Like any small business, fishermen have to invest in their own enterprise and take on the risk and cost of remaining in the industry. To remain competitive commercial fishermen must pay for their fishing licenses and keep their boats and equipment up to date with the most advanced technologies. Profit margins are typically thin across the Australian fishing industry with fuel, bait and fishing gear being major operating expenses.
For GFC the ability to retain the loyalty of their members is contingent on the co-operative being able to offer its members value, in particular financial benefits.
“Remember in one sense we are a successful company, in another we are a house of cards, as none of our members have to be here tomorrow; they can leave whenever they like and so, in terms of long term supply, we talk about sustainability in the fishery, but in terms of actual supply of fish, we have no guarantee of anything tomorrow, next month, next season so we exist purely on the basis that fishermen believe they are going to get paid more by being here.”
Wayne Hosking, CEO GFC
The co-operative has around 63% of the lobster catch each season and aims to grow that share of market by offering a compelling value proposition to members and future members. Part of that strategy is its ability to offer competitive pricing and the distribution of profits via a loyalty bonus based on volume of supply if they support the co-op throughout the season. It also includes investing in the marketing and supply chain in order to grow future revenue.
The co-operative has developed a sophisticated logistics management system that sees live rock lobsters taken from sea and transported long distances by road and air from Perth to China. This involves the use of specialised holding tanks, protective packaging, a fleet of refrigerated trucks that keep the lobsters healthy and under less stress during the long road trip from Geraldton to Perth, and then a well-managed cool chain from Australia to overseas distribution centres. The development of its own supply chain in China will also help the co-operative to move further into the marketing channel and sell direct to the consumer via e-commerce, delivering live lobster to their door from local distribution centres. Chinese consumers lack information about the origin and quality of the food they are purchasing, so this will potentially help GFC develop a strong reputation.
“So what we are doing is we are integrating into the value chains so we still have all the same requirements back here, but we are cutting out the middle man you might say and we are building our own path to the consumer. At the moment most of our product still goes through to a handful of big seafood importers and they have the tanks, they have the distribution and so forth whereas we are now building our own capabilities.”
Wayne Hosking, CEO GFC
This expansion into China is a major opportunity for GFC and helps the co-operative to add considerable value to its brand, the product it sells, and therefore the longer term returns to its members. It is a strategy that few of the smaller seafood exporters in Australia could undertake, so it will potentially make a stronger member value proposition (MVP) and help to differentiate the co-operative from these competitors. The challenge for the co-operative was to get members to look long term, what is often viewed as a “horizon problem”.
“Fishermen have their daily price and then their annual loyalty bonus payment. And then, as we said before, there is the longer-term horizon, looking at the company’s strategic direction into the future, and we need to bring our members along with this. The non-fishing investor has different drivers to fishermen, and those are the value of their asset over time and the return on that investment, usually expressed as an annual lease payment. But they don’t necessarily relate these to the co-op’s performance and how that influences capital value and lease returns, but clearly our sales and marketing performance has a huge impact on these. How we develop the China market and how much we return to the fishermen in terms of beach price directly affects the value of the asset and the return on investment. You can see that over the last five years as beach prices and so forth have tripled and obviously, the capital value has increased and so forth not surprisingly. But some investors can be distracted by short term offers from our competitors, you know, someone wants to pay them more to secure the lease pot, so it is much harder to make the link between the co-op’s performance and the benefits to a pure investor but they are there.”
Wayne Hosking, CEO, GFC
The signing of a Free Trade Agreement between Australia and China is viewed as a major benefit to GFC. The co-operative was actively involved in these free trade negotiations because more than 90% of its export trade has been going to China in recent years. Over the next five years the Chinese tariff barriers will be lowered and this augurs well for the co-operative’s export activity.
GFC recently arranged an intensive tour of the China seafood market, taking 40 members and industry investors to 5 cities in 8 days so that they could better understand GFC’s strategic plans and ambitions in the world’s largest and fastest growing seafood market. This kind of stakeholder engagement is an important part GFC’s overall strategy.
“These are your lobsters, your market, your clients, your offices, your facilities, your staff , your strategy, your future and your co-operative.”
Wayne Hosking, CEO, GFC