retail-friendly packs of seafood across the board.

“We’re just much more customer-focused now. We have smaller packs and nicer packaging that’s more user-friendly for the customer to bring home.”

Errigal has changed its supply mix too, focusing increasingly on the retail market.

“Before, we were 70 per cent wholesale, now it’s more like 60 per cent retail and 40 per cent wholesale,” says Mitchell. “We’ve had an increase in retail sales of about 35 per cent. What retailers want from the likes of ourselves is to have a larger portfolio.

“Retailers across Europe now just really want to use one supplier. We’ve identified that the more products we can produce, the greater the competitive edge going into a retailer buyer.”

The company has tweaked its distribution strategy too, increasing delivery volumes and frequency.

“A couple of years ago, we would only have done one delivery a week into Europe, now we have trucks going most days so we’re giving greater levels of service to the market.”

The company’s whelk product is its latest success, cooking up a storm in Asia. “Our whelks go to Japan and Korea for further processing and we’ve also dispatched by ship our first load of crab to China. That was a major success for us.”

The rocketing price of oil however is taking its toll.

“Transport and shipping costs have increased dramatically over the past couple of years,” says Mitchell. “The price of oil has had an impact on the fishing boats too so we’ve had to pay the boats more over the past two or three years.”

Mitchell says greater efficiencies in production have enabled Errigal to absorb that cost rather than pass it on to a more price-sensitive consumer.

“We’ve also grown our tonnage per load to make the cost per kilo much more effective,” he says. “So if a container is going to Europe or Asia, they are full orders and you are not just shipping fresh air.”

But oil is also having a positive effect on Errigal – fish oil that is, and the increasing awareness of its health benefits. “I think there is more of a focus now on healthy eating and people are maintaining their seafood spend. Food is in vogue, especially healthy food.”

While export credit insurance is another challenge, proving difficult to obtain, particularly in emerging markets such as China and Russia, Mitchell says the future is bright.

“I think the recession has brought lessons. Businesses need to be a lot leaner on costs, they need to be a lot more proactive in the market – because there are markets out there.

“We’d like to achieve growth of 50 per cent in turnover in the next three to five years,” he says. “It’s a lot of hard work but we feel it can be done.”