While seafood has proved resilient during the COVID pandemic, investors remain reluctant.
Ignacio Kleinman, managing partner of Antarctica Advisors, says large animal protein companies are still largely perplexed by the complexity of seafood.
“[They] are used to beef, that comes from only one animal, pork that only comes from only one animal,” he explained while speaking as a panelist for the IntraFish Seafood Investor Forum earlier this month .
He added those sectors might gravitate to salmon or other species that are well-managed, but continue to function in a model that focuses on one species, versus several.
“They find the sector a little riskier,” he said of aquaculture, adding that wild-caught seafood is outright ignored by traditional investors because of risk factors that include product variability and high levels of regulation.
“Not all investors are ready to make that jump,” he said. “Those that have, they have done very well.”
However, Kleinman also pointed out that strategically it’s a smart move for major animal protein producers to diversify their portfolios with seafood.
“They have the national and international distribution chains and sourcing capability. They have the capital, they have the long-term view on business,” Kleinman said, adding seafood still suffers in terms of scale and is inefficient compared to more popular terrestrial proteins.
The price point of seafood is also too high to be competitive with chicken or pork, according to Kleinman.
“The industry has to get to lower costs and higher efficiencies in order to be a little more competitive there,” he said.
A one-species company is a ‘dangerous prospect’
US seafood companies have to diversify their offerings to be attractive to investors.
“Being exposed to a single species is a very dangerous proposition these days,” said Kleinman, noting it no longer works for a seafood company to be solely a fishing company or a salmon producer. Companies need to start controlling the route to market to capture more margins across the value chain, he said.
He pointed to the languishing farmed salmon prices in supermarkets due to an abundance of supply on the market.
“While you see salmon producers suffering, you go to the supermarket and find the price of salmon hasn’t changed that much,” he said. “Somebody there is making money, but it’s not the salmon producers.”
The seafood industry needs to become multi-species, and multi-channel he said, adding a company will otherwise never be able to have the scale and size to negotiate with retailers who are currently capturing COVID’s substantial profit margins. Companies need to have better control of the point of sale of a product, he emphasized.
‘These are early days still’
Unlike beef, pork and chicken, seafood consolidation is in its early phases, according to Kleinman.
He pointed out that terrestrial protein producers are already highly consolidated when compared to the US seafood industry, which is also why those proteins are able to be sold to consumers at a lower price point.
“In addition to that, you’re seeing land-based opportunities, they’re starting to grow,” he said, adding that sector will also go through a consolidation wave in the next 5-10 years in order to to become better-capitalized and more efficient.
Valuations remain stable
One bright spot for investors who have taken the leap into seafood is that the industry has rode out the COVID-19 pandemic better than others.
“The industry, in most cases, managed to pivot and protect itself, and move away very quickly from the temporary weakness of being exposed to foodservice, and do much more retail,” he said. “Those companies that were both quick to react and reorient themselves and invest, they did fair
to very very well.”
Kleinman noted investors with a long term view are taking advantage of a market that is “highly liquid” and where money is “dirt cheap.”
“Projects have been funded and transactions have taken place,” he said. “For the longer-term investor, they’ve tried to ignore 2020, unless it was a decent year.”