Season Update from Joe Morelli

Greetings Everyone!!!

Now that the 2018 fishing season has basically ended, I wanted to take the time to re-cap the year and discuss some changes being made for future.

First of all, how are we doing this year?

While we still have fish to sell, as well as 3 more months left in our fiscal year, I can’t sit here today and tell you exactly how all the pools will perform. What I can tell you is this:

We have sold roughly 77% of our fish so far this year.

When I look at our primary species of black cod, halibut, kings, cohos, and chums, as a company we missed our volume target by 7%. On the flip side, we were able to extract more value from the marketplace than we originally budgeted for, and we are up by almost 16% on our margins-to-date. I’ll give you a species-specific summary:

Halibut: volume 32.5% above budget. Margin 20% below budget.

The increase in our volume of halibut has more than offset the decrease in margin. Halibut was better than we expected.

Black cod: volume 8% below budget. Margin 20.5% above budget.

While we missed our volume target, our margins were great this year. This is mainly attributable to our Chinese customer paying solid prices for the smaller fish – significantly more than the Japanese were willing to pay this year.

Ice Kings: volume 31% above budget. Margin 19% above budget.

FAS Kings: volume 192% above budget. Margin 23% below budget.

We’ve had a good year with our Kings compared to our budget. With that being said, our budgeted volume was reduced by 1/3 of what we received last year.

Ice Cohos: volume 30% below budget. Margin 29% above budget.

FAS Cohos: volume 68% below budget. Margin 62% below budget.

We missed the boat here on the volume side. While in some cases I believe it was because our price wasn’t competitive enough (in some cases for Ice and most cases for FAS), I also know the fish didn’t show up in abundance. They were significantly bigger than last year, which helped somewhat. We were able to extract higher prices from the marketplace, however.

Chums: volume 7% above budget. Margin 81% above budget. Please note that this margin includes the sales of green roe, and only accounts for the volume sold-to-date, which is roughly half of our chums. The balance of sales will NOT contain roe in them, and will bring the overall margin more in-line with our budget.

Crawfish turned out much better than anticipated, and our tender service there was key to making this a success. While we didn’t get as high of a price for our green roe as we wanted, mainly due to quality, we have watched the market continue to crash. We are fortunate we sold when we did!!!

If I could sum up my thoughts for the future based on what I’m seeing, they would be as follows:

Black cod and Halibut will continue to be an important part of our future!!!

Kings – I don’t know what to say. Of course, we all want them to be an important part of our future, but I don’t think we can continue to rely on them to the same extent as in the past.

Cohos – My concern is that if Kings continue to go away, and if less of you fish for Kings because of that, won’t that also diminish our Coho volume?

Chums will become an even more important part of our future. We will work hard to make sure we are gaining access to this resource in new ways, AND finding new markets for the roe and the flesh.

FAS Kings and Cohos – we NEED to and WILL figure this out. It is extremely important to our future.

This will be the last Cooperator you will receive…..

But………our commitment as a staff is that our communications with you will get better. Let me explain.

We have eliminated several positions in Bellingham. As many of you are aware, we no longer have a receptionist position. One of the responsibilities of that position was to coordinate the various write-ups for the Cooperator, every other month, proofread everyone’s content, format it all in the same way, compile it together, send out an email blast, and then make printed copies and mail them. We attempted to find a better way to do this and have failed miserably. On one occasion, the information you were receiving was several weeks old, and things had changed enough over those weeks for the content to no longer be relevant. Thus, we all want to be more timely with you, and deliver you the information you want, when you want it.

We will no longer put together a Cooperator. What we will do, instead, is as follows:

Email blasts directly to you, from each of us with the following frequencies:

Joe:

From mid-March through end-October 2X per month, except for…
From July 1 through mid-September Weekly
From end-October through end-February Monthly

My content will be centered around overall business, company-specific items of interest, company health, volume and margin-to-date, by species versus budget, etc.

Jeff:
Through entire year 2X per month

Content centered on sales, market trends, new program development, etc.

Kendall W.:
Through entire year Quarterly

Content centered on our Direct-to-Consumer business and overall marketing

Jerry/Tamara:

Before each advance 1X
Pre-season 1X

Content centered on our financial performance

Stephen:

Pre-season plan 1X

From March through October Monthly
Post season wrap-up 1X

Content centered on fish purchasing, tender plans, fleet service offerings, outport plans, new business development, etc.

Ruben:

From March through October Monthly
Content centered on plant performance

Kathi:

Through entire year Quarterly
Content centered on PTF, HR, etc.
We look forward to servicing your information needs much better in the future.

Some farewells and welcomes:

We have recently said “farewell” to two SPC Rockstars:

Craig Shoemaker has elected to retire from SPC and start enjoying life in Sitka, Montana, and traveling the many places around the world where his wife Brenda finds Air BnB deals. Craig will be around for a few months, on an as-needed basis to help transition out of his role. Craig has been an institution at SPC and in Sitka. Words cannot express my gratitude, not only for the many years of service he has given our company, but also the assistance he has given me personally over the past two years, helping me get up to speed. Craig, we will miss you!!! Thank you, and we wish you the best.

