Posted tagged ‘Trader Joe’s’

Inventing the Digital Fish

January 25, 2012

 One of the things I enjoy about the discussions on the Aquaculture Means Business LinkedIn group is the fact  that, despite my gray whiskers, I get to feel like the “new kid” on the seafood block. Coming out of the business-to-business media world (or, “The Industry Formerly Known as Trade Publishing”), I am constantly being reminded how much I have to learn about seafood, aquaculture, and all their sub-markets and sub-disciplines.

At the same time, I am continually gaining insight into common business realities that transcend specific industries: the need to understand your customers and the problems they need solved; supply/demand; risk management and mitigation; market dynamics and investor psychology.

I’ve recently been having a productive conversation with LinkedIn group member Durwood Dugger about the opportunities and challenges facing aquaculture. Durwood, as president at Biocepts International, is a 40-year veteran in the field who I’m sure has forgotten more about the business of aquaculture than I will ever know.  He has clearly done more and thought a lot longer and harder about how to make these businesses work than I have.

Like many of the industry veterans I speak with, I sense in Durwood an acute awareness of the difficulties aquaculture faces that borders on (but never quite crosses over into) pessimism. These folks have seen more businesses fail than prosper, far fewer thrive than merely survive.  This is the curse of knowledge, isn’t it? History comes to feel more like a description of natural law than a chaos of creative and destructive forces whose ultimate outcome is anybody’s guess.

In the conversation I referred to above, I drew some analogies from my world of information and media to suggest the possibilities I see for the development of aquaculture. Durwood correctly pointed out that my analogies have limits in their applicability to the seafood industry, since physical commodities like fish cannot be digitized.

Or can they?

Okay, the day of breaking tuna down to bits and bytes and beaming them Star Trek-style around the world may still be the stuff of sci-fi, but let’s think a little more deeply about what digitization means. What are the practical effects of digitization and how might they be applied to seafood?

To my mind, digitization’s practical effects can be boiled down to three concepts:

1) Disintermediation (eliminating the middle man)

2) Thinning out material inputs (some people use the term “dematerialization” — while this sounds really cool, I find it misleading. To go back to the publishing analogy, online content may seem “dematerialized”, but it is still created and distributed by means of physical assets and infrastructure. These assets, however, are more uniformly distributed and less obtrusively visible and weighty than the printing presses  and newsrooms of olden times).

3) Loosening the bonds of time and place (content can be created and shared from virtually anywhere at any time).

Disintermediation in an industry as dependent on middlemen as the seafood industry is certainly is a tall order (Durwood: “There will be entire industry sectors that will fight this tooth and nail – because it would take about 6 layers of middlemen — and their margins — out of the average seafood transaction”); but it is by no means implausible. Digital technology has made it easier to distribute and share information, conduct transactions, and build relationships — activities that middlemen historically have had a lock on. Everywhere from music to finance to politics, we’re seeing that lock erode, so I’m optimistic that people far cleverer than I am are working hard on technologies and strategies that will help dislodge these costly layers.

Thinning out material input could, I suppose, be restated as “cost sharing through creative partnerships”. One of the reasons the internet has been as successful as it has been is that a basic distribution infrastructure (the phone system) already existed and, once smart people began to realize the ‘Net’s potential and created the Web, all manner of creative types were willing to jump in and invest their own time, energy, and money to make it better and better, faster and more robust. Long before the big-money people got into the game, it was the garage tinkerers who were coming up with the cool stuff. More to the point, though, people were willing to pay for the value this innovation brought into their homes. Through their subscriptions and their phone bills (remember “dial-up”? Seems like yesterday!), people were willing to pay some amount to access services that, looking back from the perspective conferred by a couple of decades of innovation, seem awfully paltry and primitive. It was the feeble beginning of the technological miracles that we now take for granted and, in fact, get angry at if they don’t work instantaneously.

How does this concept translate into aquaculture? I suppose you’d have to be able to answer the following questions in the affirmative for it to work:

1. Is there a market that would be willing to pay some kind of premium for some kind of farmed fish? The premium might be justified because it:

– Makes a high-value product available to consumers who want it but either can’t get it where they are or the cost is prohibitively high.

– Provides a fresher, more sustainable, or simply local alternative to the same product obtained through conventional means.

The existence of grocery chains like Whole Foods and Trader Joe‘s demonstrates that such markets exist — the question is how to serve them cost-effectively?

2. Does the technology exist to spread the cost of production and distribution out among partners, vendors, and customers?

– To some degree, this answer must also address disintermediation. Can price and other market information be accessed and made available that would enable customers (families, restaurants, and stores alike) to go straight to the producer to obtain the most reliable terms? Can exchanges be created or supply-chain management tools or lead-generation databases be developed that not only facilitate transactions but generated additional value in the form of information that can be aggregated, translated, and sold as part of an industry-wide knowledge base?

3. Have other industries that deal in high-volume physical commodities developed models that can be imitated?

4. Are there natural partners — say, grocery or restaurant chains — whose scale, clout, and self-interest could be leveraged? As Durwood mentioned in our conversation: “I’m not aware of any aquaculture producer that has a restaurant chain – or the opposite. When and if that ever happens, then you might see the seafood commodity industry start to make some significant changes.” I agree, and can’t help believing this to be a likely development, especially as Wal-Mart and Target become increasingly interested in “sustainable” and “local”. Are there opportunities for the aquaculture Davids to collaborate with the corporate Goliaths instead of throwing stones?

Loosening the bonds of time and place, if it is to happen, will depend on technological developments, creative partnerships, public-private involvement,  and intensely hyper-local focus. If technology and site selection can dramatically reduce the energy- and labor-intensiveness of production and distribution; if partnerships with states, municipalities, and corporate entities with a focus on sustainability and locality can establish a foothold for aquaculture projects near feed suppliers and/or major markets; if consumers can be educated to care about where their seafood is coming from (remember: EVERY consumer doesn’t have to get it — a significant minority will do) and to be willing to pay for that added value, then I can imagine a loosely connected web of smallish production units empowered by digital exchanges that help producers get found and consumers get the best terms, leveraging shared purchasing power, creating “virtual scale” and competitive advantage.

That’s a lot of “ifs”, some of them bigger and more daunting than others. The good news is, these things don’t have to happen all at once or in any particular order.  The business world is full of models, analogies, and examples of success amid what seems like insuperable odds — examples that, in hindsight, often seem obvious, though at the time their authors were regarded as dreamy-eyed optimists. My vision may not be the way the future plays out, but it’s a vision. What’s your vision?

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