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Two bona fide fish tales of rapid growth.

IN THE EARLY 1980s expert after expert told members of the Alaska Legislature that the key to the state's economic growth was for Alaska to attract more value-added" industries that would process the state's natural resources rather than simply exporting them in the raw.

Terry Gardiner, a Ketchikan Democrat, listened during his term as speaker of the House in 1979 and '80. In 1981 he decided to act on the advice. SILVER LINING SEAFOODS

With his wife Linda, his legislative aide John Sund, a former gubernatorial resources assistant Bob Woldrup, and Ketchikan fisherman Dick Bishop, Gardiner, who's now 38, leased 1,500 square feet of Ketchikan warehouse space to form an Alaskan-owned seafood processing company. They called it Silver Lining Seafoods.

So far the story of their business has had a silver lining indeed. In seven years Silver Lining has grown from operations in a cubby hole to occupying a 28,000-square-foot plant between Tongass Boulevard and the waterfront in Ketchikan. It has grown from a business with 3 full-time employees to one with a workforce of 40 year-round. In July and August, employee ranks swell to 110. And Silver Lining, which had gross sales in 1981 of just a couple hundred thousand dollars, in 1988 recorded more than $ 10 million in sales - passing the threshold that traditionally has defined the industry's largest processors.

In 1986 Seafood Business listed the firm in 19th place among the 29 largest Alaska processors. While the magazine's 1988 listings still are'nt out, it probably has risen well into the top 15, based on salmon purchases last summer.

Last year Silver Lining made Inc. magazine's list of the 500 fastest growing privately held companies in America for 1987. In January it was cited in Nation's Business, the magazine of the U.S. Chamber of Commerce, as one of the more innovative marketers of seafood in America.

"We had two goals when we started. We wanted to create a year-round fish processing business and we wanted to find ways to add value to Alaska's catch to keep more of the economic value of our resources in the state. We have tried to hang on and grow. And we've done well at both over the years," says Sund, who served two terms in the state's House of Representatives (in Gardiner's old seat). He retired last year so he could devote more time to management of the company.

Silver Lining, which processed mostly salmon and a bit of shrimp in its first year, quickly diversified. The company now sells both fresh and frozen whole salmon. It also processes fresh and frozen halibut, sablefish (black cod), rock fish, prawns and dungeness crab. Recently the company began processing uni, or sea urchins, and geoducks. Both are popular in Japan.

Among its value-added efforts, the Ketchikan firm fillets salmon and markets salmon steaks. It smokes salmon that sells in both cans and vacuum bags, and it makes lox, another milder form of smoked salmon.

The company tried for a while to run retail stores in both Ketchikan and Juneau, but now sells retail only out of its Ketchikan plant. While a lot of its sales last year were frozen fish to Japanese buyers, Silver Lining also sells its product to clients from Washington, D.C., and Chicago to a host of towns on the West Coast and supplies supermarkets and gift shops with fish throughout Alaska. Most pleasing to Silver Lining's owners is that nearly 50 percent of business now comes from sales of value-added products, rather than just frozen whole fish.

Silver Lining's owners credit their success to strong management. Says Sund, "We have relatively good management skills. We have a very effective management team. When we need to make a decision we quickly get Terry, Linda, Bob and myself together and talk it over. We have made mistakes, but very seldom have we made big mistakes. We've been collectively right far more often than we've been wrong, which isn't easy in a business where split-second timing is a necessity. Seafood processing is a risky business."

He believes Silver Lining's biggest success was deciding to diversify into processing as many species and as many different products from each species as possible. While pink salmon runs in the southern Panhandle were down disastrously last summer for the second year in a row, Sund says Silver Lining was not hurt much financially because of its diversification into bottom-fish and other salmon products.