Kendall Didrickson has also resigned from SPC. As Kendall’s family has moved to Mesa, AZ, so has he. Kendall has also been extremely instrumental in the success SPC has had over the past decade – at first as our Chief Engineer, and more recently as our Plant Manager. We may see some of Kendall in the future, especially during the summer, since he has expressed interest in NOT living in the 120 degree heat during July and August. In the event we don’t see him, I want to take the time to also thank him for his time and dedication at SPC. Kendall thinks differently than many of us, in a good way. His engineering brain tends to run a few miles per hour ahead of the rest of ours, and his grasp of problem solving has been extremely important in helping us focus on the right things. Kendall, we will also miss you, and we thank you and wish you the best.

I’m very excited to announce that Stephen Rhoads has accepted the position of Vice President – Procurement with SPC, reporting directly to me. Prior to Stephen’s life as a fisherman, he worked in direct sales, and spent 5 years in a senior leadership position, managing a business with similar complexity and sales volumes as ours. Stephen’s intimate knowledge of fishing, the fisheries, the perspective of a former owner, and his overall creativity and critical thinking skills will be a major asset for SPC. In general, Stephen’s responsibilities will encompass fleet management, improving our services to you, filling idle capacity, managing our tender contracts and outport agreements, engaging the Sitka community, and assessing and developing new business opportunities. Stephen cares very much about the economic health of Sitka and SPC. If I could summarize his responsibilities in three words, those words would be “get more volume”! You can contact Stephen at srhoads@spcsales.com or his mobile (907) 738-0128.

I’m also very excited to remind everyone that Ruben Torres has accepted (and has already begun filling) the position of Plant Manager – Sitka. Ruben also reports directly to me. Ruben has been with SPC for over 22 years. His knowledge of our plant, its processes and capabilities, and the species of fish we deal with is also a major asset for SPC. In general, Ruben’s responsibilities are to operate our plant as efficiently and effectively as possible, and to work alongside Stephen to ensure we have the capabilities to process the increased (and potentially more diverse) volume we will be receiving. Ruben’s four words would be “process that volume – excellently”! You can contact Ruben at rubent-spcak@gci.net or through the plant at (907) 747-5811.

I am personally looking forward to working closely with Stephen and Ruben to help transition SPC back into the type of company that was originally envisioned by its early pioneers.

I mentioned earlier that we have reduced our headcount in Bellingham….

Now, we are also reducing our footprint. Everything isn’t signed, sealed, and delivered as of yet, but we will be moving our offices out of the Bellingham Cold Storage complex. As our new computer system will be ramping up, our ability to transfer more administrative tasks to Sitka (financial, HR, etc.) will also increase, and our need for space here will decrease. Our current square footage at BCS is roughly 3,800 square feet. We have found a space, not on the water but close enough to access our product as is necessary, less than 25% our current size – that is around 850 square feet in size. We will also reduce our office rental costs by roughly 2/3. We will not only communicate better with all of you, but also with ourselves. We hope to be in our new space by the end of February. We will keep you posted.

SPC Ambassador Program…..

SPC exists to get you all better prices than you would receive without us being here. It’s that simple in my mind. We are a small to medium-sized player in what should be niche markets. While we will continue to seek ways to reduce our costs, we will never be a low cost producer like Trident or Icicle. Our answer MUST be – extract more value from the marketplace!!!!! We need to develop a sales infrastructure that better matches what all the self-marketers are doing – seeking out those high-value sales destinations – whether that’s retailers, restaurants, distributors, consumers, etc. – that our current sales team cannot access.

The Ambassador Program puts YOU in the spotlight. You become a sales rep – not just selling your own fish, but having access to sell our entire offering. You find the customers. You set the sales price. And the money that is made above what our normal sales channels would provide? You get to split that with the SPC pools. This is a win-win opportunity for the “owner as a rep” and for the co-op. You don’t have to buy the fish and resell it. No need to carry inventory. No need to figure out the logistics of getting it there. You just need to tell your story. After all, the biggest point-of-difference we have compared to all the other Alaska-based companies is that YOU own US!!!!!

Who wouldn’t want to buy their fish directly from the fisherman that caught it.

The pilot to this program is underway. We are starting small and simple this year – one option: a 30# box of 10# coho portions, 10# chum portions, and 10# halibut portions. We want to find out the problems that need to be fixed now, so that as we expand in the future, things will go more smoothly, and attract even more of you to participate.

Indirectly related to both this program and our overall need to sell at premium prices, we will be hiring an additional salesperson in the immediate future. Part of his/her responsibility will be to lead this Ambassador Program and ensure the strategy and its execution fits into our overall sales program.

If you want more details, please contact either me, Jeff Reynolds, or Stephen Rhoads. We will be happy to bring you into the mix.

Enough for now. I hope each of you gets to unwind a little bit as we approach the Holiday season, and come back excited and fresh to tackle next year. Thank you all for your support!!!

All the best – Joe