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14 MARKET DISTRIBUTION NETWORK

14.1 Channels of Distribution

The distribution network for fresh oysters is much the same as it is for any other fresh seafood products. The same channels of distribution are used in Canada as well as in the United States. Although distribution channels can seem simple in theory, they are for the most part very complicated. The product is usually transported from the harvesting grounds directly to a federally approved processing plant. The plant owner (processor) may decide to sell live in shell or further process the oysters into shucked meat, frozen half-shells, cooked in cans, breaded or smoked products. From the plant the product will reach the end user either by direct selling or through a mix of brokers, wholesalers and distributors.

The most important fact to remember is that every level of distribution has a cost and should be included in the final selling price whether used or not. In other words the marketer must structure his selling price by calculating every cost starting from a suggested retail price and working his way back to the plant. Every cost associated with each segment of the distribution network should be added to the initial cost to avoid future price complications. For example, the processors/marketer should determine the retail selling price of oysters and base the supply price accordingly.

Table 13.
Profit Margins at Each Level of the Distribution Channel
RestaurantRetail SupermarketWholesale DistributorCommission AgentProcessor Marketer
200% margin45% margin20% margin7% margin25% margin
Menu PriceSuggested retail priceDistribution priceSelling price including commissionSupplier Price
$1.30/pcs$0.65/pcs$0.44/pcs$0.37/pcs$0.35pcs

The distribution channel utilized by marketers can differ from one to the other. The marketer should always keep his options open to any possible choice of distribution he wishes to use or may have to utilize in the future as his business increases. Its important to remember that the processing plants as well as the brokers, the wholesalers/distributors, and retailers are all part of the distribution network. Whatever mix of channels the oyster farmer decides to work with is irrelevant but understanding the different levels of distribution and being prepared to work with them will help maintain market prices at a competitive level.

The processor/marketer may decide to market products directly to the end user, that is a retail store or restaurant. By doing so the marketer may have a competitive advantage over his competition that uses a different approach. This may be true if the marketer is simply passing the cost savings on distribution to the retailer by offering a better price. This practice can be very costly in the long term as transportation costs will eventually hurt profit margins and the competition will gradually lower their prices. Direct sales can also become very difficult to handle especially if the marketer has limited resources. In any case, it is best to compete on quality issues and consistency of supply than simply prices. Treating every level of distribution with the utmost respect will help maintain good market prices.

An agent can play an important role for the processor especially when financial and human resources are limited at the plant level. In reality a good agent should really be viewed as an extension of the processors personnel. The advantage is that he only gets paid based on performance. Commissions are paid on a percentage of sales basis and therefore represent hardly any risk for the processor. Nevertheless the processor needs to choose an agent with proven qualifications and good seafood marketing skills. A good knowledgeable agent can easily pay for himself and quickly help the processor get established in the marketplace.

Wholesalers are actually one step closer to the end user but normally service a specific local area. These people are normally well established in the area and have a very loyal clientele. Retailers and food service operators shop directly at these establishments, which makes it very appealing to the processor. But on the other hand they also like to shop around for the best buys. Wholesalers are generally very knowledgeable about sourcing products. The processor's marketer must be cautious and always aware of the wholesaler's ability to negotiate prices.

Distributors are one of the most important links to the distribution network. They have fleets of refrigerated trucks that deliver directly to the end user such as restaurants and hotels. They usually service several provinces or states and some distribute nationally. These people are experts in their field of work and can be very demanding of their suppliers. If a supplier is consistent and provides a good quality product, then most distributors welcome the chance to work with them.

Retailers are of course the closest link to the ultimate end user, the consumer. Unfortunately, retailers for the most part are always concerned with prices. They are volume driven and generally try to negotiate the best possible rock bottom price, which they claim their savings are passed on to the consumers. There are of course quality-oriented retailers that cater to higher income consumers who demand quality products. Processors should not give in to prices because of potential volume sales but should seek out the higher end retailers for their products.

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