BC Seafood Sector SWOT Analysis

1. BC Seafood Sector SWOT Analysis Industry Perspective Stuart Nelson Nelson Bros Fisheries Ltd

2. SWOT Analysis • Large scale project • A qualified team of consultants commissioned by Province to report on the state of the BC seafood industry in 2003 • Insights to form the basis for subsequent strategic planning… how to renew the BC seafood sector? Perspective on SWOT Analysis

3. Industry Perspective • Stu asked to provide industry perspective on the SWOT Analysis • Not knowing what “industry perspective” means, Stu retreated to the Nelbro archives • Maybe it would be interesting to review what industry has expressed to government over the years re: the state of the BC seafood industry? • This approach could lead to insights…if not… this presentation is in serious trouble. Perspective on SWOT Analysis

4. Presentation Outline • The more things change, the more they stay the same… • Profound BC seafood industry change • Current state of industry • Monty Python analogy • Summary Perspective on SWOT Analysis

5. The More Things Change…Need to be Market Driven • Managing to the market is required if industry is to be globally competitive and economically viable • Presentation to “Ottawa”, FCBC, March 1998 • Focus must be on customer’s needs first… • BCP Strategic Plan, 1995 • Industry must retain the ability to be reactive to changing conditions from the retail market level right back… • A Status Report on the Commercial Fishing Industry of BCFABC, 1983 • It all begins with a housewife asking her local grocer, “a can of BC salmon, please!” • Nelson Bros educational materials, 1959 Perspective on SWOT Analysis

6. The More Things Change…Recognition that Volume is not The Answer • The problem is exacerbated by reduced salmon abundance, however reduced abundance is not the cause… • Presentation to “Ottawa”, FCBC, March 1998 • Fluctuations in wild salmon supply are overshadowed by increases in total salmon supply squeezing prices and margins • BCP Strategic Plan, 1995 Perspective on SWOT Analysis

7. The More Things Change…Industry Financial Performance • Financial performance of the the BC fish processing sector has been inadequate for close to a decade… • Gislason et al, 2003 • Industry is in financial crisis • Fisheries Management: The Bottom LineThe Business of Fishing in BC, FCBC, 1993 • The commercial fishery is experiencing severe economic difficulties • A Status Report on the Commercial Fishing Industry of BCFABC, 1983 • In 1969 the industry was insolvent… • A Status Report on the Commercial Fishing Industry of BCFABC, 1983 Perspective on SWOT Analysis

8. The More Things Change…Need Secure Access to Raw Material • Industry requirements: • One fishery, one manager • Secure access to raw material with clear allocation rules • Presentation to “Ottawa”, FCBC, March 1998 • Business Requires: • Access to high quality raw material at reasonable prices • Fisheries Management: The Bottom LineThe Business of Fishing in BC, FCBC, 1993 Perspective on SWOT Analysis

9. The More Things Change…Supplement BC-caught Fish with Outside Resources • To ensure adequate volumes, BC processors are increasingly sourcing raw material from outside the province • Gislason et al 2003 • We get our fair share of fish from the Fraser River, but we also pack in fish from the outside… we even carry cohos from Ketchikan, Alaska… the price is cheaper there than in BC • Ritchie Nelson, Nelson Bros, 1930 Perspective on SWOT Analysis

10. The More Things Change…Need for Industry-Government Cooperation • What is needed is coordination between government and industry alike to follow through with present initiatives (fleet rationalization, SEP) • Unknown is whether or not gov’t and industry alike will have the perseverance to resolve our problems and design our future… • A Status Report on the Commercial Fishing Industry of BCFABC, 1983 Perspective on SWOT Analysis

11. The More Things Change…The World is Changing… • Historically, the performance of the industry fluctuated as a reflection of year-to-year variances in catch levels and levels of market demand… in more recent times, performance has been affected by numerous other factors… • A Status Report on the Commercial Fishing Industry of BCFABC, 1983 Perspective on SWOT Analysis

12. Longstanding/Recurring Messages • Industry has expressed over and over: • Need to be market driven, abandoning mere volume orientation • Need to access high quality raw material on reasonable terms • Need for government support/cooperation • That the world is changing… more variables and complexity • Difficulty earning satisfactory financial returns Perspective on SWOT Analysis

13. So What’s the Point? • With so many consistent themes, it’s tempting to think: • Industry is crying wolf… • Industry is not changing & adapting – same problems, different decade • Industry lacks imagination Perspective on SWOT Analysis

14. Industry Change Has Been Profound • The BC seafood industry in 2003 scarcely resembles that of only a decade ago • Don’t be fooled because many of the faces are same… • Industry strategy, philosophy, and structures have been substantially transformed Perspective on SWOT Analysis

15. Signs of a Transformation • Harvester group hosting Seafood Summit… not processor group (there isn’t one) • Largest salmon brand in Canada doesn’t produce a scale (Cloverleaf) • Fishermen’s Union is involved in allocating quota to vessels (Groundfish Development Authority) • Groundfish processors share their business plans with Union, Communities, and each other! (Groundfish Development Authority) • Salmon processing – the only thing worse than not enough salmon is… enough salmon! • “too many boats chasing too few fish” is not on the list of industry challenges in a SWOT study Perspective on SWOT Analysis

