Please ensure Javascript is enabled for purposes of website accessibility

Crab hedge


  • By
  • | 6:00 p.m. December 29, 2008
  • | 2 Free Articles Remaining!
  • Entrepreneurs
  • Share

Crab hedge

By Jean Gruss

As Tony Phelan grew his

seafood restaurant business, he needed to get a handle on

volatile seafood prices. So his son bought Island Crab as a hedge on crustaceans.

If the name of your restaurant chain is Pinchers Crab Shack, it's not a good idea to run out of crabmeat.

But crabs and weather don't always cooperate. That can lead to volatile price spikes of the precious meat that can wreak havoc on a seafood restaurant's income statement.

Tony Phelan, who owns seven Pinchers Crab Shack restaurants from Sarasota to Naples, grew concerned a few years ago about maintaining his supply of crabs and getting a handle on this unpredictable expense while growing the chain.

When demand for crab spikes in the winter from tourists and part-time residents, their prices can quickly climb, especially if the weather's bad and fishermen can't check their traps. "When those northern winds come through, every boat is off the water," Phelan says.

And Phelan faced another threat to his supply: "Another gentleman started buying up all the fish houses in Florida and we needed to protect ourselves so that we have our own supply," he explains.

So Phelan's son, Grant, recently bought a stake in Island Crab, a seafood wholesaler on Pine Island near Cape Coral in Lee County. That guarantees Pinchers Crab Shacks with a steady supply and prices.

But Phelan is quick to say that Island Crab is a standalone business that is expected to be profitable by supplying other restaurants. It's also diversifying into other kinds of seafood and making such products as crab cakes or crushing crab shells to make fish food.

Crabby crabbers

It's tough being a crab fisherman these days. Rising fuel costs and the doubling of prices for traps have made the business unprofitable for many crabbers. "The product is nowhere near the cost," says Ted Grainger, who fishes the bays near Pine Island with his son, Mike Grainger.

What's more, the recession has reduced the demand for crabs. "A bad winter now and you'll see a lot more restaurants close next summer," the elder Grainger says.

But Phelan says Island Crab pays crabbers a steady price for their catch during the slower months to keep them in business. Jeff Haugland, who sold half of Island Crab to Phelan and still runs the business, says steady demand from Pinchers and restaurant expertise is helping expand the business. "It's opened so many doors," Haugland says.

Prices are volatile because supply and demand rise and fall depending on the seasons, the weather and crab movements. "There's no rhyme or reason to the time of year," Haugland says. Currently, he says, the supply of crabs exceeds low demand due to the recession.

Island Crab buys from up to 40 boats that work in the waters around Pine Island and supplies a dozen restaurants from Sarasota to Naples in addition to the Pinchers locations. The company also has started selling seafood to wholesalers in Miami and as far north as Georgia. "We have Georgia trucks coming in here four days a week," Haugland says.

Island Crab has also started processing seafood. For example, it is now making hundreds of crab cakes per day for the Pincher's restaurants. Several of the company's 16 employees pick every piece of meat off blue crabs to make them. Phelan says it's more efficient to make them at Island Crab than at the restaurants. With the shells, Island Crab is exploring ways to crush them into fish-food pellets.

"We haven't even scratched the surface of what we can do out there," Phelan says.

Crabber ranks dwindle

When you tally up the expenses, it's a small wonder crabbers are still laying traps around Pine Island in Lee County.

The price of fuel has surged, the cost of traps has doubled and government licenses to fish commercially cost a total of $500 a year. Then, there's the declining demand because of the recession, thieves who steal your traps and the threat of cheap imports.

All that keeps Mike Grainger and his father, Ted Grainger, on the water most days fishing for blue crabs and seasonal stone crabs just to break even. Mike jokes that he's the youngest crabber in the fleet because no young person would go into the business with such overwhelming odds. Last winter, he worked 50 days straight.

The crab population hasn't fully recovered from Hurricane Charley in 2004. The Graingers could haul in as much as 3,000 pounds a day before the hurricane flooded freshwater into the bays, sending crabs scurrying elsewhere. Now, they bring in just 10% of that amount on bad days.

And now, despite a declining supply, the demand has been even weaker because of the worsening economy. Two years ago, large stone-crab claws fetched $14 a pound. Now, they get $8 a pound.

The Graingers sometimes fish for mullet for their precious roe, which is sold in Asia. But even roe prices fell 50%. "Last year there was no money in it," Ted Grainger says.

Thieves have gotten bolder, too. The Graingers rarely set their traps in the Caloosahatchee River because of theft. A fully rigged trap can cost $35. "I pity the person we catch," Grainger says.

But what worries Grainger most is the threat of cheap imports. The North American Free Trade Agreement ruined the seafood business, he says. "They're going to find a way to import blue crabs," he worries. "When they do, we'll be done."

 

Latest News

×

Special Offer: $5 for 2 Months!

Your free article limit has been reached this month.
Subscribe now for unlimited digital access to our award-winning business news.
Join thousands of executives who rely on us for insights spanning Tampa Bay to Naples.