He also credits the company's deci- sion early on to establish its reputation for high quality. "We try to deliver a truly high-quality product. We can never make a fish better, so we have gone to our fishermen and explained to them in great detail how we want them to refrigerate and handle the fish. And we have gone to great efforts to guarantee that at every step we'll keep the fish iced and in the same good condition as when we received it. We also have worked with our customers, the supermarkets we supply, the brokers and wholesalers we sell to, to get them to keep the quality up. By working at it we have developed a reputation for quality," says Sund.

Being a processor in Alaska near the fishing grounds is a marked advantage in guaranteeing fish quality. Sund says that by buying fish a couple of days after their catch and then processing them, Silver Lining can guarantee better quality than is often possible from Seattle processors, who buy the fish in bulk and then have to wait a week or longer for the fish to arrive.

But disadvantages include higher wage rates and higher air freight costs for fresh deliveries. Sund says Silver Lining pays 25 cents per pound to air freight fish out of Ketchikan to Seattle, compared to 16 cents a pound that processors in Anchorage pay-a result of the greater air carrier competition between Seattle and Anchorage.

"To make money we have to watch every penny, and possibly live on smaller margins. But we like the competition," says Sund.

While Gardiner handles the fish buying and processing, his wife the finances, and Sund the legal work and facilities construction, the task of selling the fish falls to Woldrop. Silver Lining does little mass media advertising, but it does advertise in broker and wholesaler publications. To increase its retail sales, the firm has always tried promotions.

Woldrop says several years ago he leased part of an unused area in his processing plant to Ketchikan artist Ray Troll. Troll paid the rent by creating several T-shirt designs, which have become popular advertisements for Silver Lining.

People have come to associate Silver Lining with Ray Troll's designs," says Woldrop. Ketchikan cruise ship visitors favor Troll's Spawn Til You Die" T-shirt design, and shirt sales help to boost both walk-in and mail-order sales of Silver Lining products.

"We don't give Bob a budget, but we do encourage him to do everything he can to market our fish that doesn't cost money, be that writing a lot of letters, to any other creative or wacky idea he can come up with to sell fish," says 40-year-old Sund.

One thing Silver Lining does do that is out of the ordinary is encourage tours of its plant. Few fish processing companies in Seattle, Anchorage or elsewhere in the state want tourists anywhere within eye sight of their processing operations. TAKU SMOKERIES

Up the coast in Juneau, former state Fish & Game employee Sandro Lane is using part of Silver Lining's philosophy, attempting to make his fortune also by adding value to state fish stocks. Lane, who was born the son of an American ambassador to Italy, earned a fisheries degree from the University of California in Berkeley in the 1970s. After learning that the state was looking for fishery technicians, Lane came to Alaska in 1978 and landed a job operating fish weirs. In his spare time, while working on his masters degree, Lane began to use his European-acquired knowledge of fish curing.

He says it took him years, but he was able to develop a process to make lox, the mild-cured smoked salmon that is much less salty and less smoky-flavored than the traditional style of Alaska smoked salmon. He attributes his success to his ability to get much of the salty flavor back out of his fish while only lightly smoking it. Proper ventilation during the curing process is a key ingredient.

"I had been taking lox home for Christmas as presents. Then in 1983 friends and relatives asked for a total of 1,200 pounds of my lox. That was a clue that maybe my recipe was good enough to sell commercially," says Lane, 36.

In 1984 Lane turned his Mendenhall Valley garage into a salmon smoking plant. this gross sales that year reached $48,000. His business, Taku Smokeries, began to catch fire.

Lane won substantial orders from catering firms that supply lox to cruise ship chefs. In 1986 he outgrew his garage, moving his plant into a building in an industrial park in Juneau. In 1987 he opened his own retail store in downtown Juneau where he sells lots of lox made almost exclusively from sockeye (red) salmon; smoked salmon of other species, of which king and chum are the most popular; salmon jerky; and occa- sionally halibut, crab and other products. He also stocks T-shirts.

