Nobody will ever fully understand how people price lobster. That’s a given. To begin with, no matter what the boat price, i.e., the price per lb. for lobster paid to fishermen, most don’t believe they’re paid adequately for the lobster they risk their lives to land and bring back to shore to sell. Many fishermen go beyond that and think dealers cheat them.
It was probably that feeling of not getting their due that led a group of Pemaquid fishermen 61 years ago to form a lobster co-operative: in other words fishermen banding together to sell their lobster themselves or have someone acting on their behalf sell their lobster for them. Today Maine has 20 lobster co-ops.
Lobster co-ops, owned by fishermen members and governed by a board of directors, hire a manager to act as their dealer. That manager is paid to purchase bait and fuel for their boats at the lowest possible price and to mark up the bait and fuel only enough to cover related expenses, to purchase their lobster from them at the highest possible price and then to sell that lobster for them at the highest possible price.
Some co-ops also have their manager purchase fishing supplies and sell those items to them at the lowest possible price. Co-ops distribute their profits at different times of the year in the form of a bonus or dividend. Since each co-op is set up differently, the profit margin and dividend for each is handled differently.
A lobster dealer, on the other hand, tries to buy lobster at the lowest possible price and sell it for the highest possible price. The word dealer includes anyone who buys and sells lobster. This encompasses the guy with the pickup truck, the scales, and the black lab in the truck bed as well as the fish market owner, the co-op manager, and even the wholesaler who buys lobster from the co-op manager and sells it to another dealer who may truck it to yet another dealer or who may sell it to a restaurant. The choices and variations are seemingly endless and include the industry’s big guys.
In the lobster business, the big guys are the dealers who can afford to write a check for any amount of lobster a seller offers him (none of the biggest of the big guys happens to be female). No one spoken to could pin down the exact number of big guys but apparently somewhere between six and ten dealers, in effect, make up the top of the U.S.-Canadian lobster industry totem pole.
According to lobster market analysts, there can be between four and six stages in what some refer to as “the lobster pipeline:” the hands a lobster passes through between the boat and the plate. The tricky part of this equation is that at each stage, both buyer and seller takes his or her cut or commission, and each cut along the pipeline can and probably will be a different amount of money because each buyer has different operating expenses.
Trying to understand the lobster business takes years and years of building trust, asking questions, and, in a way, trying to put together puzzles. But just as you learn one part of it, another part flips, and you’re back struggling to understand the new part.
To figure out how to price lobster (per lb.) some dealers start with the boat price. According to a co-op manager, “Somewhere there’s a price. You start out with that. There’s never been no price.” (Ignore the double negative; just go with the statement that a starting price exists: no buyer or seller creates one out of a vacuum.)
Starting with a hypothetical boat price of $4 per lb., in theory:
Portland dealer Peter McAleney, of New Meadows Lobster, has said that restaurants multiply the cost of the lobster to them by three to get their plate price. The three times the price covers all the hidden costs to the restaurant.
As a veteran industry source has stated, “On any given day, and far too often, margins at the first three levels are significantly lower, and sometimes the people even take a loss in order to keep what they refer to as their ‘buys,’ the orders they have with others to buy a certain amount of lobster.” Another wholesaler corroborated that statement.
A mid-coast dealer, in January 2006, said, “For every dollar paid to a fisherman, by the time a customer walks in the door, it’s gone up three to four dollars.”
The hidden costs are unbelievable, as they are with the lobsterman, too,” McAleney admitted, noting that the fisherman has his hidden costs, too in rope, paint, truck, trap, and vessel repair. “If the boat price goes up whatever the amount, the fixed costs remain the same,” he said. “The only change is the price to the fishermen.”
To figure the boat price based on the lowest price a big guy will pay per lb. for any given day’s lobster, a dealer can work back from that price, deducting his costs, spread, or profit margin from the figure given by the big dealer.
For instance, say the big dealer calls on a Monday morning, the day the price usually changes, if it’s going to, and tells his buyer, a smaller dealer, that he can pay $5 per lb. The smaller dealer then deducts his commission of, say, 25 cents per lb. He calls the dealer or co-op manager who buys from the boats and tells him he can pay him $4.75 per lb. The dealer or co-op manager deducts his expenses or profit margin, say 50 cents, and comes up with the amount he can pay the fishermen, or $4.25 per lb. … in a perfect, hypothetical, theoretical world. (When dealers talk about other dealers nickel-and-diming them, they mean the other dealer is undercutting them by 5 to 10 cents per lb.)
Power changes with the seasons. In winter and spring, Canada has the power because it produces a huge amount of better quality product. From summer through fall, although New England has power because most Canadian seasons are closed, during shedder season, Canadian processors still exert enormous influence because they are the main market for the soft-shelled lobster that must be cooked and frozen immediately. In mid-August, the downeast boat price was $3.25 per lb. (Stonington’s was $3.50 per lb.), but Canadian processors paid only in the $4 per lb. range for those shedders, which blew margins and theory sky high. Sellers had to take losses.
Within the major kind of power there’s also another, subtler kind: the power to negotiate by those who have sought-after quality lobster. Beyond that, not every buyer sells to one of the top dealers. Anyone selling lobster must find a buyer or buyers who have proven over time that their money is good. The lobster industry is over-saturated with dealers, and as margins grow smaller and smaller, more and more businesses are finding it too hard to continue.
Suffice it to say that knowing the local boat price and seeing the plate price for a boiled lobster at a white tablecloth restaurant within sight of the wharf where that lobster probably first hit land can still leave the amateur lobster market analyst flabbergasted. Theory is a far cry from reality.