16. More Signs of a Transformation • Women in top posts! Albion Fisheries. The Seafood Alliance. The BCSFA. SOKOA. • mid-40’s, thinning hair, thickening waist = young whipper-snapper! • Dogfish and pilchards are back… what’s next? whales and seals? • Halibut fisherman cuts-short the fishing trip… to effect repairs… to the satellite dish • Zero-martini lunches • Fisherman writes a letter to the Minister… and knows what font he used • Rob Morley not a “suit”, but a “sweater”… Perspective on SWOT Analysis

17. BC Seafood Industry Adaptation • Although well-aware of challenges, industry has been unable to reverse a marked decline in revenues • Given lower revenues, there is no choice but to adapt Perspective on SWOT Analysis

18. Revenue-Earnings PatternPreferred – “Real Businesses” Perspective on SWOT Analysis

19. Revenue-Earnings PatternTypical Seafood Perspective on SWOT Analysis

20. Revenue-Earnings PatternBC Seafood in Recent Years Perspective on SWOT Analysis

21. How Has Industry Responded?Strategically • Cut costs – same activities, lower budget • Rationalize – fewer activities • Specialize – get rid of unprofitable endeavors • Consolidate – more of profitable activities • Diversify/Shift – get into new/different activities • Exit - if 1.-5. fail… get the hell out! Emphasis on defensive strategies… growth & investment on the sidelines. Perspective on SWOT Analysis

22. How Has Industry Responded?Philosophically From: We’ll do it ourselves To: We’ll do what we can and outsource the rest… From: Margin orientation (speculate) To: Cash flow orientation (low risk, low return) From: Processing as key competitive function To: Processing as service to be purchased/sold From: We’ll achieve growing revenues and earnings, just like “real businesses” To: We’ll exploit opportunities as they arise, and not make any big mistakes… Perspective on SWOT Analysis

23. How Has Industry Responded?Structurally • Historically, big companies had all the stuff • People • Fixed assets • Access to Capital • As companies have rationalized, they have: • Reduced staffing & fishermen levels • Closed facilities, sold assets • Lessened ability/willingness to risk capital • People, facilities, and assets don’t disappear, they become: • Fish brokerage firms, consultants, independent fishermen • Custom unloading, custom processing service providers • As “big companies” shed structure and reduce risk tolerance, opportunities open-up for others… • The “stuff” in the industry is now much more spread around… Perspective on SWOT Analysis

24. What Does the Industry Look Like Now? • Given strategic and philosophic responses by industry to a changing business environment, and resulting structural changes, what does the industry look like today? • How is it equipped to deal with the challenges and opportunities as identified in the SWOT? • Are we in better shape now than we were in the good old days? Perspective on SWOT Analysis

25. “The World has changed, and the BC seafood sector needs to change with it…” • Successful businesses and industries are those that can adapt and reposition themselves when circumstances change… • By this measure, we’ve done a great job… lot’s of repositioning in light of changed circumstances… Perspective on SWOT Analysis

26. Industry-in-General Challenges in Adapting to Changing Business Conditions • A lack of leadership, cohesion, and the will to respond to change • Focus on the short term to the detriment of long term strategic planning • Production inefficiencies • Neglect of research and development, product development, and investing in human resources • Lack of attention to changing consumer needs • Inefficient and/or inflexible government regulation Guilty on all counts… Perspective on SWOT Analysis

27. Nimble… able to respond to changing circumstances Opportunistic… able to exploit emerging opportunities A network of industrialists and service-providers Collectively, serving customer needs Small… more players, and the big ones aren’t as big Positive cash flow vs. strong margins Fractured Fragile – prosperity can be easily undermined Undercapitalized – capital on the sidelines… Compared to PastBC Seafood Industry Today Is: Perspective on SWOT Analysis

28. An Obvious Analogy:Brave Knight as BC Seafood Industry Brave Knight confronts & prevails over traditional seafood industry business environment… Perspective on SWOT Analysis

29. Brave Knight as BC Seafood Industry Brave Knight confidently prepares to deal with a new, complex business and regulatory environment… Perspective on SWOT Analysis

30. Brave Knight as BC Seafood Industry ‘tis but a scratch! Brave Knight suffers a pretty nasty wound… but remains optimistic… Perspective on SWOT Analysis

31. Brave Knight as BC Seafood Industry Brave Knight is down to one digit… only one leg to stand on… but keeps fighting. Perspective on SWOT Analysis

32. Brave Knight as BC Seafood Industry Just a flesh wound… Brave Knight is but a trunk… defenseless… but his mouth still works! Perspective on SWOT Analysis

33. Making Sense of the Brave Knight Analogy • Different sectors of the BC seafood industry are at varying stages of health • The competitive environment grows increasingly complex • A supportive government/regulatory framework would be helpful… but an ambivalent or hostile one may prove fatal • Industry will invest to place itself on a firmer competitive footing… once the dismemberment has stopped… Perspective on SWOT Analysis

34. British Columbia Packers LimitedAnnual Report Highlights1977-1983 Perspective on SWOT Analysis

35. Government as Industry Supporter From Western Grocer magazine - 1961 Perspective on SWOT Analysis

36. Summary • Many themes or challenges facing the BC seafood industry have been around for a long time, though the list grows ever-longer • The industry knows what it must do… • Industry not crying-wolf when describing challenges… SWOT Analysis has very effectively captured them • After years of adaptation and rationalization the industry remains vulnerable to a hostile operating and regulatory environment • Industry needs the support of government to successfully confront it’s challenges • Do not underestimate the amount of change the BC seafood industry has undertaken… or the scope of the challenge to “heal” certain sectors Perspective on SWOT Analysis

37. No Flesh Wound… Perspective on SWOT Analysis