Neptune Gourmet Seafood

Neptune Gourmet Seafood is faced with the issue of increased supply in its market. The response action is very time sensitive as a failure to react may cause severe loss in brand perception. Though they have increased investments as of late to produce more and also maintain high quality products through their freezing technology, they still need to find a way to combat long-term supply issues. They should not threaten their high brand image through low cost maneuvers, as this is the key driver of their competitive advantage.

The recommendation I propose is to partner with very well known supplement retailer GNC to begin exclusive production of fish oil.

On top of that, Neptune should recommend to GNC in the partnership that they expand to the young and upcoming market of frozen healthy meal delivery. GNC can partner with a smaller company that has already established their healthy meal plans, such as MagicKitchen.com. Utilizing GNC’s distribution and marketing prowess, both Neptune and GNC will be able to sustain competitive advantages through high brand equity and first mover advantages in a small, yet poised to grow market.

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As the world starts to become more health conscious, it will be a huge competitive advantage to have already set up the correct infrastructure to tack this market.

Industry Dynamics

Neptune Gourmet Seafood is North America’s third largest seafood producer playing in a market where seafood is considered high-end. They have generated nearly a third of its revenue from selling frozen and processed fish through US grocery chains and organic food retailers.

An even bigger market is through the many restaurants within 250 miles of Fort Lauderdale that they sell to; along with many big cruise lines. The final third of their market was through wholesalers who then sold the fish to restaurants across the country. Neptune was considered top quality, and therefore demanded a 30% premium over the majority of its competitors. They demanded this premium due to their investments in new ships and freezing technologies that allowed them to find the biggest and best catches along with administering their top notch freezing agents to keep fish fresh. Some customers even preferred their frozen fish to fresh fish.

Situation Analysis

Neptune Gourmet Seafood is in a tough situation where they continue to have surplus inventory although demand for their product is increasing. They have recently become more productive through both investments in new freezing technologies as well as new government regulation forcing them to deeper waters where they are having more successful catches. After analyzing their current market situation, some possible opportunities have been unveiled (Appendix A) that could possibly remedy their current predicament. These opportunities are coordinated with the company objectives, but it is clear that not all will be optimal due to offsetting industry conditions. The managers and decision makers at Neptune Gourmet Seafood have each begun to disagree about the proper course of action to best sustain a competitive advantage. (Appendix D) These issues come down to three main areas: Inventory Levels: Is this a short-term problem that will pass with time or is it a strategic problem that must be addressed now to avoid long-term damage. Pricing Scheme: Will a 50% discount help to rid of excess inventory or will it simply reduce profits? Will profits be hurt in the long term? Brand Awareness: Should the brand equity of Neptune Gold be jeopardized with the creation of a secondary Neptune Silver brand? What other opportunities could be explored to increase the brand awareness and brand equity of Neptune as a whole.

After performing a SWOT analysis (Appendix C) it became clear that the creation of a secondary discount brand would not only hurt the reputation of Neptune but also cut into its own sales. Moreover, the increasing supply of fish due to new regulation makes it clear that this problem is not something that will just go away by shedding a bit of inventory. It is an issue that needs a long-term solution in order to sustain a competitive advantage, whether that is in another market with a different product, or some other long-term strategy. (Appendix B). For that reason, the idea of expansion to the fish oil market with a partnership with GNC has emerged. This will be able to rid of excess inventory as supply increases while also tapping into a budding demand market. (Appendix E2). Further, they should use their frozen fish to provide the seafood for GNC expansion to the frozen meal delivery market. GNC can partner with MagicKitchen.com to utilize there already in place menu (Appendix E4) while using the distribution, advertising, and target market that GNC already obtains.

Importance of Decision

The whole seafood production market is facing a difficult problem of how to deal with increased supply. The response that Neptune takes is vital to its long-term solvency as a misstep may set them back compared to their competitors. Due to its historical success along with a recognizable and trusted brand, Neptune’s customers expect no change in the status quo. Any negative spillover onto their current product or product mix may induce a negative customer response. Furthermore, a move to a low cost brand may hurt their brand image beyond repair.

Evaluation Criteria

Speed: how fast will the alternative address and remedy the surplus issue? Growth: will the alternative continue growth in current/new markets? Resource Usage: will the alternative use current resources or require new investments? Quality: will the quality of product be reduced through the alternative? Competitor Response: will the alternative start a price war? Customer Response: will the alternative affect customer perception of high quality? Supply Inventory: will the alternative address the increase in supply in short and long-term?

Alternatives

Neptune is at a point in which action is required. A “do nothing” strategy would almost certainly put them in a hole that would not allow them to compete long term in this industry. The alternative of a price cut does not align with their core values, and therefore the following three options were considered:

1). Create a Neptune branded chain of high-end Seafood restaurants located along the Florida Coast.