The business now sports a full-time staff of 4; 16 in summer. Last year it turned 175,000 pounds of salmon into roughly $750,000 of finished product. Lane's company has grown several-fold yearly since 1984, enough so that he would have placed 112th on Inc. magazine's fastest growing company list, if his sales in 1984 had been high enough for him to qualify.

"This business has meant a lot of sacrifice on my part, but it is beginning to get somewhere. I'm not yet on firm financial ground, but I'm two-thirds of the way there," says Lane.

The entrepreneur knows Europe well and speaks fluent Italian. He's his own best salesman, having sold his lox to gourmet chefs from New York to Dallas and from Washington, D.C., to Los Angeles. He also has published a mail-order brochure. Nearly 30 percent of his retail store's business this past Christmas season was repeat orders from satisfied summer tourists.

Lane says basing his business in Alaska has been a mixed blessing. It helps him immensely in being able to buy high-quality salmon. He buys salmon dockside from a group of fishermen he carefully culled from the Juneau fleet because of their quality consciousness. He says buying from dockside allows him to acquire his fish for 60-80 cents a pound less than that paid by Seattle smokeries.

But Lane adds that he has to pay freight on everything from salt to vacuum bags, not counting the cost of getting his finished product to market all costs that make manufacturing in Alaska a financially hairy process.

"You have to count your pennies. The margins are really thin. I enjoy the business immensely, but sometimes you go home and wonder why you're doing this. There are real highs and lows to being in the seafood processing business in this state. I told myself I would give up everything and be a slave to my business for its first five years and that is what it has taken to get me this far," says Lane. Currencies & Casualties. Actually the highs and lows are almost diametrically opposite for Silver Lining and Taku Smokeries. While Silver Lining had a great year in 1988 because the falling U.S. dollar allowed Japanese buyers to pay more for Alaska fish - at least 30 percent more - Taku Smokeries had a tough year for the same reason. With the Japanese paying more and fish stocks down, all processors had to compete for last season's relatively weak pink and sockeye runs, causing prices to fishermen to rise dramatically.

Although Silver Lining was able to pass on its higher costs to Japanese buyers, Taku Smokeries, whose lox is sold almost exclusively in the Lower 48, had to absorb much of its higher costs. Domestic consumers and wholesale buyers showed resistance to paying a great deal more for lox because competing European brands were available at lower prices.

In Juneau Lane's lox, which sold for $12 a pound two years ago, this past summer cost $16 a pound. At gourmet stores in Washington, D.C., it's selling for $28 a pound.

For my business to last a long time, raw fish prices have to decline. If sockeye prices had been this high when I first considered the business four years ago, I would have been crazy to have gotten into it. But I am in it and so far I've been able to make a profit. I do hope that sockeye runs improve or the dollar rises so that my costs drop and so I can lower my prices for the American market," says Lane.

Silver Lining's Sund, however, says a rise in the dollar is exactly what frightens him. He notes that most Alaska processors have been selling all the fish they have been able to process for the past two years to Japanese buyers, because the Japanese have bid up fish prices so substantially - something they could do because of the value of the U.S. dollar compared to the yen.

In the process, Alaska fish have been priced out of many American markets. When the dollar does rise and Japanese purchases fall causing the value of the fish to drop, Sund worries that many Alaska processors may falter before they can again carve themselves a niche in the domestic fish market.

Sund hopes that fate won't befall Silver Lining. "While we have been selling a lot of fish to the Japanese, we haven't abandoned our U.S. customers. We think we'll be okay in the future," says Sund. In the long-run, he adds, Alaska processors have a host of worries from continued run weakness and the overcapitalization of the state's fishing industry to tight credit and summer labor shortages.

Considering these perils of processing, both Silver Lining and Taku Smokeries have done well to be alive, much less rapidly growing, in the highly competitive world of Alaska fish processing.
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Author:Kleeschulte, Chuck
Publication:Alaska Business Monthly
Article Type:company profile
Date:Mar 1, 1989
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