Pros:

Get’s rid of excess supply
Maintains high quality brand perception
Increases revenue while creating a testing ground for new products Cons:
Large investment buildings and gaining restaurant experience Directly competing with a large portion of customer base

2). Form a partnership with GNC and begin production of fish oil tablets and recommend expansion into preplanned frozen meal market where Neptune would be exclusive supplier of fish. (Further partner with MagicKitchen.com). Pros:

Long term solution for increase in fish supply
Extends brand to another market, non-seafood eaters
GNC already understands processes to create/has distribution GNC has distribution system in place for frozen sector, already has target market as well Cons:
GNC features many brands of fish oils already
Possible cannibalization with GNC advised frozen meal plans

3). Create a mass-market brand called Neptune Silver that sells at lower cost through the same distribution channels. Pros:
Addresses supply problem now and in the future
Attracts new lower end customer base
Cons:
Decreased revenue
Brand perception is lowered, may lose high-end customer base as well Possible lost ability to charge a premium in the high-end market Alternatives Evaluation Matrix

Recommendations

Short-term – Tactical: With the surplus of inventory increasing every day, Neptune must prepare its transportation services to begin regular deliveries to GNC’s manufacturing site. Long-term – Strategic: Neptune must take action in a few different areas if they are to be successful. Based on the alternatives matrix, the joint venture with GNC gives them the biggest opportunity to retain a competitive advantage. The current growth of the fish oil industry shows the trend that more and more consumers are starting to care about their longevity in health. Furthermore, the meal plan expansion recommendation to GNC helps to gain another competitive advantage in the pre-planned healthy meal industry. They must prepare an offer to GNC outlining the opportunities for GNC and the possible market penetration that they can achieve through this partnership. They will also recommend partnering with already in place frozen healthy meal delivery services such as MagicKitchen.com. The healthy frozen meals industry is growing and doesn’t have a lot of players. First mover advantages will be acquired and flourished with the scale and distribution GNC already has in place. Key Implementation Actions

1). Begin weekly or monthly transport of specified amount of surplus fish to be used for fish oil at first until partnership with frozen meal team is acquired.

2). Fish oil production will begin at GNC production site, begin marketing and advertising campaigns.

3). Once GNC has partnered with a frozen meal provider, they must begin the marketing and advertising to help bring the health conscious customers of GNC together with the convenience of frozen meals.

4). MagicKitchen.com can utilize GNC distribution systems to deliver low transaction costs Impact to Resources and Capabilities on Competitive Advantages The impact of this partnership is an enhancement to both companies’ competitive advantages. Neptune is able to not only maintain its high quality perception but also penetrate a growing market of fish oil and pre-planned healthy frozen meals.

GNC will be able to expand its product mix by penetrating the busy yet health conscious individuals. This is a market that is sustainable and growing due to the increase of information available about healthy eating habits and the importance of food to longevity. The groups of health conscious people are also great brand ambassadors, and are driving marketing efforts and demand for products through their use of social media (Appendix E5). Furthermore, through the partnership GNC will save on transportation costs and other costs by utilizing Neptune as its sole fish supplier. Expected Competitor Response

Due to the common issue of increased supply throughout the market, it is likely that other competitors will be trying to find other outlets to sustain a competitive advantage. However, due to the lack of premium brand recognition it will be difficult for them to make such large partnerships. Neptune’s increasing margins over the past few years are giving it ample cash to make these big deals. The competitors will likely try to rid excess inventory through price cuts or charitable giving.

Appendix

A). Market Expansion Grid
B). Porter’s Five Forces
C). SWOT Analysis
D). Stakeholder’s Analysis
E). Exterior Research

A) Market Expansion Grid
B) Porter’s Five Forces
C). SWOT Analysis
D) Stakeholder’s Analysis
E). Exterior Research

E1. Finding New Uses Fish Byproducts Report http://www.ars.usda.gov/is/ar/archive/apr07/fish0407.pdfGlobal demand for fish protein will exceed supply by 2016 “Fish oil and protein supplements for humans can be made from high-fat livers. And low-fat livers, such as salmon, can be used as supplements for pets and livestock as well as humans.”

E2). Grandview Research Industry Report: Fish Oil Market

Global fish oil demand nearing $2 billion and expected to grow at 9% between now and 2014 The major driver of this growth is the increase in direct human consumption based on increased health benefit awareness and concern of general population. Not enough production to keep up with the increasing demand.

E3). Global Frozen Food Market Report

http://www.foodproductdesign.com/news/2013/09/global-frozen-food-market-to-reach-294-billion-by.aspxManufacturers finding more and more demand from organic and natural frozen market Overall market expecting nearly 15% increase by 2019

E4). Possible Partners for Frozen Meals for FNC
http://www.magickitchen.com/press_releases/Local-Partner-Program.htmlDelivery of frozen healthy meals to individual doors Could do bulk deliveries to GNC for mass pickup and low costs E5). Health Conscious Shoppers building brands

http://socialtimes.com/health-conscious-shoppers-become-powerful-brand-advocates-infographic_b149137More healthy people, more brand recognition and driving demand. Infographics: